Profit is ahead of plan, but achieving the full-year targets will require the first-half performance to prove repeatable.

FY2027-Q1 revenue was ¥42,247 million, up just 1.2% year on year, while operating profit was ¥3,506 million, ordinary profit was ¥3,519 million and net income attributable to owners of the parent was ¥2,238 million, representing year-on-year increases of 42.4%, 43.1% and 44.9%, respectively. According to the presentation materials, gross margin was 19.8% and operating margin was 8.3%, improving by 0.7 and 2.4 percentage points, respectively, from the same period a year earlier. This is a typical margin-expansion phase, with profit growth outpacing revenue growth.

The full-year forecasts are revenue of ¥170,000 million, operating profit of ¥10,000 million, ordinary profit of ¥10,000 million and net income of ¥6,100 million. Q1 progress was approximately 24.9% for revenue, 35.1% for operating profit and approximately 36.7% for net income. Revenue was broadly in line with the 25% share represented by one quarter of the year, while operating profit and net income were ahead. However, to reach 50% of the full-year forecasts in the first half, Q2 alone must generate ¥42,753 million in revenue and ¥1,494 million in operating profit. The hurdle is not high on the profit side, but revenue must slightly exceed Q1's level.

Profit improvement reflected not only higher revenue in the semiconductor business, but also gross margin improvement from optimizing non-billable personnel and negotiating higher rates, as well as SG&A controls centered on recruitment expenses. The factors behind the Q1 change in operating profit were a ¥90 million benefit from higher revenue, a ¥620 million benefit from gross margin improvement, a ¥160 million benefit from lower personnel expenses and a ¥490 million benefit from lower recruitment expenses, partly offset by a ¥330 million negative impact from share-based compensation expense. The amount of profit improvement was clearly presented, but the amounts attributable individually to higher rates from negotiations, improved utilization and sustainable recruitment-expense reductions were not disclosed.

In FY2027-H1, the first points to check are whether Q2 revenue exceeds ¥42,753 million and whether Q2 operating profit reaches ¥1,494 million. In addition, whether gross margin remains around 19.8% and operating margin stays in the 8% range will determine the likelihood of achieving full-year operating profit of ¥10,000 million. Q1 marked a record high for quarterly profit, but the key questions are whether semiconductor demand growth, weakness in the automotive business, and changes in recruitment costs and share-based compensation expense continue to work in the same direction in Q2.