Whether the effects of earnings-structure reform will continue even as revenue declines

Revenue in FY2027-Q1 was ¥11,388 million, up 12.5% year on year, and operating profit was ¥1,635 million, up 79.7%. Operating margin was approximately 14.35%, about 5.36 percentage points above the approximately 8.99% calculated from revenue of ¥10,125 million and operating profit of ¥909 million in the year-earlier quarter. Ordinary profit was also ¥1,611 million, while net income attributable to owners of the parent was ¥1,253 million, making the fact that profit grew faster than the top line the most important point in the results.

The basis for comparison needs to be considered carefully on a half-year basis, however. In FY2026-H1, revenue declined 12.3% year on year to ¥20,331 million, while operating profit rose 15.5% to ¥1,739 million. In FY2026 full year, revenue declined 5.9% from the previous year to ¥42,192 million, while operating profit rose 38.7% to ¥2,398 million. The divergence between revenue and profit therefore continued, driven by a lower cost ratio and declines in SG&A expenses.

The company explained that it focused on earnings-structure reform as material and labor costs continued to rise. Previous disclosures cited lower costs following a functional reorganization of the Chinese subsidiary, cost-structure reform and a streamlined balance sheet as measures. The company has not provided a monetary breakdown of the FY2027-Q1 increase in operating profit into selling prices, volume, material costs, labor costs, logistics costs and fixed costs. Additional disclosure will therefore be needed to determine whether the higher margin reflects sustainable cost improvement or temporary effects from product mix and foreign exchange.

The first benchmark for FY2027-H1 is whether revenue and operating profit can at least exceed the FY2026-H1 levels of ¥20,331 million and ¥1,739 million, respectively. For operating margin, we will assess whether it remains above approximately 8.55% in FY2026-H1 and, preferably, whether the decline from 14.35% in FY2027-Q1 is limited. Disclosure of the increases in material and labor costs, the contribution from price normalization, and changes in the cost-of-sales and SG&A ratios would make it easier to determine whether earnings-structure reform represents repeatable profit improvement rather than merely a response to lower production.