Q1 operating profit growth outpaced revenue growth, making the sustainability of profitability the key issue for FY2027-H1

In the first quarter of the fiscal year ending March 2027, revenue was ¥2,716 million, up 4.4% year on year, and operating profit was ¥223 million, up 61.9%. Operating profit had reached 27.9% of the full-year forecast of ¥800 million, 5.3 percentage points ahead of the 22.6% progress rate for revenue against its full-year forecast of ¥12,000 million. Profit grew faster than revenue, making this a quarter in which profitability improved alongside growth, rather than one driven solely by an increase in the number of projects.

In the same quarter of the previous year, revenue was ¥2,603 million and operating profit was ¥138 million, for an operating margin of approximately 5.3%. This quarter, operating profit was approximately 8.2% of revenue of ¥2,716 million, an improvement of approximately 2.9 percentage points. The company attributed the improvement in profit to the expansion of prime-contractor projects in the infrastructure and security fields, improved pricing on existing projects, the acquisition of higher-value projects and lower subcontracting costs at a subsidiary, but did not disclose the profit impact of each factor.

Assessing the quality of earnings requires separating the effects of gross margin, SG&A, lower subcontracting costs, changes in project pricing and the impact of the number of employees deployed. The Q1 materials show the factors behind revenue changes by several group companies, with amounts provided, but do not present a comparable bridge for operating profit. In addition, revenue and profit for the first quarter as a standalone 3-month period were not disclosed, so it is not possible to determine in which month the cumulative quarterly profit of ¥223 million was concentrated.

The full-year operating profit plan of ¥800 million corresponds to an operating margin of 6.7% and does not assume that the Q1 margin of 8.2% will simply continue. Accordingly, in FY2027-H1 it will be necessary to determine not only whether the operating margin exceeds 6.7%, but also whether Q1's outperformance reflects the continuing benefits of becoming a prime contractor and improving prices, or a temporary effect at a particular subsidiary, such as lower subcontracting costs. No extraordinary gains or losses or impairment losses were identified in Q1, so the key issue is whether improvement at the operating level continues in H1.