Sharp profit growth in Q1 marks a strong start toward the full-year forecast

FY2027-Q1 revenue was ¥223.704 billion, operating profit was ¥27.845 billion, ordinary profit was ¥29.187 billion, and quarterly net income attributable to owners of the parent was ¥18.329 billion. These figures represented year-on-year increases of 25.7%, 153.5%, 111.0% and 118.1%, respectively, while the operating margin rose from approximately 6.2% in the year-earlier quarter to approximately 12.4% in the current quarter. The full-year forecasts have been revised to revenue of ¥860.0 billion, operating profit of ¥71.0 billion, ordinary profit of ¥79.0 billion and net income of ¥55.0 billion.

On a simple calculation, Q1 progress toward the full-year forecasts was 26.0% for revenue, 39.2% for operating profit, 36.9% for ordinary profit and 33.3% for net income. Revenue was broadly in line with the 25% passage of the fiscal year represented by one quarter, while profits were well ahead, meaning that profits are currently running ahead of revenue growth. Operating profit in particular reached nearly 40% of the annual plan in just three months. In FY2027-H1, it will be necessary to determine whether this lead was driven by rising market conditions and inventory valuation differences or by underlying improvements in profitability.

At the earnings briefing, factors cited for raising the full-year forecast included higher methanol market prices in the first half, price pass-through, strong BT materials, a temporary increase in demand and inventory valuation differences. For the second half, however, the company expects temporary cost increases from the postponement of scheduled maintenance at overseas polycarbonate sites and problems at existing lens monomer plants. It is therefore too early to use Q1 profit progress alone as evidence that the full-year targets will be achieved. Key points in FY2027-H1 will be whether operating profit approaches at least 50% of the full-year forecast and whether the factors expected to reduce second-half profit remain limited as assumed by the company.

At the next earnings release, revenue, operating profit, ordinary profit and net income for Q2 alone and for the cumulative first half should be compared with the current full-year forecasts. Other focal points will be whether the company maintains the full-year forecasts disclosed in Q1 or revises them again because of the expected impact of second-half maintenance and operational problems, and how much detail it provides on the factors driving operating profit. No Q1 cash flow statement was prepared, and operating cash flow was not disclosed, so in the first half it will also be necessary to determine whether the increase in profit translated into actual cash generation after working capital and investment requirements.