Hokkaido Electric Q2 FY2027: Revenue rises, profit nearly halves

Hokkaido Electric reported higher revenue but sharply lower earnings in the first half of FY2027. Revenue rose 7.1% from a year earlier to ¥441.3 billion, operating profit fell 49.4% to ¥34.4 billion, and net income attributable to owners of the parent dropped 54.1% to ¥20.6 billion. The operating margin declined to about 7.8% from about 16.5% a year earlier.

• Revenue growth: Revenue increased by ¥29.3 billion from the same period last year, led by higher electricity business revenue, with a small increase in other businesses.
• Operating profit decline: Operating profit fell by ¥33.5 billion. Operating expenses rose by ¥62.9 billion, more than offsetting the increase in operating revenue.
• Ordinary profit decline: Ordinary profit fell 55.8% to ¥27.4 billion. Interest payments rose to ¥10.4 billion from ¥6.7 billion a year earlier.

Revenue growth failed to translate into profit, as higher electricity business revenue was not enough to absorb rising costs. The earnings release does not break down the increase in operating expenses, including fuel costs, limiting analysis of the drivers by expense category. A change in accounting policy to capitalize interest paid on funds used for construction lifted ordinary profit by ¥241 million and net profit by ¥171 million; without the change, earnings would have been lower.

The earnings release does not disclose operating profit by segment, so the figures below show operating revenue for the electricity business and other businesses as reported in the income statement. Electricity business revenue rose 7.5% from a year earlier and drove overall growth, while the increase in other business revenue was modest.

The electricity business accounts for the vast majority of revenue, underscoring how strongly Hokkaido Electric's results are shaped by electricity sales and the costs of supplying power. The release does not provide a breakdown of profit by business, so it is not possible to determine whether revenue growth improved the profitability of either business line.

Hokkaido Electric left its consolidated forecast for FY2027 unchanged, projecting revenue of ¥1.025 trillion, operating profit of ¥61 billion and net profit of ¥33 billion. The company expects revenue to rise 19.7% from the previous year, while its forecast calls for operating profit to fall 16.7% and ordinary and net profit to decline 25.0% each.

The earnings release does not include the previous forecast or previous-year results, so those figures have not been filled in. First-half net profit was about 62% of the full-year forecast, while operating profit reached about 56%. Given the cost increases in the first half, the key question for the forecast is how the company will restore margins in the second half.

Total assets at the end of September rose ¥104.1 billion from the end of the previous fiscal year to ¥2.5752 trillion. The equity ratio increased 0.2 percentage points to 18.7% from 18.5%. Hokkaido Electric expects an annual dividend of ¥33 per share, up ¥1 from ¥32 in the previous year.

The earnings release does not include figures from the interim consolidated cash flow statement, so operating, investing and financing cash flows cannot be assessed. Cash and deposits fell ¥46.4 billion from the previous fiscal year-end, while bonds increased by ¥60 billion. With investment continuing in supply capacity, including safety work at Unit 3 of the Tomari plant, investors will watch whether Hokkaido Electric can maintain its financial footing while raising its dividend. The release does not mention a share buyback.

Hokkaido Electric changed its accounting policy from FY2027 to capitalize, rather than expense, interest paid on funds used to build Unit 3 of the Tomari nuclear power plant. The company said the change followed the selection of its safety work in a long-term decarbonized power auction and approval of a change to its reactor installation permit, which it said increased the predictability of investment recovery.

• Tomari restart preparations: The company is advancing safety work on Unit 3 and preparations for a restart, with safety as a prerequisite.
• Accounting policy change: Capitalizing interest paid on construction funding lifted interim ordinary profit by ¥241 million and net profit by ¥171 million.
• Preparing for future electricity demand: Hokkaido Electric is planning for the arrival of next-generation semiconductor factories and large data centers in Hokkaido, as well as expanded renewable energy, and says it will secure supply and balancing capacity.

The policy change supports reported earnings but does not generate additional cash or reduce the underlying investment burden. Progress on safety work and the restart of the Tomari plant will be important to the company's future power supply and its ability to recover its investment.

Although revenue rose in the first half, operating profit was roughly half its year-earlier level, highlighting how changes in costs can directly affect profitability. Hokkaido Electric's challenge is to meet growing electricity demand while balancing investment in generation facilities with its financial position.

• Cost increases and profitability: Operating expenses rose ¥62.9 billion from a year earlier, weighing on operating profit. The company did not detail the reasons for the increase in the earnings release, and the trajectory of costs will affect full-year earnings.
• Interest burden: Interest payments increased to ¥10.4 billion from ¥6.7 billion a year earlier. If borrowing and bond financing continue, higher interest costs could weigh on earnings.
• Tomari construction and restart: Safety work is proceeding, with safety central to the business plan. Whether construction and restart preparations progress as expected will affect future supply capacity and investment recovery.
• Demand outlook and capital investment: The company anticipates changes in demand and the supply mix as semiconductor factories and data centers arrive and renewable energy expands. The timing of demand and the scale of required investment remain uncertain.

The full-year forecast remains unchanged, and the company cautions that actual results may differ from its projections for various reasons. Investors will look for more detail on the drivers of higher costs and plans to improve second-half earnings.