Hokkaido Electric Power Company,Incorporated FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Hokkaido Electric Power maintained profitability at the operating level despite a decline in revenue, while net income fell sharply due to the absence of the previous year's extraordinary gain. Revenue was ¥855.98B (-5.1% YoY), Operating Income was ¥73.24B (-3.4%), Ordinary Income was ¥61.35B (-4.2%), and Net Income was ¥45.38B (-42.6%; Net Income attributable to owners of the parent was ¥44.00B, down -31.5%). The primary factors behind the decline in earnings were lower revenue from the core Hokkaido Electric Power segment and the reduction in extraordinary gains from ¥19.55B in the previous year to ¥1.21B in the current period.

Factors Affecting Performance

【Revenue】Revenue was ¥855.98B, a decrease of 5.1% YoY. The Hokkaido Electric Power segment, which accounted for 79.2% of consolidated revenue, was the main source of the decline, with revenue decreasing to ¥677.59B (-7.2%). Subsidy income related to support for reducing electricity and gas charges also declined from ¥33.59B to ¥29.71B. In contrast, Hokkaido Electric Power Network, which is responsible for power transmission and distribution, secured higher revenue of ¥140.52B (+7.2%).

【Profit and Loss】Operating Income was ¥73.24B (-3.4%), and the Operating Income Margin improved slightly to 8.6% from 8.4% in the previous year. Profitability at the operating level was maintained through cost management despite the decline in revenue. Meanwhile, Ordinary Income was limited to ¥61.35B (-4.2%), with interest expenses increasing 34.5% YoY to ¥14.79B, exerting downward pressure. Consolidated Net Income fell sharply to ¥45.38B (-42.6%), while Net Income attributable to owners of the parent declined to ¥44.00B (-31.5%). This was largely attributable to the temporary factor of extraordinary gains declining from ¥19.55B in the previous year to ¥1.21B in the current period, resulting in a divergence from the decline at the ordinary income level (-4.2%). Overall, the company posted lower revenue and lower earnings.

Segment Analysis

Hokkaido Electric Power (power generation and retail) reported revenue of ¥677.59B (-7.2%) and segment profit (on an Ordinary Income basis) of ¥44.62B (-16.9%), with a profit margin of 6.6%, making it the primary factor behind the consolidated decline in revenue and earnings. Hokkaido Electric Power Network (power transmission and distribution) achieved a significant increase in earnings, with revenue of ¥140.52B (+7.2%) and segment profit of ¥2.52B (+126.0%), although its profit margin remained limited at 1.8%. Other businesses reported revenue of ¥37.87B (-7.0%) and segment profit of ¥19.06B (+56.6%). The core Hokkaido Electric Power segment accounts for the majority of revenue and profit, and the profitability trends of this business therefore determine consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income Margin improved to 8.6% from 8.4% in the previous year, while the Net Income Margin declined to 5.3% from 7.2%. This divergence was attributable to the reduction in extraordinary gains. ROE was 9.6%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥114.55B, equivalent to 2.5 times Net Income of ¥45.38B, indicating solid cash support for earnings. 【Investment Efficiency】Capital expenditure on the acquisition of fixed assets amounted to ¥217.56B, approximately 3.0 times depreciation and amortization expense of ¥72.00B, indicating a phase of facility renewal and growth investment. Free Cash Flow was -¥98.52B, reflecting continued excess investment. 【Financial Soundness】The Equity Ratio improved to 19.2% from 17.5% in the previous year; however, the company remains highly dependent on debt, with bonds of ¥859.23B and long-term borrowings of ¥540.33B against total assets of ¥2,471.05B.

Cash Flow Analysis

Operating Cash Flow was ¥114.55B, down 8.8% YoY, but remained 2.5 times Net Income of ¥45.38B, indicating that earnings continued to be supported by cash generation. Investing Cash Flow was -¥213.07B, with capital expenditure on the acquisition of fixed assets reaching ¥217.56B, approximately 3.0 times depreciation and amortization expense of ¥72.00B, reflecting continued large-scale investment in power transmission, distribution, and generation facilities. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was -¥98.52B, indicating that the company cannot finance investment solely through internally generated funds. This shortfall was covered by Financing Cash Flow of ¥126.81B, with long-term financing centered on bond issuance of ¥195.00B serving as the primary funding source. Consequently, cash and cash equivalents increased during the period, reaching ¥184.61B at the end of the period.

