Electric Power Development Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured higher revenue and operating income at the operating level due to the expansion of its power generation and overseas businesses, Ordinary Income and Net Income declined substantially because of the adverse impact from the sharp decline in equity-method investment gains, which had been strong in the previous year, and the expansion of foreign exchange losses. Revenue was ¥2,802.7B (+12.0% YoY), while Operating Income was ¥362.8B (+11.7% YoY; the Operating Margin was 12.9%, broadly flat YoY), both remaining solid. In contrast, Ordinary Income was ¥395.6B (-45.9% YoY), and Net Income attributable to owners of the parent was ¥274.2B (-47.3% YoY). The primary factors behind the decline in Ordinary Income were the sharp contraction in equity-method investment gains to ¥101.1B from ¥465.2B in the previous year, combined with an increase in interest expenses (¥86.1B, +26.3%) and an expansion of foreign exchange losses (¥28.3B). Consolidated Net Income, including non-controlling interests, was ¥301.9B (-42.8% YoY). Accordingly, the remainder of this report is based on Net Income attributable to owners of the parent.

Factors Affecting Performance

【Revenue】Revenue of ¥2,802.7B increased +12.0% YoY. By segment, the Power Generation Business recorded ¥1,894.9B (+7.1%, composition ratio 67.6%), the Overseas Business ¥664.6B (+33.8%, composition ratio 23.7%), the Transmission and Transformation Business ¥121.9B (-0.1%), and the Power-Related Peripheral Business ¥95.7B (+6.4%). The primary driver of revenue growth was the substantial expansion of the Overseas Business.

【Profit and Loss】Operating Income was ¥362.8B (+11.7%), and the Operating Margin of 12.9% was broadly flat compared with 13.0% in the previous year, indicating stable profitability in the core businesses. Meanwhile, Ordinary Income declined to ¥395.6B (-45.9%). The three factors were: equity-method investment gains, a key component of non-operating income, sharply declined to ¥101.1B from ¥465.2B in the previous year; interest expenses increased to ¥86.1B (¥68.2B in the previous year, +26.3%); and foreign exchange losses expanded to ¥28.3B (¥8.0B in the previous year). Net Income attributable to owners of the parent was ¥274.2B (-47.3%), representing a level after deducting ¥27.7B in Net Income attributable to non-controlling interests, with an effective tax rate of approximately 23.7%. In conclusion, the Company posted higher revenue and Operating Income at the operating level, but higher revenue and lower earnings from the Ordinary Income level onward due to deterioration in non-operating items.

Segment Analysis

The Power Generation Business recorded segment profit of ¥201.5B (¥205.2B in the previous year, -1.8%). Although revenue increased, its profit margin remained broadly flat at 10.6%. The Overseas Business recorded segment profit of ¥150.0B (¥464.9B in the previous year, -67.7%), representing a substantial contraction, while its profit margin fell sharply to 22.6% (equivalent to 93.6% in the previous year). The high level of segment profit in the Overseas Business in the same period of the previous year appears to have included substantial equity-method investment gains, and the resulting adverse reaction directly led to the decline in consolidated Ordinary Income. The Transmission and Transformation Business recorded profit of ¥19.6B (¥26.0B in the previous year, -24.6%), while the Power-Related Peripheral Business recorded profit of ¥19.0B (¥28.4B in the previous year, -33.3%); both businesses posted lower earnings. Consolidated profit remains highly sensitive to fluctuations in the Overseas Business. Including the declines in other segments, the underlying resilience of the Power Generation Business excluding non-operating and equity-method factors stands out on a relative basis.

Key Financial Indicators

【Profitability】The Operating Margin was 12.9%, broadly flat from 13.0% in the previous year, indicating that core-business profitability was largely maintained. In contrast, the Net Profit Margin, based on Net Income attributable to owners of the parent, declined substantially to 9.8% from 20.8% in the previous year.【Cash Quality】Accounts receivable increased to ¥1,350.9B (¥1,100.0B in the previous year, +22.8%), while inventories increased to ¥816.8B (¥773.4B in the previous year, +5.6%), indicating an increase in working capital and suggesting that asset accumulation has somewhat preceded profit growth.【Investment Efficiency】ROE was 1.9%, down 1.8pt from approximately 3.7% in the same period of the previous year. The primary cause was the sharp decline in the Net Profit Margin, while no significant changes were observed in total asset turnover or financial leverage.【Financial Soundness】The Equity Ratio was 40.6% (41.0% in the previous year), broadly flat. The Current Ratio was 181.9% and the Quick Ratio was 160.9%, maintaining favorable liquidity levels. Interest coverage was 4.2x (4.8x in the previous year), indicating a slight decline in debt-servicing capacity due to higher interest expenses.

Cash Flow Analysis

As cash flow statement data has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥3,775.4B, down ¥194.2B (-4.9%) from ¥3,969.6B in the previous year. Meanwhile, accounts receivable and inventories increased by ¥250.9B and ¥43.4B, respectively, suggesting that the accumulation of working capital may have affected the cash balance. At the same time, short-term borrowings increased by ¥239.5B (+289.6%) from ¥82.7B to ¥322.2B, while long-term borrowings also increased by ¥96.8B. Property, plant and equipment and other fixed assets increased by ¥589.6B, indicating a structure in which funding needs associated with ongoing capital investment were supplemented through borrowing. Treasury stock declined substantially from ¥207.7B in the previous year to ¥7.3B, suggesting that changes in the capital structure resulting from cancellation or disposal were also reflected in funding trends.

