Revenue and operating profit rose, but ordinary profit fell sharply

Revenue in FY2027-Q1 was ¥2,221 million, an increase of ¥284 million, or 14.7%, from ¥1,937 million in the same period of the previous year. Revenue from marine internal-combustion engines exceeded the year-earlier level, while revenue from component parts also remained firm, driving the increase in revenue. Operating profit, however, rose only slightly to ¥8 million from ¥7 million in the same period of the previous year. The operating margin was approximately 0.39%, largely unchanged from approximately 0.37% a year earlier.

By profit level, ordinary profit fell 62.1% to ¥64 million from approximately ¥170 million in the same period of the previous year, while quarterly net income fell 62.0% to ¥44 million from approximately ¥118 million. The company explained that total manufacturing costs increased as a result of higher raw material and purchased component prices, while subsidies and other income related to methanol engine development were recorded as non-operating income. Ordinary profit of ¥64 million compared with operating profit of ¥8 million, leaving a difference of ¥56 million. The scale and sustainability of non-operating income will therefore influence the assessment of earnings.

Because ordinary profit, which includes non-operating income, was high in the same period of the previous year, ordinary profit and net income declined even as revenue increased. Caution is therefore required before viewing the increase in FY2027-Q1 operating profit as a recovery in earning power. In particular, the current disclosure does not break down by factor the amount of non-recurring subsidies and other income, the monetary impact of higher raw material and purchased component prices on total manufacturing costs, or the amount passed through to product prices.

For FY2027-H1, using half of the full-year plan as a simple benchmark, revenue of ¥4,500 million, operating profit of ¥10 million, ordinary profit of ¥70 million and net income of ¥45 million represent key levels to monitor. If only revenue tracks the plan while operating profit and ordinary profit fall below these levels, the improvement in the cost ratio may have been temporary. Conversely, if the gap between ordinary and operating profit narrows while operating profit is maintained, this would indicate progress toward an earnings structure less dependent on subsidies and other income.