Hokkaido Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased in Q1 FY2026, operating income, ordinary income, and net income all declined by double digits, clearly indicating deteriorating profitability. Revenue increased to ¥2,144.8B (¥2,025.0B in the same period last year, YoY+5.9%), while operating income fell to ¥244.5B (¥439.0B, YoY-44.3%), ordinary income declined to ¥187.6B (¥416.6B, YoY-55.0%), and net income attributable to owners of the parent decreased significantly to ¥147.8B (¥307.8B, YoY-52.0%). The operating margin contracted to 11.4% from 21.7% in the same period last year, a decline of 10.3pt. The primary factors were the sharp decline in profit in the core Hokkaido Electric Power segment, Hokkaido Electric Power Network’s shift from profitability to a loss, and higher interest expense.

Factors Affecting Earnings

【Revenue】Revenue increased 5.9% YoY to ¥2,144.8B. By segment, Hokkaido Electric Power (77.3% of total) increased 2.2% YoY, while Hokkaido Electric Power Network (17.7% of total) grew 28.6% YoY, primarily driven by wheeling revenue. Other businesses (4.9% of total) declined 0.8% YoY. Subsidy income under the electricity and gas price burden-relief support program decreased from the previous year; therefore, the quality of the revenue increase is primarily attributable to growth in the core electric power business.

【Profit and Loss】Operating income declined 44.3% YoY to ¥244.5B, and the operating margin fell significantly to 11.4% (21.7% in the previous year). Segment profit at Hokkaido Electric Power decreased 43.2% from ¥373.3B to ¥212.0B, while Hokkaido Electric Power Network swung from profit of ¥44.9B in the previous year to a loss of ¥32.8B. Below operating income, interest expense increased to ¥49.8B (¥31.9B in the previous year), causing ordinary income to contract further to ¥187.6B (YoY-55.0%). The recognition of ¥20.9B in extraordinary income (¥12.1B in the previous year) as a temporary factor partially mitigated the downward pressure on net income; however, net income attributable to owners of the parent declined to ¥147.8B (YoY-52.0%). Overall, the company recorded higher revenue but lower profit.

Segment Analysis

Hokkaido Electric Power (retail and generation, 77.3% of total) secured higher revenue of ¥1,658.6B (YoY+2.2%), but segment profit declined 43.2% to ¥212.0B from ¥373.3B in the same period last year, making lower profitability a drag on company-wide results. Hokkaido Electric Power Network (transmission and distribution, 17.7% of total) grew revenue to ¥380.7B (YoY+28.6%), but segment earnings fell from profit of ¥44.9B in the previous year to a loss of ¥32.8B, confirming deteriorating profitability in the regulated transmission and distribution business. Other businesses (4.9% of total) generated revenue of ¥105.6B (YoY-0.8%), remaining broadly flat. The aggregate segment profit reconciles to ordinary income of ¥187.6B after adjustments, including the elimination of intersegment transactions.

Key Financial Indicators

【Profitability】The operating margin was 11.4%, down 10.3pt from 21.7% in the same period last year. The net margin, based on net income attributable to owners of the parent, also declined to 6.9% from 15.2%, a decrease of 8.3pt.【Cash Quality】Comprehensive income was ¥185.9B, exceeding net income of ¥147.8B. Valuation difference on securities contributed positively by +¥48.8B, while adjustments related to retirement benefits were negative at ¥14.5B. The divergence was primarily attributable to changes in the fair value of securities.【Investment Efficiency】ROE was 3.1%, down from an estimated 6.7% in the same period last year (net income attributable to owners of the parent/average equity), with the deterioration in net margin being the primary cause of the decline in ROE.【Financial Soundness】The equity ratio was 19.2%, a slight improvement from 18.5% in the same period last year. However, the current ratio was 96.9%, below 1x, with current assets of ¥4,591.4B slightly below current liabilities of ¥4,736.7B. Interest-bearing debt (the total of short- and long-term borrowings and bonds) was approximately ¥1,4967.5B, indicating that the financial leverage level remains high.

