Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥2144.8億 | ¥2025.0億 | +5.9% |
| Operating Income | ¥244.5億 | ¥439.0億 | −44.3% |
| Ordinary Income | ¥187.6億 | ¥416.6億 | −55.0% |
| Net Income | ¥149.8億 | ¥308.1億 | −51.4% |
| ROE | 3.1% | 6.5% | - |
Executive Summary
The first quarter of FY2026 saw higher revenue but lower earnings, clearly indicating a slowdown in profitability. Revenue increased to ¥2,144.8億 (¥2,025.0億 in the same period of the previous year, +5.9%), while Operating Income declined substantially to ¥244.5億 (¥439.0億 in the previous year, -44.3%), Ordinary Income to ¥187.6億 (¥416.6億 in the previous year, -55.0%), and Net Income attributable to owners of the parent to ¥147.8億 (¥307.8億 in the previous year, -52.0%). The primary factors were the contraction in profit at the core Hokkaido Electric Power segment, the Hokkaido Electric Power Network segment's shift into a loss, and an increase in non-operating expenses (interest expenses).
Factors Affecting Financial Results
【Revenue】Revenue was ¥2,144.8億, representing a 5.9% increase year on year. By segment, the core Hokkaido Electric Power segment (77.3% of revenue composition) increased revenue to ¥1,658.6億 (+2.2%), while Hokkaido Electric Power Network increased revenue to ¥380.7億 (+28.6%). The growth in the Network segment appears to have been attributable to an increase in wheeling revenue, while “Other Income,” which serves as a source of subsidies, contracted year on year.
【Profit and Loss】Operating Income declined substantially to ¥244.5億 (-44.3%), while Ordinary Income fell to ¥187.6億 (-55.0%). Segment Ordinary Income at Hokkaido Electric Power contracted to ¥212.0億 (¥373.3億 in the previous year, -43.2%), while Hokkaido Electric Power Network shifted into a loss of -¥32.8億 (a profit of +¥44.9億 in the previous year). Among non-operating expenses, interest expenses increased to ¥49.8億 (¥31.9億 in the previous year), placing further pressure on Ordinary Income through higher interest costs. Although the recording of ¥20.9億 in extraordinary income provided some support to Net Income, Net Income attributable to owners of the parent remained at ¥147.8億 (-52.0%), representing a double-digit decline. The company experienced higher revenue but lower earnings, with the time lag in fuel cost adjustments, deteriorating profitability in the transmission and distribution business, and increased interest costs being the primary causes of lower profitability.
Segment Analysis
Hokkaido Electric Power (Retail and Generation) remained the core segment, with revenue of ¥1,658.6億 (+2.2%), but Segment Ordinary Income contracted substantially to ¥212.0億 (¥373.3億 in the previous year, -43.2%), leaving the profit margin at 12.8% (a substantial decline year on year). Hokkaido Electric Power Network increased revenue to ¥380.7億 (+28.6%), but shifted to an Ordinary Loss of -¥32.8億 (a profit of +¥44.9億 in the previous year), and deteriorating profitability in the transmission and distribution business weighed on overall results. The Other segments were relatively solid, with revenue of ¥105.6億 (-0.8%) and Ordinary Income of ¥26.9億 (+36.6%). Overall, although higher revenue was confirmed in both the core and Network segments, the Network segment's shift into a loss has emerged as a structural concern on the profit front.
Key Financial Metrics
【Profitability】The Operating Margin declined substantially to 11.4% (21.7% in the previous year), while the Net Profit Margin (on an attributable-to-owners-of-the-parent basis) fell to 6.9% (15.2% in the previous year). 【Cash Flow Quality】The ¥20.9億 in extraordinary income was non-recurring and should be excluded when evaluating recurring earnings power. Inventories increased by +46.4% to ¥845.8億 from ¥577.8億 in the previous year, suggesting that the cash tied up in working capital has increased due to additional fuel and materials inventory. 【Investment Efficiency】ROE was 3.1%, representing a substantial decline from the previous year, primarily due to the lower Net Profit Margin. Total Assets were ¥25,356.7億 and Net Assets were ¥4,878.7億, indicating that profit growth has not kept pace with the expansion in the asset base. 【Financial Soundness】The Equity Ratio improved slightly to 19.2% (18.5% in the previous year), but fixed liabilities remain substantial, with long-term borrowings of ¥6,430.2億 and bonds of ¥8,092.3億. The ratio of interest expenses (¥49.8億) to Operating Income increased from the previous year, and the structure in which rising interest costs pressure earnings remains in place.