Earnings Quality

The divergence between Ordinary Income of ¥61.35B and Net Income (consolidated: ¥45.38B; attributable to owners of the parent: ¥44.00B) was primarily attributable to extraordinary items and income taxes. Extraordinary gains, which amounted to ¥19.55B in the previous year, declined sharply to ¥1.21B in the current period, serving as the main reason that the YoY decline in Net Income (-42.6%) significantly exceeded the decline in Ordinary Income (-4.2%). Of non-operating expenses of ¥19.31B, interest expenses accounted for ¥14.79B (+34.5% YoY), with higher interest costs weighing on profit at the ordinary income level. On the other hand, Operating Cash Flow was 2.5 times Net Income and exceeded accounting earnings. From an accrual perspective, there is no indication that excessive non-cash income has accumulated in current-period earnings due to a divergence between earnings and Operating Cash Flow, and earnings quality itself can be considered sound. Comprehensive Income was ¥73.09B, exceeding Net Income attributable to owners of the parent of ¥44.00B, supported by increases in other comprehensive income, including actuarial adjustments related to retirement benefits of ¥15.14B and valuation difference on available-for-sale securities of ¥11.90B.

Earnings Forecast and Guidance

The company's publicly announced full-year earnings forecast calls for Revenue of ¥970.00B (+13.3% YoY), Operating Income of ¥48.00B (-34.5%), Ordinary Income of ¥30.00B (-51.1%), EPS of ¥100.27, and annual dividends of ¥33.00. Compared with the current-period results (Revenue of ¥855.98B, Operating Income of ¥73.24B, and Ordinary Income of ¥61.35B), the forecast assumes higher revenue but significantly lower Operating Income and Ordinary Income. There is a substantial gap between the revenue and profit assumptions, and future progress is expected to be affected by changes in assumptions such as fuel prices, electricity supply and demand, and the timing of the application of tariff systems and subsidies.

Shareholder Returns

Annual dividends were ¥32 per share (¥15 interim and ¥17 year-end), with total dividends of ¥6.58B and a Payout Ratio of 15.4% against Net Income attributable to owners of the parent of ¥44.00B. Operating Cash Flow of ¥114.55B was approximately 17.4 times total dividends, indicating high cash coverage of dividends. Share repurchases amounted to only ¥0.006B, and capital returns were centered on dividends. The company has indicated a policy of increasing the next fiscal year's dividend by ¥1 to ¥33.00; however, Free Cash Flow was -¥98.52B, and the combined amount of dividends and large-scale capital investment cannot be covered solely by Operating Cash Flow, meaning that the company remains dependent on external financing such as bonds and borrowings.

Risk Factors

1. Concentration risk in the core business: Ordinary Income of the Hokkaido Electric Power segment, which accounts for 79.2% of consolidated revenue, declined 16.9% YoY to ¥44.62B. Changes in fuel prices, wholesale electricity prices, supply and demand, tariff systems, and subsidies have a significant impact on consolidated performance.

2. Increasing financial leverage and interest burden: Net assets stood at ¥473.64B against total assets of ¥2,471.05B, with the Equity Ratio remaining at 19.2%. Interest expenses increased 34.5% YoY to ¥14.79B, while the balance of bonds expanded to ¥859.23B, meaning that changes in the interest-rate environment could have a substantial impact on Ordinary Income.

3. Continued Free Cash Flow deficit: Capital expenditure on the acquisition of fixed assets reached ¥217.56B, approximately 3.0 times depreciation and amortization expense of ¥72.00B, resulting in Free Cash Flow of -¥98.52B. Capital investment cannot be financed through internal funds, and the company continues to exhibit a high degree of dependence on external financing such as bond issuance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

The company's profitability is substantially below the industry median, possibly reflecting the low-margin structure characteristic of the electric power business.

Growth and Capital Efficiency

The Revenue Growth Rate was also below the industry median, placing the company among those with particularly notable revenue declines within the industry during the current period.

Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income Margin improved slightly from the previous year to 8.6%, indicating that operating-level cost management functioned effectively even during a period of declining revenue. Meanwhile, the sharp decline in Net Income was primarily attributable to the temporary factor of the absence of the previous year's extraordinary gains, and should be evaluated against the decline in Ordinary Income (-4.2%).

2. Operating Cash Flow was 2.5 times Net Income, providing solid cash support for earnings; however, capital expenditure on the acquisition of fixed assets reached approximately 3.0 times depreciation and amortization expense, and Free Cash Flow remained negative. The increasing dependence on financing through bonds and borrowings is a key point to monitor as a potential inflection point in the company's financial structure.

3. While the profitability of the core Hokkaido Electric Power segment declined (Ordinary Income -16.9%), the power transmission and distribution segment achieved a significant increase in earnings. The impact of changes in the earnings structure between segments on consolidated performance remains an area requiring close monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,736–¥1,837 at Cost of Equity ±1%, and ¥1,779–¥1,790 at ω ±0.1.

Notes:

• Net Income has been substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 46%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional adviser as necessary.

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