Can a second-half-weighted full-year plan absorb the sharp decline in Q1 profit?

Revenue in Q1 of the fiscal year ending March 2027 was ¥379.2 billion, up 4.0% year on year, but business profit fell by ¥7.3 billion from ¥9 billion in the previous year to ¥1.7 billion, an 81.3% decline. Operating profit based on the financial statements also fell 74.3%, from ¥6.844 billion to ¥1.762 billion. On a simple calculation, the operating margin on revenue fell 1.41 percentage points from approximately 1.88% in the previous year to approximately 0.46%, showing that revenue growth has not translated into profit.

The full-year plan calls for revenue of ¥1.6 trillion, business profit of ¥45 billion, operating profit of ¥37.5 billion, pretax profit of ¥25 billion and profit for the year attributable to owners of the parent of ¥12 billion. There had been no revision as of Q1. Revenue progress was 23.7%, close to the 25% implied by 3 months having elapsed, while business profit and operating profit were only 3.8% and 4.7%, respectively. At the end of Q1, the remaining amounts needed to achieve the full-year plan were business profit of ¥43.3 billion and operating profit of ¥35.738 billion, requiring a significant recovery over the remaining 3 quarters.

The earnings shortfall extends beyond the operating level. Against operating profit of ¥1.762 billion, pretax profit was negative ¥881 million and quarterly profit attributable to owners of the parent was negative ¥3.507 billion, meaning that final results were loss-making despite operating profitability. The Q1 earnings release does not sufficiently break down the detailed changes in financial income and expenses, impairment losses and other income and expenses. The interim results should therefore be used to assess whether the gap from operating profit to pretax profit and final profit has narrowed.

In FY2027-H1, the most important points will be the standalone second-quarter business margin and first-half cumulative earnings progress. A simple half-year allocation of the ¥45 billion business profit plan is ¥22.5 billion, while a simple half-year allocation of the ¥37.5 billion operating profit plan is ¥18.75 billion. These are merely mechanical benchmarks that do not account for seasonality, not half-year targets disclosed by the company. If the plan assumes that the benefits of price revisions will emerge in the second half, the interim results should show whether margins have bottomed, the housing technology business's losses have narrowed and the increase in SG&A expenses has slowed, which will help determine whether maintaining the full-year plan is reasonable.