Q1: margins improved despite lower revenue; FY2027-H1 will test sustainability

Revenue for the first quarter of the fiscal year ending March 2027 was ¥17,848 million, down ¥1,233 million, or 6.5%, from ¥19,081 million in the same period last year. Operating profit, however, increased ¥547 million, or 33.7%, to ¥2,169 million from ¥1,622 million. Ordinary profit rose 31.6% to ¥2,506 million, while quarterly net profit attributable to owners of the parent increased 28.0% to ¥1,736 million. Revenue declined while profit increased at the same time.

The improvement in margins was clear. Gross margin rose 6.3 percentage points from 19.2% in the same period last year to 25.5%, while operating margin increased 3.7 percentage points from 8.5% to 12.2%. Q1 cost of sales was ¥13,305 million and SG&A was ¥2,373 million, equivalent to approximately 74.5% and 13.3% of revenue, respectively. The company cites continued strategic sales activities and productivity improvements as factors behind the increase in operating profit, but has not disclosed the effect in millions of yen of each factor or the changes in individual cost-of-sales items.

The full-year plan calls for gross profit of ¥23.1 billion, a gross margin of 22.0%, operating profit of ¥11.0 billion and an operating margin of 10.5%. Q1's gross margin of 25.5% was 3.5 percentage points above the full-year plan. Accordingly, in FY2027-H1, it will be important to determine whether the gross margin can remain in the 25% range after revenue recognition for data center projects increases, or whether it normalizes toward approximately 22% as the project mix changes. To regard Q1's high margin as representative of full-year earning power, the impact of the project mix resulting from delayed revenue recognition must be separated out.

At the next results announcement, the focus will be on H1 cumulative cost of sales of ¥13,305 million and SG&A of ¥2,373 million, year-on-year changes, and changes by expense category. Another focus will be whether the ¥547 million increase in operating profit can be presented on a monetary basis by factor, including improved construction profitability, productivity gains, SG&A control and other factors. If revenue recognition expands while margins remain high, confidence in the full-year plan will increase. If gross margin falls substantially despite higher revenue, however, the Q1 profit growth was more likely dependent on the project mix or temporary profitability factors.