Revenue rose but operating profit plunged as price pass-through and costs squeezed earnings

Consolidated revenue in FY2027-Q1 was ¥49,785 million, up 3.9% from ¥47,903 million in the year-ago quarter. Operating profit, however, was ¥453 million, down ¥2,508 million from ¥2,961 million, while ordinary profit was ¥982 million and net income attributable to owners of the parent was ¥669 million. The operating margin fell approximately 5.3 points, from approximately 6.2% in the year-ago quarter to approximately 0.9%, a typical margin squeeze in which higher revenue does not translate into higher profit.

The company said it secured revenue by increasing exports amid weak domestic demand, but a lag before improved selling prices was reflected in shipment prices, together with persistently high steel scrap prices and energy and procurement costs caused by the weaker yen, pressured profit. Steel segment revenue was ¥45,411 million, up 2.7% year on year, while segment profit fell 73.3% to ¥974 million. Accordingly, the key issue for H1 is not shipment volume alone, but whether the spread recovers enough for maintained or higher selling prices to exceed scrap, electricity and materials costs.

The full-year company forecasts are revenue of ¥200 billion, operating profit of ¥6.5 billion, ordinary profit of ¥7 billion and net income attributable to owners of the parent of ¥4.3 billion. As of Q1, progress was approximately 24.9% for revenue and 7.0% for operating profit, with profit progress substantially lagging revenue progress. To achieve the full-year forecast from Q1, the company must generate approximately ¥6,047 million in operating profit over the remaining period, making a recovery in standalone Q2 profit the most important issue for the H1 results.

Previous disclosures have explained improved selling prices and cost improvements as profit drivers, but have not provided a quantitative earnings bridge showing how many hundreds of millions of yen were added or lost through prices, scrap, electricity and materials, or volume. In H1, we will assess whether the company breaks down, to the extent possible, changes in steel selling prices, sales volumes, the metal spread and primary raw material and energy costs.