Will the improvement in Q1 margins despite lower revenue continue into the first half?

FY2027-Q1 revenue was ¥30,665 million, down ¥3,454 million, or 10.1%, from ¥34,119 million in the same period of the previous year. Operating profit, meanwhile, rose ¥532 million, or 21.4%, to ¥3,012 million from ¥2,480 million. Ordinary profit was ¥2,873 million, and quarterly profit attributable to owners of the parent was ¥1,752 million. A simple calculation of the operating margin shows an increase of approximately 2.5 percentage points, from approximately 7.3% in the same period of the previous year to approximately 9.8%, representing a decline in revenue but an increase in profit.

However, the quarterly materials do not disclose specific amounts for gross profit, the cost-of-sales ratio or SG&A expenses, nor the amount of profit uplift from design changes, cost improvements or construction progress. The company has explained that construction materials prices remain elevated, supply constraints continue, labor rates are rising and skilled construction workers remain in short supply. It is therefore not yet possible to distinguish adequately between a structural improvement in operating profitability and a temporary improvement resulting from the mix of completed projects or the timing of expense recognition.

In FY2027-H1, we will want to review not only cumulative operating profit but also the gross margin, changes in SG&A expenses, project profitability in building and civil engineering, and the profit impact of design changes. The simple half-year progress benchmark against the full-year operating profit forecast of ¥10,800 million is ¥5,400 million, but the company has a seasonal pattern in which construction revenue is concentrated in the second half, particularly the fourth quarter. This level should therefore not be treated mechanically as a shortfall threshold. More important is whether the company can maintain an operating margin in the 9% range in the first half and provide a specific explanation for the rationale behind leaving its full-year forecast unchanged.