Revenue growth continues, but higher raw material costs have weakened operating profitability

1Q revenue was ¥3,552 million, up 7.5% year on year, while operating income was ¥407 million, down 10.7%. The company has not directly disclosed its operating margin, but a simple calculation gives 11.5%, down approximately 2.3 percentage points from approximately 13.8% calculated from operating income of ¥455 million and revenue of ¥3,303 million in the same period a year earlier. The fact that higher revenue has not translated directly into higher operating income is the first issue to confirm in the H1 results.

The company’s H1 forecast is revenue of ¥6,700 million and operating income of ¥800 million. Subtracting 1Q actual results means that 2Q alone must generate revenue of ¥3,148 million and operating income of ¥393 million. These amounts represent approximately 47.0% of forecast H1 revenue and 49.1% of forecast H1 operating income, respectively. The H1 operating margin is approximately 11.9%, slightly above the simple-calculation basis of 11.5% in 1Q, implying an assumption that profitability will improve in 2Q.

The full-year forecast is revenue of ¥14,000 million and operating income of ¥1,820 million. 1Q progress against the full-year forecast was 25.4% for revenue and 22.4% for operating income. The company cited higher raw material and resource prices as factors behind the decline in operating income and said it is strengthening sales activities and working to adjust prices, but it has not disclosed a factor-by-factor breakdown of the amounts, such as the amount of price pass-through, the impact of higher raw material costs, or changes in gross profit by product.

Ordinary income was ¥676 million, up 6.6% year on year, while net income attributable to owners of the parent was ¥470 million, up 6.5%. Thus, in 1Q, foreign exchange and non-operating financial income, among other factors, offset the deterioration at the operating level, but this does not indicate an improvement in operating profitability. Next time, we will check whether 2Q operating income alone exceeds ¥393 million, whether the operating margin recovers to around 11.9%, and whether the impact of higher raw material prices and the effects of price adjustments are disclosed quantitatively.