Chugoku Electric Power (TSE:9504) Climbed, What Is Behind The Fresh Attention?

Chugoku Electric Power (TSE:9504) drew investor attention after filing a shelf registration for up to ¥700 billion in bonds. This highlights upcoming funding plans that could influence the company’s capital structure and future investment priorities.

For context, Chugoku Electric Power’s share price has gained 7.22% over the past month and 18.58% over the past 90 days. The latest share price of ¥1,008.5 sits alongside a 1-year total shareholder return of 16.63% and steady 3 and 5 year total shareholder returns, which suggests that recent momentum has been building as this new funding plan comes into focus.

Compare Chugoku Electric Power’s bond funded plans with other regulated utilities by scanning our hand picked 39 power grid technology and infrastructure stocks focused on grid upgrades and infrastructure resilience.

After a sharp move and a bond plan that reshapes expectations around funding, the question for Chugoku Electric Power is whether most of the easy upside is already in the rear view mirror or whether the valuation still leaves room ahead.

Preferred P/E of 9.6x for Chugoku Electric Power: Is it justified?

On a simple earnings yardstick, Chugoku Electric Power trades on a P/E of 9.6x, which puts the current ¥1,008.5 share price below several key comparison points.

The P/E ratio compares the share price to earnings per share and is a common way investors gauge how much they are paying for current profits. For a regulated utility such as Chugoku Electric Power, where revenue growth is forecast at 1.2% per year and earnings are forecast to grow 11.48% per year, the P/E level often reflects what the market is willing to pay for relatively steady profit expectations.

Right now, the stock trades on a lower P/E than the estimated fair P/E of 11.6x, which suggests the market valuation could be below the level the fair ratio points to. However, the same 9.6x P/E is higher than the 7x peer average, so investors are paying a premium compared to that peer set while still sitting below both the Asian Electric Utilities industry average of 13.9x and the wider JP market P/E of 14.1x. This mix of lower than market and industry, but higher than peers, points to a company that the market prices somewhere between its immediate peer group and the broader sector benchmarks.

Explore the SWS fair ratio for Chugoku Electric Power.

Result: Price-to-Earnings of 9.6x (ABOUT RIGHT)

However, you still need to watch for risks such as regulatory changes that affect allowed returns and execution challenges around Chugoku Electric Power’s large bond funded investment plans.

Find out about the key risks to this Chugoku Electric Power narrative.

Another view on Chugoku Electric Power’s value

While the P/E of 9.6x points to reasonable pricing for Chugoku Electric Power, the SWS DCF model paints a different picture. On this view, the current ¥1,008.5 share price sits above an estimated future cash flow value of ¥856.76, which suggests the stock screens as overvalued on cash flows. Which signal do you weigh more heavily?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Chugoku Electric Power for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 24 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Feeling mixed about Chugoku Electric Power after these signals? Take a closer look at both sides of the story and weigh the 2 key rewards and 4 important warning signs.

Looking for more investment ideas beyond Chugoku Electric Power?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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