Cash Flow Analysis
Although the detailed items of the cash flow statement are not included in the data, changes in the balance sheet suggest rising funding requirements. Inventories increased by +46.4% from ¥577.8億 in the previous year to ¥845.8億, and the expansion of working capital associated with additional fuel and materials inventory may be tying up cash. Cash and deposits were ¥1,600.0億, declining from ¥1,846.1億 in the previous year. Long-term borrowings increased by +19.0% from ¥5,403.3億 in the previous year to ¥6,430.2億, while bonds decreased by -5.8% from ¥8,592.3億 to ¥8,092.3億. This suggests that the funding structure shifted toward long-term borrowings to secure funds for working capital requirements and capital investment.
Earnings Quality
The current period's earnings included contributions from temporary factors. Extraordinary income of ¥20.9億 (¥12.1億 in the previous year) was a non-recurring item and should be excluded when evaluating recurring earnings power. Of the ¥18.2億 in non-operating income, dividends received of ¥7.3億 were the main component. While this represents a certain degree of stability as a recurring source of income, non-operating expenses expanded to ¥75.1億 from ¥37.5億 in the previous year, primarily due to interest expenses of ¥49.8億. Comprehensive Income was ¥185.9億 (¥360.6億 in the previous year), and the difference from Net Income of ¥149.8億 was mainly attributable to an adjustment amount related to retirement benefits of -¥14.5億. The divergence between Net Income and Comprehensive Income narrowed from the previous year. Overall, the current period's earnings showed somewhat greater reliance on extraordinary income, and the actual level of recurring earnings power is considered to be close to the ¥187.6億 in Ordinary Income disclosed.
Earnings Forecasts and Guidance
The full-year forecasts are revenue of ¥9,700.0億 (+13.3%), Operating Income of ¥480.0億 (-34.5%), and Ordinary Income of ¥300.0億 (-51.1%). The Q1 progress rates were calculated as 22.1% for revenue, 5.1% for Operating Income, and 187.6/300.0=62.5% for Ordinary Income, indicating substantial variation in progress among the metrics. While progress toward the Operating Income forecast was limited, Ordinary Income showed progress weighted toward the first half, potentially reflecting the recognition of extraordinary income and timing differences in non-operating income and expenses. As of the current quarter, no revisions have been made to the earnings or dividend forecasts, and the company appears to be maintaining a plan predicated on the continued reflection of fuel cost adjustments and improved profitability in the transmission and distribution business during the second half.
Shareholder Returns
The full-year dividend forecast is ¥33.00 per share, implying a Payout Ratio of approximately 32.9% against the full-year EPS forecast of ¥100.27. No revision has been made to the dividend forecast as of the current quarter. The company holds 9,942 thousand treasury shares out of 215,292 thousand issued shares, and no new disclosure regarding share repurchases has been identified. Shareholder returns currently center on dividends. Given the Equity Ratio of 19.2% and the high level of interest-bearing debt, the status of funds available for dividends should be monitored alongside future earnings trends.
Risk Factors
-
Deteriorating profitability in the transmission and distribution business: Hokkaido Electric Power Network's Ordinary Income deteriorated from +¥44.9億 in the previous year to -¥32.8億 in the current period, confirming a shift into a loss despite higher revenue. The efficiency of transmission and distribution costs and the operation of the wheeling charge system will be key areas of focus going forward.
-
Rising interest costs: Interest expenses increased to ¥49.8億 from ¥31.9億 in the previous year, and the ratio of interest expenses to Operating Income rose from the previous year. Long-term borrowings increased to ¥6,430.2億 (+19.0%), raising sensitivity to changes in the interest rate environment.
-
Working capital expansion: Inventories increased by +46.4% year on year to ¥845.8億, resulting in cash being tied up due to additional fuel and materials inventory. Funding trends should be closely monitored together with the collection cycle.
Industry Benchmark (For Reference; Based on Our Research)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 11.4% | 11.6% (6.5%–43.3%) | −0.2pt |
| Net Profit Margin | 7.0% | 8.3% (3.4%–32.0%) | −1.3pt |
Both the Operating Margin and Net Profit Margin were slightly below the industry median, leaving profitability at a somewhat average level within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | 5.9% | 6.4% (-2.5%–14.4%) | −0.5pt |
The Revenue Growth Rate was also slightly below the industry median, placing growth at approximately the mid-range within the industry.
※Source: Based on our research
Key Takeaways from the Financial Results
-
Despite higher revenue, Operating Income, Ordinary Income, and Net Income all declined by double digits, and the Operating Margin fell substantially to 11.4% (21.7% in the previous year). The structure of higher revenue but lower earnings was attributable to two structural factors: the Network segment's shift into a loss and increased interest costs.
