First-half earnings upgrade includes earlier renegotiation of order terms, making the sustainability of profit improvement a key focus

The latest information, released on 6 November, raised the FY2027-H1 ordinary profit forecast from the previous ¥900 million to ¥2.51 billion and the full-year ordinary profit forecast from ¥1.6 billion to ¥3.7 billion. The revised forecast in the financial data is ¥29.0 billion in full-year revenue, ¥3.6 billion in operating profit and ¥2.6 billion in net income attributable to owners of the parent. The information provided does not include the actual FY2027-H1 earnings summary, so the first test at the next earnings release will be how closely actual results reached the revised forecast.

The revision was not driven simply by a recovery in demand. Due to the slowdown in the North American EV market and a decline in customers’ plans for new capital investment, FY2027-Q1 revenue was ¥6.083 billion, down 43.3% year on year, while operating profit was ¥147 million, down 82.0%. Meanwhile, existing EV-related projects incurred additional costs and other expenses associated with specification changes. The company explained that bringing forward the reflection of revised order amounts and contract terms contributed to the upward revision to the profit forecast. This means the forecast incorporates a scenario in which profit improves even without a recovery in sales volume.

Past results have also been pressured by higher materials and labor costs, costs to secure storage space and subcontractors following requests to defer delivery, and deteriorating profitability on long-lead-time projects. FY2026 results were limited to ¥32.285 billion in revenue, ¥1.599 billion in operating profit and ¥1.706 billion in ordinary profit. Orders received were ¥23.605 billion, the order backlog was ¥31.650 billion, and cancellations of multiple projects totaled ¥7.229 billion. It is important in assessing earnings quality to determine whether the current upward revision resulted from recovering these cost burdens through changes to contract terms, or represents an improvement in profitability management that can also be applied to future projects.

In FY2027-H1, we will want to confirm not only actual results against first-half ordinary profit of ¥2.51 billion, but also the factors behind the difference between operating profit and ordinary profit, the earnings benefit from revised order terms, and whether additional costs have been reversed or recurred. Dividing full-year operating profit of ¥3.6 billion by full-year revenue of ¥29.0 billion gives a planned operating margin of approximately 12.4%, well above the 5.0% achieved in FY2026 and approximately 2.4% in FY2027-Q1. If most of this improvement cannot be confirmed in the first-half results, the assumption that the effect of revised terms will be built up further in the second half will become stronger, reducing confidence in the forecast.