The Okinawa Electric Power Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

The company reported results in which the operating loss expanded substantially year on year, primarily due to the increased burden of fuel costs and purchased power costs in its core Electric Power Business. Revenue declined to ¥488.2B (¥505.1B in the prior year, YoY -3.3%), while the operating loss widened to ¥-68.7B (¥-10.6B in the prior year). Ordinary income was ¥-71.0B (¥-13.1B in the prior year), and consolidated net loss was ¥-72.5B (¥-14.3B in the prior year, YoY -406.9%). Net loss attributable to owners of the parent was ¥-72.9B (¥-14.4B in the prior year), and EPS was -¥134.26 (¥-26.54 in the prior year). In addition to the expansion of the operating loss, interest expense of ¥8.4B further weighed on the loss at the ordinary income stage.

Factors Affecting Performance

【Revenue】Revenue declined 3.3% year on year to ¥488.2B. The Electric Power Business, which accounts for 75.4% of the revenue mix, declined 4.1% to ¥459.9B, with the decrease in the core business weighing on overall results. Construction revenue increased 17.3% to ¥57.7B, while revenue from Other Businesses increased 3.2% to ¥92.1B; however, their smaller scale was insufficient to offset the decline in the Electric Power Business.

【Profit and Loss】The operating loss expanded to ¥68.7B (compared with a ¥10.6B loss in the prior year). The Electric Power Business’ operating loss of ¥71.1B (¥-13.2B in the prior year, operating margin -15.5%) was the primary cause of the company-wide deficit and could not be fully offset by the profitable Construction Business (operating income ¥0.3B, operating margin 0.6%) and Other Businesses (operating income ¥2.3B, operating margin 2.5%). Non-operating income totaled ¥6.8B, including ¥2.0B in dividend income, while non-operating expenses totaled ¥9.1B, mainly consisting of ¥8.4B in interest expense. As a result, the ordinary loss expanded to ¥71.0B. After recording ¥1.5B in income taxes and other taxes, consolidated net loss was ¥72.5B, and net loss attributable to owners of the parent was ¥72.9B. The company reported lower revenue and lower profit.

Segment Analysis

The Electric Power Business generated revenue of ¥459.9B (-4.1%) and an operating loss of ¥71.1B (¥-13.2B in the prior year), with its operating margin deteriorating significantly to -15.5% (from -2.8% in the prior year), making it the primary cause of the company-wide deficit. The Construction Business generated revenue of ¥57.7B (+17.3%) and returned to profitability with operating income of ¥0.3B (compared with a ¥2.2B operating loss in the prior year); its operating margin also improved from -4.5% to 0.6%. Other Businesses generated higher revenue of ¥92.1B (+3.2%), but operating income declined to ¥2.3B (¥3.5B in the prior year, -34.1%), causing the operating margin to decline from 3.98% to 2.5%. The Electric Power Business accounts for a high 75.4% of total revenue across the three segments, creating a structure in which its profit and loss trends determine overall company performance.

Key Financial Indicators

【Profitability】The operating margin was -14.1%, deteriorating by approximately 12.0pt from -2.1% in the prior year, directly reflecting higher costs in the Electric Power Business. ROE was -5.8% (based on net income attributable to owners of the parent) and can be decomposed into a net profit margin of -14.9%, total asset turnover of 0.09 times, and financial leverage of approximately 4.3 times. The high level of leverage is amplifying the deterioration in capital efficiency during the loss-making period.【Cash Quality】Cash and deposits increased to ¥227.7B (¥198.1B in the prior year), while inventories increased to ¥238.4B (+33.5%) and accounts receivable increased to ¥147.2B (+13.9%), indicating an expansion in working capital. From an accrual perspective, this suggests a widening time lag before earnings are converted into cash.【Investment Efficiency】Total asset turnover remained low at 0.09 times, while the asset-intensive business structure, characterized by ¥4480.4B in property, plant and equipment and other fixed assets, equivalent to 83.3% of total assets, continues to weigh on capital efficiency.【Financial Soundness】The equity ratio was 23.3%, down 1.7pt from 25.0% in the prior year. The current ratio was 103.3%, while the ratio calculated as (current assets - inventories) / current liabilities was 75.9%, indicating limited short-term liquidity headroom. Interest coverage (EBIT / interest expense) was -8.18 times, demonstrating weak resilience to interest expenses amid operating losses.

Cash Flow Analysis

Although the company does not disclose a cash flow statement, changes in the balance sheet provide insight into funding trends. Cash and deposits increased by ¥29.6B to ¥227.7B from ¥198.1B in the prior year. This appears to reflect an increase in long-term funding, with long-term borrowings rising by ¥17.57B to 174712 million yen (157139 million yen in the prior year) and bonds increasing by ¥5B to 141000 million yen (136000 million yen in the prior year). At the same time, short-term borrowings declined substantially to 149 million yen (2600 million yen in the prior year), suggesting a shift from short-term to long-term funding. Meanwhile, inventories and accounts payable increased by ¥59.9B and ¥71.6B, respectively, with the resulting expansion in working capital due to inventory accumulation and the use of trade payables becoming a factor pressuring cash management. Against the backdrop of expanding operating losses, the company appears to have secured cash on hand through external financing.