Quality of Earnings

While Operating Income, a recurring source of earnings, remained solid at ¥362.8B, the factor that depressed Net Income was the set of non-operating items with a high degree of non-recurring characteristics. Non-operating income of ¥156.1B consisted of equity-method investment gains of ¥101.1B (¥465.2B in the previous year), interest income of ¥22.2B, and dividend income of ¥20.5B. The sharp decline in equity-method investment gains was the largest factor behind the decline in Ordinary Income. Non-operating expenses were ¥123.3B, with interest expenses increasing to ¥86.1B (+26.3%) and foreign exchange losses expanding to ¥28.3B (¥8.0B in the previous year). Against Ordinary Income of ¥395.6B, Net Income attributable to owners of the parent was ¥274.2B, a divergence of -30.7%, due to income taxes of ¥93.7B (effective tax rate of approximately 23.7%) and Net Income attributable to non-controlling interests of ¥27.7B. Comprehensive Income was ¥368.3B, a difference of +¥66.4B from consolidated Net Income of ¥301.9B. The primary reason was that foreign currency translation adjustments turned from -¥297.2B in the previous year to +¥101.5B. The fact that yen depreciation increased Comprehensive Income through translation gains on overseas assets indicates a direction different from the trend in Net Income and warrants attention.

Earnings Forecast and Guidance

Progress against the Full-Year plan was somewhat slow for Revenue at 20.3% (4.7pt below the standard 25%), while progress on the earnings side exceeded the standard, with Operating Income at 29.0%, Ordinary Income at 31.6%, and Net Income at 33.9% against the forecast of ¥810B attributable to owners of the parent. The Company has made no revisions to either its earnings forecast or dividend forecast. The Full-Year plan calls for Revenue of ¥13,800B (+16.7%), Operating Income of ¥1,250B (+23.8%), and Ordinary Income of ¥1,250B (-21.2%, reflecting a reaction from the previous year's results). The Full-Year Ordinary Income plan itself incorporates a year-on-year decline. The fact that earnings progress exceeded revenue progress as of Q1 suggests that, in addition to improved profitability at the operating level, seasonal factors such as the time lag in fuel-cost adjustments may unwind toward the second half of the fiscal year.

Shareholder Returns

The annual dividend forecast is ¥105 per share, with no revision to the dividend forecast during the quarter. Based on approximately 176.03 million shares calculated by deducting treasury stock from the number of issued shares, total annual dividends are estimated at approximately ¥18.48B, implying a Payout Ratio of approximately 22.8% against the Full-Year Net Income plan of ¥810B attributable to owners of the parent. Given the level of cash and deposits of ¥3,775.4B and the Current Ratio of 181.9%, the Company appears to have secured sufficient funds to maintain dividends for the time being. Treasury stock declined substantially from ¥207.7B in the previous year to ¥7.3B, indicating an observable change in the capital structure resulting from cancellation or disposal.

Risk Factors

1. Equity-method investment gain volatility risk: Equity-method investment gains were ¥101.1B, a substantial decrease from ¥465.2B in the previous year. This was the primary cause of the decline in Ordinary Income (-45.9%), and fluctuations in the performance of overseas equity-method affiliates may continue to be a source of Ordinary Income volatility.

2. Interest rate and foreign exchange risk: Interest expenses increased to ¥86.1B (¥68.2B in the previous year, +26.3%), while foreign exchange losses expanded to ¥28.3B (¥8.0B in the previous year). Short-term borrowings also increased +289.6% from ¥82.7B to ¥322.2B, and the interest burden could increase further in a rising interest-rate environment. Interest coverage declined slightly to 4.2x from 4.8x in the previous year.

3. Increase in working capital: Accounts receivable increased to ¥1,350.9B (¥1,100.0B in the previous year, +22.8%), and inventories increased to ¥816.8B (+5.6%), while cash and deposits declined to ¥3,775.4B (¥3,969.6B in the previous year, -4.9%). The impact of the accumulation of working capital on cash management should be monitored going forward.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Operating Margin is slightly below the industry median, while the Net Profit Margin exceeds the median, indicating that profitability is broadly at an industry-standard level.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, indicating a relatively high pace of revenue growth within the power industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin of 12.9% was maintained at approximately the previous year's level, indicating stable core-business profitability. Meanwhile, the substantial declines in Ordinary Income and Net Income were largely attributable to non-operating items such as equity-method investment gains and foreign exchange losses.

2. Full-Year progress rates were 29.0% for Operating Income and 33.9% for Net Income, exceeding the standard 25% and indicating that earnings were trending somewhat above expectations. The Company has made no revisions to its earnings or dividend forecasts.

3. Profit in the Overseas segment declined substantially from ¥464.9B in the previous year to ¥150.0B, suggesting that factors boosting the prior-year results may have been present. The normalization of overseas equity-method investment gains is a structural point of focus that will determine future trends in Ordinary Income.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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 of any specific investment action.

Sensitivity: ¥7,777–¥8,237 at Cost of Equity ±1%, and ¥7,972–¥8,021 at ω±0.1.

Notes:

• 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 (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(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 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, and you should consult a professional advisor as necessary.

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