Assessing Q1’s shift toward higher value-added products despite lower sales

FY2027-Q1 revenue was ¥9,603 million, down 4.6% year on year. Operating profit was ¥852 million, ordinary profit was ¥1,141 million, and net income attributable to owners of the parent was ¥812 million, representing year-on-year increases of 10.5%, 19.4% and 19.8%, respectively. As operating profit increased despite lower revenue, the simple operating margin calculation comes to approximately 8.9%. This is above the 6.0% operating margin recorded in FY2026, the final year of KFW-2026.

The company explained that lower production volume resulting from planned adjustments to operating days was a factor behind the revenue decline. At the same time, it attributed the increase in profit to the introduction and expansion of higher value-added products, despite higher core-system implementation costs and depreciation and amortization related to capital expenditure. However, as of Q1, the amounts attributable to higher value-added products, pricing, volume, raw material and fuel prices, and productivity improvements have not been sufficiently disaggregated. In FY2027-H1, it will be necessary to determine whether the revenue decline reflects temporary operating adjustments or weaker demand and orders.

The key question is whether the approximately 8.9% operating margin represents a structural improvement driven by broader adoption of higher value-added products, or a temporary fluctuation caused by operating-day adjustments or the timing of expense recognition. In the first-half results, we will assess sales and profit by product group, sales or production volume, progress on passing through price increases, and the amounts of core-system costs and depreciation and amortization, in order to evaluate the sustainability of a situation in which profit grows despite lower revenue.