-
Hokkaido Electric Power Network's shift into an Ordinary Loss is notable as an example of a revenue-growing segment failing to achieve corresponding profitability. The cost structure of this business and the operation of the tariff system will be factors determining the degree of recovery in full-year results.
-
While progress toward the full-year forecast was substantially lower for Operating Income at 5.1% than for revenue at 22.1%, Ordinary Income showed progress of 62.5%, weighted toward the first half, indicating significant variation among the metrics. The degree of reliance on extraordinary income and the progress of reflecting fuel cost adjustments in the second half are expected to determine the balance of progress going forward.
Theoretical Stock Price (Reference Value)
| Scenario | Theoretical Stock Price |
|---|---|
| bear (Bearish) | 2,045円 |
| base (Base) | 2,072円 |
| bull (Bullish) | 2,099円 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | 2,376円 |
| Adjusted Forecast EPS | 110.3円 |
| Cost of Equity r | 9.27%（10-year Japanese government bond 2.77% + Equity Risk Premium 6.00% + Size Premium 0.50%） |
| Persistence coefficient of residual income ω / Explicit forecast period | 0.62 / 5 years |
| Assumed Payout Ratio | 32.9% |
| Forecast EPS Confidence Adjustment | ×1.100（based on progress ahead of the full-year forecast） |
| implied PBR / PER | 0.87倍 / 18.8倍 |
Sensitivity: 2,015円〜2,132円 at Cost of Equity ±1%, and 2,062円〜2,079円 at ω±0.1.
Notes:
- Because the progress of Net Income toward the full-year forecast (67%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed their forecasts. Adjustments may be excessive for businesses with strong seasonality).
- Net Income is substantially compressed relative to Operating Income (Net Income ÷ Operating Income 46%) due to tax expenses, acquisition-related expenses, and non-controlling interests, among other factors. This value reflects that compression at face value, and if the factors are temporary, the underlying earnings power may be higher.
- Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
- Net Assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
- Because Net Assets include non-controlling interests, the theoretical value may be calculated somewhat higher.
（Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market stock price or a recommendation of any specific investment action, nor does it predict or guarantee future stock prices）
This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by our company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.
---End of Report---
AI Financial Analysis
Executive Summary
Hokkaido Electric Power delivered revenue growth in FY2027 Q1, but earnings contracted sharply as profitability in its electricity and network operations weakened. Consolidated revenue increased 5.9% YoY to ¥214.5bn. Operating income fell 44.3% YoY to ¥24.4bn. Operating margin therefore compressed by 1,028bp to 11.4% from 21.7% a year earlier. Ordinary income declined more steeply, by 55.0% YoY to ¥18.8bn, reflecting a higher net non-operating cost burden. Net income attributable to owners of the parent declined 52.0% YoY to ¥14.8bn. Net margin contracted by approximately 831bp to 6.9% from 15.2% in the prior-year quarter. The core Hokkaido Electric segment remained profitable, with segment profit of ¥21.2bn, but this was down 43.2% YoY. Hokkaido Electric Network moved to a ¥3.3bn segment loss from a ¥4.5bn profit in the prior-year quarter, representing the principal operational deterioration. Other businesses generated segment profit of ¥2.7bn, up 36.6% YoY, but remain too small to offset the deterioration in the two power-related reporting segments. Segment revenue growth was led by the Network business, whose external revenue rose 28.6% YoY to ¥38.1bn, while the core electricity business grew 2.2% to ¥165.9bn. Interest expense increased 56.2% YoY to ¥5.0bn, reducing the conversion of operating profit into ordinary income. Profit before tax exceeded ordinary income by ¥2.0bn because of ¥2.1bn of extraordinary income, which modestly supported reported net income. Annualized ROE was 12.1%, a solid absolute return level, although it is supported by high financial leverage of 5.20x rather than by a high asset return. Management's full-year forecast implies Q1 progress of 22.1% for revenue, 50.9% for operating income, 62.5% for ordinary income, and 67.2% for profit attributable to owners. The exceptional Q1 profit-progress rates versus the normal 25% seasonal benchmark indicate that management expects substantially lower earnings in the remaining quarters, consistent with the forecast 34.5% decline in full-year operating income. The investment focus is consequently on whether cost, fuel-price pass-through, and network profitability normalize sufficiently to support the full-year earnings profile while preserving liquidity and debt-servicing capacity.
