Can the return to profitability in 1Q translate into H1 profit progress?

In 1Q of the fiscal year ending March 2027, revenue increased 15.7% year on year from ¥30,234 million to ¥34,971 million. Operating results turned from a loss of ¥858 million in the previous year’s quarter to a profit of ¥1,081 million, while ordinary results turned from a loss of ¥71 million to a profit of ¥2,007 million. Quarterly net profit attributable to owners of the parent was ¥1,443 million, a substantial 143.6% increase year on year.

The operating margin rose approximately 5.9 percentage points from approximately negative 2.8% in the previous year’s quarter to approximately 3.1% in the current quarter. The company attributed this to efficient execution of a large volume of carried-over projects, securing orders for new projects and steady progress on highly profitable projects. However, 1Q operating profit represented only approximately 4.5% of the full-year forecast of ¥23,890 million, while revenue progress was approximately 14.4% against the full-year forecast of ¥242,310 million. It is therefore too early to assess the likelihood of achieving the full-year plan based solely on the return to profitability in 1Q.

The company has seasonality in which fixed costs are incurred throughout the year, while project completion, handover and revenue are concentrated in the fourth quarter. Accordingly, it is not unusual for H1 profit not to reach a simple half of full-year profit. However, it will be important to assess how much operating profit accumulates in H1, and whether the improved profitability seen in 1Q resulted from the progress of temporarily high-margin projects or has spread across multiple projects.

At the next results announcement, cumulative H1 revenue, operating profit, ordinary profit and profit attributable to owners of the parent should be disclosed together with progress rates against the full-year forecasts. The company did not prepare a cash flow statement for 1Q, so the cash-flow support for earnings cannot be verified. At the interim stage, changes in trade receivables, costs on uncompleted construction contracts and trade payables should also be reviewed. Whether the full-year forecasts and annual dividend of ¥127 are maintained, or revised in response to improved profitability, will also be an important factor in assessing the H1 results.