1Q profit is tracking strongly, but the focus is on recurring earnings after excluding one-off factors

Revenue in 1Q of the fiscal year ending March 2027 was ¥6,564 million, up 11.9% year on year, while operating profit was ¥885 million, up 436.3%. With the full-year forecasts set at ¥28,000 million for revenue and ¥1,500 million for operating profit, simple calculations indicate progress rates of 23.4% for revenue and 59.0% for operating profit. These progress rates were not explicitly stated in the earnings presentation materials, so the next results announcement should also be reviewed to see how the company assesses interim progress.

The improvement in margins is substantial. The 1Q operating margin was approximately 13.5%, sharply up from 4.3% for FY2026. However, 1Q cost of sales decreased by ¥281 million because of a change in the estimation methodology for inventory write-downs, increasing operating profit and other profit figures by the same amount. Simply excluding this ¥281 million leaves operating profit at approximately ¥604 million and the operating margin at approximately 9.2%, so the full 13.5% cannot be attributed to the ordinary effects of sales volume, price pass-through and cost improvements.

For FY2026, revenue was ¥25,073 million, operating profit was ¥1,085 million and the operating margin was 4.3%, with the company returning to profit from an operating loss of ¥632 million in the previous year. Accordingly, the 1Q improvement also reflects a rebound from the previous year's low base, in addition to market recovery and increased sales. At the next interim results announcement, it will be important to see whether the company can separately disclose the gross margin excluding inventory valuation reversals and changes in estimates, the effect of price pass-through, and the extent to which it absorbed higher material costs.

The company did not prepare a quarterly consolidated cash flow statement for 1Q, so figures such as operating cash flow cannot be confirmed. It will be necessary to check from the interim period onward whether the sharp increase in profit was accompanied by changes in working capital or inventories. In particular, the focus should be not only on whether interim operating profit approaches half of ¥1,500 million, but also on whether the margin excluding the temporary ¥281 million effect remains in the 9% range.