Revenue growth in Q1, but a sharp decline in operating margin due to rising costs

FY2027-Q1 revenue was ¥3,216 million, an increase of ¥89 million, or 2.9%, from ¥3,127 million in the year-earlier quarter. However, operating profit was ¥227 million, down ¥130 million, or 36.5%, from ¥359 million in the year-earlier quarter. Ordinary profit was ¥259 million, and net income attributable to owners of the parent was ¥168 million. A simple calculation of the operating margin shows a decline of approximately 4.4 percentage points, from approximately 11.5% in the year-earlier quarter to approximately 7.1% in the current quarter.

The company explained that revenue grew through the renewal of aging equipment in the power sector, optical network construction and product sales, but that rising costs, including raw material, labor and transportation costs affected by geopolitical risks, weighed on profit. However, the Q1 disclosure does not show the increase in each of raw material, labor and transportation costs, the amount recovered through sales price revisions, the breakdown between price and volume factors, or the trend in gross margin. Additional explanation will be needed in the next interim period to determine whether the decline in profit reflects a temporary increase in expenses or a structural decline in margins throughout FY2027.

The FY2027 full-year forecasts are revenue of ¥13,545 million, operating profit of ¥935 million, ordinary profit of ¥1,067 million and net income of ¥681 million. Based on a simple comparison with the full-year forecasts, Q1 progress was approximately 23.7% for revenue, 24.3% for operating profit and 24.7% for net income. Although seasonality must be taken into account, the ability to absorb costs relative to the full-year plan will be important for profit. In FY2027-H1, investors should monitor whether the operating margin recovers from 7.1%, whether the effects of price revisions and operational improvements are quantified, and whether the ¥935 million full-year operating profit forecast is maintained.