Revenue growth and narrower losses, but H1 FY2027 profitability is the inflection point

Revenue in 1Q was ¥5,551 million, an increase of ¥776 million, or 16.3%, from ¥4,775 million in the same quarter of the previous year. The operating loss narrowed by ¥157 million, from ¥399 million to ¥242 million. The ordinary loss also improved from ¥301 million to ¥191 million, while the quarterly net loss attributable to owners of the parent improved from ¥315 million to ¥114 million. However, operating, ordinary and net profit all remained negative, so revenue growth had not yet resulted in profitability.

The company explained that revenue recognition is limited in 1Q because of the seasonality of the business, leaving the company unable to cover fixed costs and resulting in an operating loss. In fact, the manufacturing segment recorded revenue of ¥1,967 million and segment profit of ¥26 million, the construction segment recorded ¥2,790 million and ¥84 million, and the leisure segment recorded ¥793 million and ¥115 million. All segments were profitable, while consolidated operating profit or loss was a loss of ¥242 million. In H1, it will be necessary to assess the extent to which revenue recognition and fixed-cost absorption progress in 2Q.

The full-year forecasts are revenue of ¥30,000 million, operating profit of ¥1,000 million, ordinary profit of ¥1,000 million and profit attributable to owners of the parent of ¥800 million. The 1Q revenue progress rate was only 18.5%, and ¥15,000 million is one benchmark if half of the full-year revenue plan is used as a simple H1 reference point. As actual operating profit in 1Q was negative ¥242 million, achieving full-year operating profit of ¥1,000 million requires operating profit of ¥1,242 million over the remaining 9 months.

The 1Q operating margin was approximately negative 4.4%, calculated as negative ¥242 million divided by ¥5,551 million, an improvement of approximately 4.0 percentage points from approximately negative 8.4% in the same quarter of the previous year. However, the full-year operating margin is approximately 3.3%, calculated as ¥1,000 million divided by ¥30,000 million, so the 1Q improvement alone leaves a considerable gap. The company has not disclosed gross margin, SG&A expenses, fixed costs or the reasons for changes in these items, so it is not possible to determine whether the narrower loss resulted from improved gross margins or the timing of revenue recognition.

In the next earnings release, it will be important to check whether H1 revenue reaches around ¥15,000 million and whether operating profit or loss turns positive, as well as how far segment profit grows from ¥26 million in manufacturing, ¥84 million in construction and ¥115 million in leisure. It will also be important to see whether the ¥1,000 million full-year operating profit forecast is maintained or revised, and whether H1 progress rates and the breakdown of fixed costs or SG&A expenses are disclosed.