Profitability Analysis
Annualized DuPont ROE of 12.1% is decomposed into a 6.9% net profit margin, 0.338x asset turnover, and 5.20x financial leverage. The dominant contributor to shareholder returns is leverage, reflecting the capital-intensive utility balance sheet and modest equity base relative to assets. Asset turnover is structurally low for a regulated, infrastructure-heavy electric utility, where generation, transmission, and distribution assets are substantial. The largest YoY change is profitability: operating margin fell to 11.4% from 21.7%, while net margin fell to 6.9% from 15.2%. This indicates that the 5.9% revenue increase did not translate into earnings growth and that operating costs or gross-margin conditions deteriorated materially. The core electricity segment's profit decline of ¥16.1bn YoY and the Network segment's ¥7.8bn swing into loss account for the consolidated earnings pressure. The Network result is particularly important because its revenue expanded strongly but its segment result became negative, implying significant negative operating leverage or cost pressure. The 5-factor DuPont tax burden was 0.710, consistent with the 28.0% effective tax rate and not a material drag on earnings quality. The interest burden was 0.851, below the 0.90 low-debt benchmark, showing that financing costs meaningfully dilute EBIT. Interest coverage of 4.91x remains serviceable but is just below the 5x level generally associated with stronger coverage. The ¥2.1bn extraordinary income supported profit before tax, so reported net income should not be viewed as entirely recurring. The reported annualized ROE is therefore not a sufficient indicator of underlying operating momentum: it has been achieved amid substantial margin compression and elevated balance-sheet leverage.
Growth Assessment
Revenue growth of 5.9% YoY was led by the Hokkaido Electric Network segment, whose external revenue increased 28.6% YoY to ¥38.1bn. The larger Hokkaido Electric segment posted more moderate external revenue growth of 2.2% YoY to ¥165.9bn. Other businesses' external revenue was broadly flat at ¥10.6bn. Revenue associated with the government electricity and gas charge-relief program was ¥1.6bn in the Hokkaido Electric segment and was immaterial in the Network segment; this represents externally funded bill discounts rather than underlying commercial demand growth. Earnings growth is materially weaker than revenue growth, as operating income fell ¥19.4bn YoY and ordinary income fell ¥22.9bn YoY. The full-year revenue forecast of ¥970.0bn calls for 13.3% YoY growth, while the operating-income forecast of ¥48.0bn calls for a 34.5% YoY decline. Q1 revenue progress is slightly below the standard 25% benchmark at 22.1%, whereas operating-income progress is 25.9 percentage points above the benchmark at 50.9%. Ordinary-income progress is 37.5 percentage points above the benchmark and owner-attributable profit progress is 42.2 percentage points above the benchmark. This profile indicates an expectation of much weaker earnings conversion in subsequent quarters rather than a uniformly improving run rate. The sustainability of revenue growth should be assessed alongside the utility's fuel-cost adjustment mechanisms, wholesale power-market conditions, regional electricity demand, and the pace at which costs can be passed through to customers.
Financial Health
Liquidity requires attention. The current ratio is 96.9%, below 1.0x, and working capital is negative ¥14.5bn; current liabilities of ¥473.7bn exceed current assets of ¥459.1bn. The quick ratio is also modest at 79.1%, indicating that liquid current assets excluding inventories do not fully cover short-term obligations. This LOW_LIQUIDITY alert is relevant because a capital-intensive utility must continuously fund fuel procurement, maintenance, grid investment, and debt maturities. Near-term refinancing risk is partly mitigated by ¥160.0bn of cash and deposits, equivalent to 3.60x short-term loans of ¥44.5bn. However, cash alone does not eliminate the maturity mismatch created by current liabilities exceeding current assets. Solvency is also a material concern. The reported debt-to-equity ratio is 4.20x, substantially above the 2.0x warning threshold, while debt-to-capital is 58.5%, close to the 60% covenant concern level. This HIGH_LEVERAGE alert reflects reliance on debt financing that is common in regulated utilities but still raises sensitivity to interest rates, refinancing conditions, and earnings volatility. Long-term loans increased by ¥102.7bn YoY to ¥643.0bn, while bonds payable were ¥809.2bn. Total liabilities represent 80.8% of total assets, and total equity represents 19.2%, leaving a limited equity cushion against major operating shocks. Interest expense rose to ¥5.0bn from ¥3.2bn in the prior-year quarter, demonstrating the earnings impact of funding costs. Inventory increased ¥26.8bn YoY, or 46.4%, to ¥84.6bn; the increase absorbs balance-sheet capacity and may reflect higher fuel, procurement, or operational inventory needs. The defined-benefit liability was ¥22.3bn and should remain part of the assessment of fixed financial obligations. Deferred tax assets of ¥21.1bn provide a modest balance-sheet asset but depend on the continued generation of taxable profits.
