1Q profit growth depended on inventory valuation differences and other factors; a recovery in the underlying strength of the steel business remains unconfirmed

In 1Q of the fiscal year ending March 2027 (April–June 2026), consolidated revenue was ¥1,161.1 billion, business profit was ¥32.3 billion, segment profit was ¥25.9 billion, profit before tax was ¥40.9 billion, and net profit was ¥31.2 billion. Business profit increased ¥16.1 billion year on year and net profit increased ¥24.1 billion, giving the appearance of a substantial profit recovery. However, net profit includes a ¥15.0 billion gain on the sale of land, so the improvement in profit before tax and net profit cannot be regarded as a direct indication of the underlying earnings power of the core business.

In terms of earnings quality, business profit excluding inventory valuation differences and other factors was only ¥14.3 billion, down ¥30.9 billion year on year. By segment, profit was ¥3.0 billion in the steel business, ¥8.9 billion in engineering, ¥11.3 billion in trading, and ¥2.6 billion in adjustments. The difference from consolidated business profit of ¥32.3 billion includes items such as inventory valuation differences and gains on land sales, which can fluctuate significantly from quarter to quarter. In 2Q, reported results and results excluding one-off factors therefore need to be reviewed separately.

The company’s full-year forecast for the fiscal year ending March 2027 is revenue of ¥4,850.0 billion, business profit of ¥215.0 billion, segment profit of ¥175.0 billion, and net profit of ¥150.0 billion. Comparing 1Q results with the full-year forecast on a simple basis gives progress rates of 15.0% for business profit, 14.8% for segment profit, and 20.8% for net profit. However, the company has not disclosed 1Q progress rates against its full-year forecast or provided its own assessment of whether results were above or below plan, so these ratios are not company-reported judgments.

The 1Q materials also assume that segment profit will improve from ¥30.0 billion in the first half to ¥70.0 billion in the second half. Accordingly, in FY2027-H1, the key questions will be whether the ¥30.0 billion first-half assumption is actually achieved, whether steel-business profit excluding one-off factors turns around from its year-on-year decline, and whether net profit continues to build even excluding the ¥15.0 billion gain on the sale of land. In the 2Q results, the disclosure of a profit bridge separating inventory valuation differences and other factors, gains on land sales, and price and cost factors in the steel business will be a key point to monitor.