Cash Flow Analysis

As cash flow statement data is unavailable, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits declined to ¥1,600.0B from ¥1,846.1B in the same period last year. Inventories increased significantly to ¥845.8B (¥578.8B in the same period last year, +46.4%), potentially indicating that the buildup of fuel, materials, and other items is putting pressure on working capital. Long-term borrowings increased to ¥6,430.2B (¥5,403.3B in the same period last year, +19.0%), while bonds decreased to ¥8,092.3B (¥8,592.3B in the same period last year, -5.8%), indicating a shift in the funding mix toward borrowings. With current liabilities of ¥4,736.7B against current assets of ¥4,591.4B, the current ratio remained at 96.9%, and short-term liquidity trends continue to require close monitoring.

Quality of Earnings

Recurring earnings power in Q1 clearly deteriorated from the same period last year. The difference between operating income of ¥244.5B and ordinary income of ¥187.6B was primarily attributable to interest expense of ¥49.8B (¥31.9B in the previous year), with the higher interest burden reducing earnings at the ordinary income level. Extraordinary income of ¥20.9B was a one-time factor and should be distinguished when evaluating recurring earnings power. Comprehensive income was ¥185.9B, exceeding net income of ¥147.8B. This divergence resulted from the positive contribution of +¥48.8B in valuation difference on securities, attributable to market factors, exceeding the negative ¥14.5B adjustment related to retirement benefits; it does not directly reflect the recurring earnings power of the business.

Earnings Forecast and Guidance

Progress in Q1 against the full-year forecast (revenue of ¥9,700.0B, operating income of ¥480.0B, ordinary income of ¥300.0B, and net income of ¥220.0B) was 22.1% for revenue, 50.9% for operating income, 62.5% for ordinary income, and 67.2% for net income. Revenue progress was slightly below the quarterly even-progress benchmark of 25%, while all profit metrics exceeded the even-progress benchmark, indicating that profits are weighted toward the first half. The full-year plan itself also anticipates significant declines from the previous year, with operating income at YoY-34.5% and ordinary income at YoY-51.1%; therefore, the decline in Q1 earnings is consistent with the full-year plan. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The company’s forecast annual dividend is ¥16.5, and the payout ratio based on forecast EPS of ¥100.27 is approximately 16.5%. The dividend paid in the previous year was ¥15. The payout ratio is based solely on dividends, and data on the total return ratio, including share repurchases, has not been disclosed. Given cash and deposits of ¥1,600.0B, there appears to be a certain degree of capacity to secure funds for dividends. However, if inventories continue to increase and interest-bearing debt continues to expand, capital allocation trends will remain an area of focus.

Risk Factors

1. Deteriorating profitability in the transmission and distribution business: Hokkaido Electric Power Network’s segment earnings shifted from profit of ¥44.9B in the same period last year to a loss of ¥32.8B in the current period. The shift to a loss despite higher revenue indicates that changes in the earnings structure of the regulated transmission and distribution business require monitoring.

2. Higher interest burden: Interest expense increased 56.3% to ¥49.8B from ¥31.9B in the same period last year. Long-term borrowings increased 19.0% YoY to ¥6,430.2B, and total interest-bearing debt reached approximately ¥1,4967.5B. The impact of changes in the interest-rate environment on ordinary income remains an area requiring close monitoring.

3. Increase in working capital: Inventories increased 46.4% to ¥845.8B from ¥578.8B in the same period last year. The current ratio was 96.9%, with current assets slightly below current liabilities, requiring monitoring of short-term liquidity trends.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

Both the operating margin and net margin are below the industry median, indicating that profitability is somewhat low relative to the industry.

Growth and Capital Efficiency

Revenue growth is below the industry median, indicating that the pace of revenue growth is relatively moderate within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Profit in the core Hokkaido Electric Power segment declined 43.2% YoY, while Hokkaido Electric Power Network, responsible for transmission and distribution, swung from profitability to a loss despite higher revenue. Changes in the earnings structure are reflected in company-wide results.

2. Full-year progress was 22.1% for revenue versus 50.9% for operating income and 67.2% for net income, with profit progress exceeding revenue progress. A progress pattern in which profits are weighted toward the first half can be observed.

3. Inventories increased +46.4% YoY, while interest expense increased +56.3%, indicating changes in the financial structure on both the working capital and interest burden fronts.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,017–¥2,137 at ±1% for the cost of equity, and ¥2,065–¥2,082 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (67%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net income is significantly compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income: 46%). This figure reflects that compression at face value; if these 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.
• Net assets as of the end of the quarter are used (there is a time lag 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 / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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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 benchmark is 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 as necessary.

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