Notable B/S Changes
Inventories: +¥26.8bn (+46.4%) to ¥84.6bn — a significant increase in working-capital usage that can raise funding needs and commodity/procurement exposure. Long-term loans: +¥102.7bn (+19.0%) to ¥643.0bn — increased long-dated borrowing reinforces the importance of refinancing conditions and interest-cost control. Bonds payable: -¥50.0bn (-5.8%) to ¥809.2bn — lower bond balances partly offset higher long-term loans, but overall debt dependence remains high relative to equity.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥33.0 per share, with no revision disclosed. Against forecast EPS of ¥100.27, the implied dividend-only payout ratio is approximately 32.9%, within a generally sustainable 30-50% range for a utility and below the 60% benchmark. The forecast dividend is supported by expected full-year owner-attributable profit of ¥22.0bn. Sustainability nevertheless depends on realization of the full-year earnings forecast, maintenance of funding access, and management's ability to balance shareholder distributions with elevated leverage and utility investment requirements.
Risk Assessment
Business risks include Fuel and wholesale electricity-price volatility: profit margins can be affected by LNG, coal, oil, and power-market pricing, as well as timing differences in fuel-cost adjustment pass-through mechanisms., Network profitability risk: Hokkaido Electric Network recorded a ¥3.3bn Q1 segment loss despite 28.6% revenue growth, making cost recovery and regulated-return execution a central operational risk., Regional demand and weather risk: Hokkaido's electricity demand is exposed to seasonal temperatures, economic activity, and customer consumption patterns., Generation and grid-resilience risk: severe weather, natural disasters, transmission constraints, plant outages, and the cost of maintaining supply reliability can pressure costs and capital spending., Energy-transition and regulatory risk: renewable integration, decarbonization investment, regulatory tariff decisions, and potential changes in nuclear operating conditions may alter future allowed returns and required capex..
Financial risks include Liquidity risk is elevated because the current ratio is 0.97x, quick ratio is 0.79x, and working capital is negative ¥14.5bn., Leverage risk is high, with D/E of 4.20x, debt/capital of 58.5%, and liabilities equal to 80.8% of assets., Interest-rate and refinancing risk is material: interest expense rose 56.2% YoY and interest coverage is 4.91x., Inventory rose 46.4% YoY to ¥84.6bn, increasing working-capital absorption and exposure to commodity or procurement-price movements..
Key concerns include High likelihood/high impact: sustaining profitability after operating margin compressed by 1,028bp YoY and the Network segment shifted into loss., High likelihood/high impact: preserving financial flexibility while funding debt obligations and utility infrastructure needs with sub-1.0x current liquidity., Medium likelihood/high impact: higher financing costs further reducing ordinary income if borrowing costs rise or refinancing terms worsen., Medium likelihood/medium impact: the ¥2.1bn extraordinary income supported Q1 pre-tax profit, meaning underlying recurring earnings are lower than reported pre-tax earnings., Medium likelihood/high impact: the full-year forecast requires a pronounced earnings slowdown after Q1, increasing sensitivity to seasonal conditions and cost developments in the remaining quarters..
Investment Implications
Key takeaways include Revenue expanded 5.9% YoY, but operating income and owner-attributable profit fell 44.3% and 52.0%, respectively., Annualized ROE of 12.1% is respectable, but its quality is constrained by 5.20x financial leverage and deteriorating operating margins., The core Hokkaido Electric segment remains profitable, while the Network segment's swing to a ¥3.3bn loss is the most significant segment-level issue., Liquidity and leverage are the principal balance-sheet constraints: current ratio is 0.97x and D/E is 4.20x., The forecast ¥33.0 DPS implies a 32.9% payout ratio against forecast EPS, indicating a moderate stated dividend burden relative to forecast earnings..
Metrics to watch include Operating margin and core Hokkaido Electric segment profit, Hokkaido Electric Network segment profit recovery and regulated cost pass-through, Fuel and wholesale power costs relative to tariff-adjustment timing, Interest expense, interest coverage, long-term borrowing, and bond refinancing, Current ratio, cash balance, working capital, and inventory levels, Progress against full-year operating income of ¥48.0bn and owner-attributable profit of ¥22.0bn, Dividend maintenance relative to forecast EPS and funding requirements.
Regarding relative positioning, The company has the typical characteristics of a capital-intensive regional electric utility—large fixed assets, low asset turnover, and meaningful debt funding—but its 4.20x D/E ratio and sub-1.0x current ratio place financial flexibility under greater scrutiny than for more conservatively capitalized peers. Its 11.4% operating margin remains above the general 8-15% good benchmark, yet the scale of YoY margin compression and the Network segment loss weaken its current earnings positioning.