Hokkaido Electric Q1 FY2027: Revenue Up but Profit Plunges 44% on Fuel Cost Lag

Hokkaido Electric reported consolidated revenue of ¥214.48 billion in the April-June quarter, the first of fiscal 2027, up 5.9% year-on-year and breaking a two-quarter revenue decline. The core electric power business benefited from increased bilateral sales to other utilities, pushing operating revenue to ¥202.50 billion, up 6.3%. However, a sharp swing in the fuel cost adjustment mechanism from a gain a year earlier to a loss this quarter slashed operating profit by 44.3% to ¥24.45 billion. Recurring profit tumbled 55.0% to ¥18.76 billion, and net income attributable to parent shareholders fell 52.0% to ¥14.78 billion. The fuel cost lag impact alone eroded roughly ¥20 billion at the operating profit level, compounded by higher interest expenses and derivative losses.

For the full year ending March 2027, the company left its forecast unchanged: revenue of ¥970 billion (up 13.3%), operating profit of ¥48 billion (down 34.5%), and net profit of ¥22 billion (down 50.0%). The time-lag effect is expected to smooth out over the full year, but fuel price volatility and the uncertain timeline for restarting the Tomari nuclear plant remain key swing factors.

Hokkaido Electric’s reporting segments are Hokkaido Electric (generation and retail), Hokkaido Electric Network (transmission and distribution), and Other. The generation/retail segment posted external sales of ¥165.86 billion (77.3% of consolidated revenue) and segment profit of ¥21.20 billion, as higher bilateral sales boosted the top line. But the fuel cost adjustment loss dragged profit sharply lower. Progress on safety upgrades at the Tomari No.3 reactor continues, though it is not yet contributing to earnings.

The network segment recorded sales of ¥38.07 billion (17.7% of revenue) but a segment loss of ¥3.28 billion, reflecting heavy depreciation and repair costs. The loss widened from a year earlier, underscoring the need for more efficient asset management.

The Other segment, which includes IT services and construction subsidiaries, brought in ¥10.56 billion (4.9% of sales) and a profit of ¥2.69 billion, an improvement on the year-earlier period. Overall, the deterioration in generation/retail earnings outweighed the gains elsewhere.

Total assets at the end of June stood at ¥2,535.67 billion, up ¥64.62 billion from the previous fiscal year-end, driven by capital spending on carbon-neutrality measures and increased power demand. Construction in progress swelled due to the Tomari safety upgrades and renewable-energy investments. Liabilities rose ¥50.38 billion to ¥2,047.79 billion, mainly from long-term borrowings (up ¥102.6 billion to ¥643 billion) while bonds decreased by ¥50 billion. Net assets increased ¥14.24 billion to ¥487.87 billion, lifting the equity ratio slightly to 18.6% from 18.5%, still a low level that warrants caution.

Hokkaido Electric plans to raise its annual dividend by ¥1 to ¥33 per share (interim ¥16.5, year-end ¥16.5) for fiscal 2027, marking the third consecutive year of dividend growth. It will also maintain the ¥3 million annual dividend on its Class B preferred shares. While the commitment to shareholder returns is welcome, the payout is rising even as net profit falls sharply, pushing the payout ratio toward 70%. Cash and deposits declined from ¥184.6 billion at the start of the year to ¥160.0 billion, suggesting that investment and dividends are draining liquidity.

Key risks highlighted in the earnings release include:

• Fuel price volatility: LNG and coal prices are sensitive to geopolitical developments, and the time lag in fuel cost adjustments can amplify earnings swings.
• Tomari restart uncertainty: Safety reviews and local consent processes may drag on, delaying the plant's contribution and keeping substitute fuel costs high.
• Intensifying competition: Deregulation has fueled competition from new power providers, risking customer erosion and price pressure.
• Structural demand shifts: Demand growth from semiconductor plants and data centers may be offset by energy efficiency gains and depopulation, complicating investment recovery.
• Climate-change response: Decarbonization requires heavy spending on renewables, hydrogen, and ammonia co-firing, burdening the balance sheet.

The company maintained its initial full-year forecast for fiscal 2027: revenue of ¥970 billion (up 13.3% year-on-year), operating profit of ¥48 billion (down 34.5%), recurring profit of ¥30 billion (down 51.1%), and net profit of ¥22 billion (down 50.0%). The first-quarter progress rate was 22.1% for revenue and 50.9% for operating profit, a front-loaded start on profits that could reverse later as the fuel cost adjustment swings back.

Hokkaido Electric expects higher revenue from bilateral sales and rising power demand in Hokkaido, but sees profit weighed down by the fuel cost lag and increased depreciation. The outlook is sensitive to crude oil prices and exchange rates, and investors should monitor quarterly updates closely.

Two notable developments in the quarter were an accounting policy change and progress on Tomari’s safety upgrades. The company now capitalizes interest costs on funds used for power plant construction rather than expensing them immediately, a change justified by improved visibility of investment recovery for the Tomari No.3 reactor, following its selection in the long-term decarbonization auction and receipt of the reactor installation permit. The change boosted recurring profit by ¥110 million and net profit by ¥78 million this quarter.

On Tomari, safety construction for the No.3 unit, including anti-terrorism facilities, is underway. Although the completion date and local consent remain uncertain, a restart would dramatically improve the profit structure, potentially saving tens of billions of yen annually in fuel costs and enabling recovery of fixed costs. For Hokkaido Electric, the Tomari restart is the biggest medium-term catalyst.

Meanwhile, the company is advancing carbon-neutral initiatives such as ammonia co-firing tests at the Tomato-Atsuma plant and feasibility studies for offshore wind power. These growth investments will be a near-term drag but are necessary for long-term value creation.