Full-year forecasts revised downward, with revenue growth continuing alongside margin compression

The initial FY2027 plan called for revenue of ¥4,412 million, operating profit of ¥425 million, ordinary profit of ¥401 million and net income attributable to owners of the parent of ¥327 million. In contrast, the revised plan at the end of October called for revenue of ¥4,350 million, operating profit of ¥326 million and net income of ¥254 million. While the downward revision to revenue was limited to ¥62 million, or approximately 1.4%, operating profit was cut by ¥99 million, or approximately 23.3%, and net income by ¥73 million, or approximately 22.3%, showing much larger revisions on the profit side. The operating margin is also calculated to decline from approximately 9.6% under the initial plan to approximately 7.5% after the revision.

The company cited budget reductions and lost major projects, as well as brokerage fees related to the acquisition of SEIRYO shares and business restructuring costs, among the reasons for the revision. The ordinary profit forecast was also lowered from approximately ¥401 million to approximately ¥281 million, suggesting that the downside in profit including non-operating expenses may exceed the revision to operating profit. At the next results announcement, it will be necessary to distinguish how much of the brokerage fees and restructuring costs is one-off and how much impact remains on normal operating earning power.

First-quarter revenue was ¥971 million and operating profit was ¥33 million, up 38.7% and 96.3%, respectively, year on year. Ordinary profit, however, was ¥18 million, down 25.2%. Progress against the initial full-year plan was approximately 22% for revenue, 8% for operating profit, 5% for ordinary profit and 6% for net income, meaning that progress in the individual profit measures lagged the revenue ramp-up. The company said revenue was broadly in line with expectations, but profit was burdened by one-off costs and fixed costs, with the plan dependent on restructuring benefits emerging in the second half.

At the next FY2027-H1 results announcement, the focus should be not only on how much of the revised ¥4,350 million revenue plan was achieved in the first half, but also on the amount that must be carried into the second half to reach ¥326 million in operating profit. Based on first-quarter results, the company needs a further ¥3,379 million in revenue and ¥293 million in operating profit. On a simple average basis, this would require approximately ¥1,126 million in revenue and approximately ¥98 million in operating profit per quarter from the second quarter onward. Without additional disclosure by service and project size on whether weakness in major projects is temporary or reflects a change in the project mix itself, it will be difficult to assess the likelihood of achieving the plan.