Revenue growth despite a sharp decline in profit margin; recovery in second-half profitability is the key to achieving the full-year forecast

Revenue for January through June 2026 was ¥13,092 million, an increase of ¥1,618 million from ¥11,474 million in the same period of the previous year. Operating profit, however, fell ¥473 million, from ¥1,470 million to ¥997 million, while the operating margin declined 5.2 percentage points, from approximately 12.8% to approximately 7.6%. The expansion in revenue did not translate directly into profit growth, making profitability, rather than volume, the central issue in these results.

According to the reconciliation table in the earnings presentation, cost of revenue increased ¥1,899 million against a ¥1,617 million increase in revenue, reducing gross profit by ¥281 million. SG&A expenses also increased ¥191 million, from ¥648 million in the same period of the previous year to ¥840 million, resulting in a ¥472 million decline in operating profit. The company attributed the increase in SG&A expenses to the execution of initiatives and investments incorporated into its full-year plan, including the transition to a holding-company structure, higher personnel expenses associated with organizational expansion, and the costs of introducing shareholder benefits.

The company explained that the decline in margins reflected not only higher SG&A expenses accompanying business expansion, but also the impact of specific large projects on profitability. However, revenue, cost of revenue, gross margins and differences in completion timing have not been broken down by project on a monetary basis. In the third quarter, it will be necessary to assess whether segment profit in the Asset Creation business can recover from ¥922 million in the first half, down 30.3% year on year, and whether the deterioration in profitability on large projects was temporary.

The full-year forecasts remain unchanged at revenue of ¥27,500 million, operating profit of ¥2,200 million, ordinary profit of ¥2,100 million and net income attributable to owners of the parent of ¥1,400 million. First-half progress rates were 47.6% for revenue, 45.4% for operating profit, 44.6% for ordinary profit and 42.6% for net income, and the company considers performance to be progressing smoothly in line with its plan. Under a simple 75% benchmark, cumulative third-quarter revenue of ¥20,625 million and operating profit of ¥1,650 million would provide reference points. However, because the timing of project completion and handover causes significant fluctuations, the company should be assessed not on an even-progress basis but on whether profitability has recovered by the third quarter.

In the next earnings release, we will review the operating margin, cost-of-revenue ratio and cumulative progress in SG&A expenses, as well as the outlook for securing ¥1,203 million in second-half operating profit needed to achieve the full-year forecast. If the decline in profitability on specific large projects continues, achieving the operating profit forecast will be difficult even if revenue reaches plan. Accordingly, disclosure of project-level gross margins, additional costs, schedule changes, and completion and handover timing will be important.