First-half guidance was revised upward on plant orders, while full-year guidance was left unchanged

In the revision to first-half guidance announced in September, revenue was raised by ¥34.3 million, or approximately 5.9%, from the previous forecast of ¥5,811 million to ¥6,154 million. Operating profit was increased by ¥103 million, or approximately 36.7%, from ¥281 million to ¥384 million, while net income was increased by ¥57 million, or approximately 32.9%, from ¥173 million to ¥230 million. Since the increase in profit forecasts substantially exceeds the increase in revenue, it will be important to determine whether the additional orders generate a certain level of profit rather than merely increasing recognized revenue.

The reasons given for the revision were primarily orders for in-period construction projects in the Plant Business and additional orders for construction work carried over from the previous fiscal year. However, first-quarter plant-related revenue was ¥2,058.7 million, down 7.5% year on year, and segment profit was ¥327.947 million, down 12.2%. Accordingly, the upward revision to first-half guidance should be viewed as an improvement based on the expected progress of ordered projects and recognition of revenue from additional construction work in the second quarter, rather than as a result of strong first-quarter performance.

Full-year guidance remains unchanged at revenue of ¥13,050 million, operating profit of ¥1,125 million and net income of ¥734 million. Revised first-half operating profit of ¥384 million represents approximately 34.1% of the full-year plan, while first-half revenue of ¥6,154 million represents approximately 47.2%. Since the first-half upside has not been reflected in the full-year plan, the results will need to show whether the upside remains as capacity for the full year or is merely absorbed by uncertainty over second-half orders, costs and SG&A expenses.

At the next results announcement, we would like to confirm the order value, timing of revenue recognition and project-by-project or construction-by-construction profit margins for additional plant-related orders. Even if first-half operating profit comes in around ¥384 million, that alone would not support an upward revision to full-year guidance. The key to assessing earnings visibility will be whether the company maintains its view of full-year operating profit of ¥1,125 million or raises its forecast in light of the first-half improvement.