Q1 turned profitable, but the focus for H1 is whether the improvement continues into Q2

Q1 revenue was ¥14.794 billion, up ¥2.543 billion, or 20.8%, from ¥12.251 billion in the same quarter of the previous year. Operating income turned from a loss of ¥1.644 billion in the year-earlier quarter to a profit of ¥97 million, while ordinary income was ¥490 million and net income attributable to owners of the parent was ¥398 million. The year-earlier quarter recorded an ordinary loss of ¥1.218 billion and a net loss of ¥815 million, so the improvement in earnings was substantial.

By comparison with the full-year forecasts, revenue progress was 16.4% and operating income progress was only 1.7%. Since revenue progress is far ahead of operating income progress, it is too early to judge the likelihood of reaching the ¥5.6 billion full-year operating income target based solely on Q1's return to profitability. For FY2027, the company forecasts revenue of ¥90.2 billion, operating income of ¥5.6 billion, ordinary income of ¥6.0 billion and net income of ¥4.2 billion, implying a plan to increase profit despite lower revenue.

In the latest earnings revision, the H1 ordinary income forecast was raised from a loss of ¥290 million to a profit of ¥400 million. Q1 ordinary income was already ¥490 million, seemingly above the H1 forecast, but this also implies that the plan allows for some decline or a loss in Q2. Accordingly, at the next results announcement it will be necessary to examine not only cumulative H1 ordinary income but also Q2 standalone revenue, operating income and ordinary income.

The company has consistently explained that delivery schedules and construction completions for projects for railway operators and government agencies are concentrated at fiscal year-end, resulting in revenue and profit being weighted toward the second half. Given this seasonality, the low Q1 profit progress rate cannot immediately be considered abnormal. However, it will be important to see whether profitability can be maintained in Q2 and whether the scale of second-half profit required to achieve the full-year forecast has increased further. At the H1 results announcement, we will want to confirm not only achievement of the ¥400 million ordinary income target after the upward revision, but also progress in converting the order backlog into revenue and improving margins toward the ¥5.6 billion full-year operating income target.