Profit margins declined in the first quarter despite higher demand, making recovery in the first half the focus

Revenue in the first quarter of the fiscal year ending March 2027 was ¥1,395 million, up 9.7% from ¥1,272 million in the same period of the previous year. The company attributed the increase in revenue to higher demand for conductive polymer tantalum capacitors, products for automotive electronics and products for lithium-ion batteries. Operating profit, however, fell 25.7% to ¥123 million from ¥166 million, while ordinary profit was ¥116 million and quarterly net profit was ¥78 million. The fact that higher revenue did not lead to higher operating profit is the first change to be examined in the next earnings report.

The operating margin was approximately 8.8% in the first quarter, down approximately 4.2 percentage points from approximately 13.1% in the same period of the previous year. Because the margin declined despite positive revenue growth, the company cannot achieve its profit plan through higher volumes alone. In particular, the full-year operating profit forecast for the fiscal year ending March 2027 is ¥800 million, implying 37.6% growth from the previous fiscal year's ¥581 million. If the first-quarter margin continues unchanged, it will be difficult to make up the shortfall through revenue growth alone.

The first-quarter earnings explanation referred to higher demand but did not provide amounts by factor, such as material prices, manufacturing yields, energy costs, and labor and SG&A expenses, to explain the ¥43 million year-on-year decline in operating profit. In addition, the ¥15.032 million in business restructuring costs was recorded as an extraordinary loss and does not directly explain the decline in operating profit. The next earnings report will therefore need to distinguish between extraordinary losses and deterioration in profitability at the operating level.

Operating profit in the first half of the previous year was ¥272 million, leaving a difference of ¥149 million from the ¥123 million recorded in the first quarter. On this basis, operating profit of more than ¥149 million in the second quarter alone would put first-half operating profit above the previous year's level. This is not a first-half target presented by the company, but it is a useful minimum threshold for confirming a recovery in profits. The next earnings report should be checked for cumulative first-half operating profit, the operating margin, the breakdown of factors affecting operating profit, and whether the full-year forecast of ¥800 million remains unchanged or is revised.