Can the slow start in 1Q be recovered in H1?

1Q revenue was ¥24,573 million, down 23.8% year on year. Progress against the full-year revenue forecast of ¥112,600 million was 21.8%, ¥3,577 million below the ¥28,150 million implied by simply applying the 25% elapsed-period benchmark. Even based on revenue alone, unless there is some recovery in H1, the company will become more dependent on the second half to achieve its full-year forecast.

On the earnings side, 1Q operating profit was a loss of ¥494 million. The simple 25% benchmark against the full-year operating profit forecast of ¥1,300 million is a profit of ¥325 million, leaving a gap of ¥819 million versus the 1Q result. Progress toward the full-year operating profit forecast was negative and significantly behind revenue progress of 21.8%. Ordinary profit was ¥528 million and profit attributable to owners of the parent was ¥55 million, so the company remained profitable at those levels, but this does not mean that the weakness at the operating level has been resolved.

Simple quarterly apportionment does not take into account the timing of revenue recognition or construction progress in the construction industry. Accordingly, ¥28,150 million and ¥325 million are merely mechanical benchmarks for measuring progress, not the company’s H1 targets. The company, meanwhile, says that public-sector investment and private-sector construction investment remain firm, while material and energy prices and labor costs continue to rise. In H1, it will be necessary to assess separately not only whether revenue increases, but also whether the company can absorb cost increases and return to operating profitability.

At the next earnings announcement, it will be important to compare cumulative H1 revenue and operating profit, as well as construction business revenue and profit, with the full-year forecasts. In particular, if H1 operating profit remains at or below zero, a substantial build-up of profit in the second half will be required to achieve the full-year target of ¥1,300 million. In addition, we will want to confirm whether the full-year forecasts of ¥112,600 million in revenue and ¥1,300 million in operating profit are revised and, if so, whether the reasons are attributed to material costs, labor costs or project profitability.