Earnings Quality

Non-operating income totaled ¥6.8B, including ¥2.0B in dividend income and ¥2.0B in other non-operating income, while non-operating expenses totaled ¥9.1B, including ¥8.4B in interest expense and ¥0.7B in other expenses. Expenses exceeded income, although each represented only 1.4% and 1.9% of revenue, respectively, limiting their impact on the ordinary loss. Nevertheless, the burden of interest expense remains a structural factor weighing on profitability. The difference between the ¥71.0B ordinary loss and the ¥72.5B consolidated net loss was attributable to ¥1.5B in income taxes and other taxes, with no temporary boost or drag from extraordinary gains or losses identified. From an accrual perspective, inventories increased 33.5% and accounts receivable increased 13.9%. As working capital accumulated in parallel with the expansion of the operating loss, the gap between reported earnings and actual cash-generating capacity may have widened somewhat.

Earnings Forecast and Guidance

The revised full-year earnings forecasts are revenue of ¥2388.0B (YoY +8.5%), operating income of ¥74.0B (YoY -20.4%), and ordinary income of ¥50.0B (YoY -38.8%). Both the earnings forecast and dividend forecast for the quarter have been revised. Revenue progress was 20.4%, 4.6pt below the simple one-quarter benchmark of 25%. Operating income and ordinary income were losses of ¥-68.7B and ¥-71.0B, respectively, as of Q1, representing substantially negative progress against the full-year forecasts for profitability. Achieving the full-year forecasts will depend on margin improvement in the second half through the elimination of the time lag in fuel cost adjustments and the collection of regulated revenue, as well as the emergence of demand during the summer peak season.

Shareholder Returns

The company’s forecast dividend is ¥50 per share, implying a payout ratio of approximately 79.9% against forecast EPS of ¥62.6. The dividend forecast was revised during the quarter and can be viewed as a level premised on a recovery in full-year earnings, despite the significant loss recorded at the start of Q1. A payout ratio of approximately 80% indicates high sensitivity to earnings fluctuations, and the extent to which full-year performance is achieved will determine future dividend policy.

Risk Factors

1. Fuel and Purchased Power Cost Volatility Risk: The Electric Power Business’ operating margin deteriorated from -2.8% in the prior year to -15.5%, and cost trends in this business, which accounts for 75.4% of the revenue mix, determine company-wide profit and loss. Differences in the timing of fuel cost adjustments and the collection of regulated revenue may cause short-term fluctuations in performance.

2. Financial Leverage and Interest Expense Risk: Interest-bearing debt, comprising total short-term borrowings, long-term borrowings, and bonds, reached approximately ¥315.86B, while interest coverage was -8.18 times, indicating weak resilience to interest expenses amid operating losses. The equity ratio declined to 23.3% from 25.0% in the prior year, requiring monitoring of financial flexibility.

3. Working Capital and Short-Term Liquidity Risk: Inventories increased 33.5% year on year and accounts payable increased 48.9%, resulting in an expansion of working capital. While the current ratio remained at 103.3%, (current assets - inventories) / current liabilities was only 75.9%. The impact of increased reliance on inventories and trade payables on short-term cash management warrants close monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the company’s operating margin and net profit margin are substantially below the industry median, confirming that its profitability is relatively weak within the industry.

Growth and Capital Efficiency

The revenue growth rate was also 14.0pt below the industry median, confirming that the company is in a revenue-decline phase compared with peers that are generally experiencing revenue growth.

※Source: Company compilation

Key Points in the Earnings Results

1. While the core Electric Power Business accounts for 75.4% of the revenue mix, it recorded an operating loss of ¥71.1B (operating margin -15.5%), driving the company-wide deficit. Improving the cost structure of this business is a prerequisite for an overall recovery in performance.

2. As of Q1, both operating income and ordinary income were substantially behind the full-year forecasts, with revenue progress at 20.4% and negative progress at the profit levels. The extent to which fuel cost adjustments are reflected and costs normalize in the second half will be key points to monitor in future earnings results.

3. Working capital expanded as inventories (+33.5%) and accounts payable (+48.9%) increased, while the equity ratio declined to 23.3% from 25.0% in the prior year. Together with the burden of interest expenses, reflected in interest coverage of -8.18 times, trends in financial condition will be important monitoring points.

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 five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,853–¥1,956 at ±1% for the cost of equity, and ¥1,891–¥1,912 at ±0.1 for ω.

Notes:

• Net income is substantially compressed relative to operating income due to tax burden, acquisition-related expenses, and non-controlling interests (net income ÷ operating income 46%). This value reflects that compression at face value; if the factors are temporary, the underlying normalized value 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 quarter-end are used, resulting in 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 / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. 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 with professionals as necessary.

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