1Q earnings growth was driven by a timing lag, creating significant downside risk in the second half

Revenue in 1Q of the fiscal year ending March 2027 was ¥2,271.8 billion, operating profit was ¥307.5 billion and profit for the quarter attributable to owners of the parent was ¥217.5 billion. Profit before tax excluding inventory effects and financial costs, as presented in the earnings presentation materials, was ¥156.1 billion, exceeding the full-year forecast of ¥140.0 billion on a simple comparison. However, the company has not disclosed a numerical progress rate against the full-year forecast, so progress against the plan needs to be viewed separately from quarterly market effects and seasonality.

The improvement from the year-earlier period depended heavily on timing differences between prices and costs, particularly for fuel oil. In the earnings bridge, the timing lag contributed +¥98.7 billion, overseas trading +¥15.8 billion and product imports and exports +¥13.2 billion. In contrast, lower core-fuel volumes reduced earnings by ¥5.7 billion, core-fuel margins by ¥5.5 billion, in-house fuel costs and other items by ¥21.0 billion, and basic chemicals volumes by ¥7.3 billion. Volumes and underlying profitability therefore did not improve across the board.

The 1Q Dubai crude oil price was $96.1/barrel, compared with an average full-year assumption of $81.3/barrel, $75/barrel for 2Q–4Q and $65/barrel for 4Q. The company assumes that falling crude prices will generate a negative timing lag in 2Q–4Q, so the 1Q figure of ¥156.1 billion cannot be treated as the full-year underlying earnings level. In FY2027-H1, it will be important to separate the contributions from crude oil prices, domestic product margins, inventory effects and the timing lag.

The key question is how much profit excluding inventory effects remains after removing the timing lag. If the timing-lag contribution contracts in H1 while lower core-fuel volumes and weaker margins continue, the 1Q outperformance against the ¥140.0 billion full-year forecast will prove temporary. Conversely, if overseas trading and product imports and exports continue to contribute after the timing lag reverses, and underlying fuel-oil margins improve, there may be room for the full-year forecast to be exceeded.