First-half forecast revised upward due to accelerated revenue recognition, while full-year plan remains unchanged

First-quarter net sales were ¥4,417 million, down 33.6% year on year, operating income was ¥570 million, down 59.0%, and quarterly net income was ¥407 million, down 57.6%. Although the company remained profitable, the standalone quarterly start was weak, with net sales progress at 23.2% of the full-year forecast and operating income progress at 28.5%.

Subsequently, on 22 October, the first-half earnings forecast was revised. Net sales were raised to ¥8.4 billion, operating income to ¥1.1 billion and net income to ¥750 million from the previous forecasts. The company explained that, in addition to the progress of certain projects being brought forward, lower costs from production equipment upgrades and optimisation of the production plan also contributed. This suggests that the increase in first-half profit may have reflected the timing of project revenue recognition and improved manufacturing efficiency, rather than a broad-based recovery in demand.

The revised first-half forecasts represent 44.2% of the full-year net sales forecast, 55.0% of the operating income forecast and 53.6% of the net income forecast. On a simple residual basis, the second half would need to generate net sales of ¥10.6 billion, operating income of ¥900 million and net income of ¥650 million. Accordingly, the profitability and progress of projects remaining for the second half will be important, given the extent to which revenue recognition was brought forward in the first half. As of the first quarter, full-year guidance was net sales of ¥19.0 billion, operating income of ¥2.0 billion, ordinary income of ¥2.0 billion and net income of ¥1.4 billion, and the full-year outlook remained unchanged after the first-half revision.

The previous interim period recorded net sales of ¥12,547 million and operating income of ¥2,386 million, meaning that the current first-half forecast represents an approximately 33.1% year-on-year decline in net sales and an approximately 53.9% decline in operating income. At the next results announcement, it will be necessary to confirm not only the first-half results, but also which products and customers were associated with the projects recognised early and the gross margins of the projects remaining for the second half. If the explanation of the accelerated projects remains qualitative and the company does not disclose progress toward the order backlog or delivery information supporting the second-half plan, it will be difficult to assess the reliability of the unchanged full-year forecast.