Can profit growth planned for the full year make up for the 1Q decline from the second quarter onward?

Revenue in 1Q of the fiscal year ending March 2027 was ¥578.349 billion, up 1.6% from ¥569.056 billion in the same period of the previous year. Operating profit, however, declined from ¥31.305 billion to ¥20.412 billion, while net income attributable to owners of the parent fell from ¥38.637 billion to ¥12.199 billion. Although revenue remained at a similar level, the decline in profit was substantial, so revenue growth alone is not sufficient to assess progress toward the full-year plan.

The company’s full-year forecasts for the fiscal year ending March 2027 are revenue of ¥2,690.0 billion, operating profit of ¥150.0 billion, ordinary profit of ¥120.0 billion and net income attributable to owners of the parent of ¥100.0 billion. Comparing 1Q results mechanically with the full-year forecasts gives progress rates of 21.5% for revenue, 13.6% for operating profit, 18.9% for ordinary profit and 12.2% for net income. These are mechanical calculations that do not adjust for quarterly seasonality, and the company itself did not disclose progress rates against its full-year forecasts in its 1Q materials.

The 1Q materials assume a weak demand environment from the second quarter onward, particularly in automotive and construction and civil engineering-related markets. Accordingly, in the first-half results it will be necessary to assess not only whether cumulative profit increased, but also whether results are approaching half of the full-year plan, namely ¥75.0 billion in operating profit, ¥60.0 billion in ordinary profit and ¥50.0 billion in net income, and how much of the weak demand has been absorbed through price pass-through and inventory valuation effects.

Net income in particular was only 12.2% of the full-year forecast at the 1Q stage, below operating profit at 13.6%. In the next results release, we will look at underlying earnings power excluding the impact of extraordinary gains and losses and the tax burden recorded in 1Q, the conversion from cumulative first-half operating profit to ordinary profit and net income, and whether the full-year forecasts are maintained or revised. If profit reaches less than 50% of the plan in the first half, the amount of profit required in the second half and the specifics of the assumptions behind it, including demand recovery, price pass-through and cost improvements, will be important.