Will the disconnect between revenue growth and profit continue in FY2027-H1?

In Q1 of the fiscal year ending March 2027, revenue was ¥1,843 million, up ¥301 million, or 19.5%, from ¥1,542 million in the same period of the previous year. Operating profit, however, fell ¥62 million from ¥113 million to ¥51 million, a decline of 54.6%. Ordinary profit was ¥11 million, while net profit attributable to owners of the parent was just ¥1 million, indicating that revenue growth has not translated into profit growth.

The operating margin declined by approximately 4.6 percentage points, from approximately 7.3% in the same period of the previous year to approximately 2.8%. The full-year forecasts are revenue of ¥7,600 million, operating profit of ¥500 million, ordinary profit of ¥420 million and net profit attributable to owners of the parent of ¥290 million, implying a full-year operating margin of approximately 6.6%. Accordingly, a simple benchmark for FY2027-H1 is revenue of ¥3,800 million, operating profit of ¥250 million, ordinary profit of ¥210 million and net profit of ¥145 million. These are not company-published first-half targets, but mechanical benchmarks set at 50% of the full-year forecasts.

The Q1 explanation attributed the decline in profit to weak automotive-related and other parts, lower revenue from existing businesses, higher personnel expenses and higher depreciation associated with M&A. In particular, the key point is that even revenue growth from factors including the E-Cast acquisition has not fully offset the decline in existing businesses and the fixed-cost burden. The factors behind the Q1 decline in operating profit were presented on a monetary basis, but operating profit by site and product-level profitability were not disclosed for Q1.

In the next earnings release, it will be necessary to assess not only the revenue progress rate, but also how far the operating margin has recovered from 2.8%. If operating profit does not reach ¥250 million, the plan will become dependent on the second half, reducing the likelihood of achieving the full-year forecast of ¥500 million. The company has also indicated that weakness in automotive-related parts is expected to continue, so it will be necessary to distinguish whether revenue growth is driven by higher volumes, the consolidation effect of E-Cast, or improved profitability in existing businesses.