How much of the FY2027 ending March earnings decline guidance will be reflected in the first half

In FY2026 ending March, revenue was ¥99,971 million, operating profit was ¥11,615 million and the operating margin was 11.6%, with operating profit increasing 67.5% year on year. By contrast, the company's FY2027 ending March forecast is revenue of ¥107,000 million, operating profit of ¥8,800 million, ordinary profit of ¥9,300 million and net profit attributable to owners of the parent of ¥7,500 million. Revenue is expected to increase 7.0% year on year, while operating profit is expected to decline by ¥2,815 million, reducing the operating margin by 3.4 percentage points from 11.6% to approximately 8.2% on a simple calculation.

In the first quarter of FY2027 ending March, revenue was ¥23,654 million, operating profit was ¥2,923 million and the operating margin was 12.4%. These figures represent 22.1% of the full-year revenue forecast and 33.2% of the operating profit forecast, but the railway rolling-stock business is made to order and subject to substantial fluctuations depending on delivery timing, so a simple annualization by multiplying by 4 is not possible. Accordingly, the next interim results should assess the first-half earnings level by comparison with the previous year's first-half revenue of ¥46,557 million and operating profit of ¥4,038 million, rather than extrapolating the first-quarter margin directly.

The company says it is difficult to accurately forecast the impact on earnings of the escalating situation in the Middle East and other factors as the reason for its lower profit forecast. In addition to project-level profitability and profit improvement by segment, it is important to determine how extensively the effects of the external environment on costs, delivery schedules and order decisions have been incorporated into the full-year plan. Even if the guidance is maintained in the next earnings release, it should be confirmed whether the company can provide additional disclosure, by business or in monetary terms, on the factors behind the decline to operating profit of ¥8,800 million based on revenue of ¥107,000 million.

In particular, if first-half operating profit falls below the previous year's ¥4,038 million, substantial profit recovery in the second half will be required to achieve the full-year forecast of ¥8,800 million. Conversely, if first-half profit exceeds the previous year while the full-year forecast is maintained, this will help distinguish whether the risks assumed for the second half are materializing or whether the plan is conservative. The next earnings release should confirm whether recognition of risks relating to the Middle East situation, US trade policy and inflation is reflected in actual results and assumptions.