Q1 steel improvement offset by construction delays and higher costs; H1 catch-up needed to achieve full-year forecast

Revenue in Q1 of FY2027 was ¥61,559 million, down 1.0% year on year, while operating profit was ¥1,111 million, down 8.1%. The operating margin declined from approximately 1.94% in the same quarter of the previous year to approximately 1.81%, indicating that core earnings were weaker than the decline in revenue. In contrast, ordinary profit rose 11.4% to ¥1,384 million, and net income attributable to owners of the parent rose 9.0% to ¥877 million, indicating a boost from non-operating or other items outside the core business.

The company’s FY2027 full-year forecasts are revenue of ¥274,600 million, operating profit of ¥6,300 million, ordinary profit of ¥6,200 million and net income of ¥4,100 million, with no revisions as of Q1. Q1 progress rates were 22.4%, 17.6%, 22.3% and 21.4%, respectively. On a simple annualised basis, revenue of ¥246,200 million and operating profit of ¥4,444 million would be below the full-year forecasts. However, steel distribution and construction contracting are subject to seasonality and uneven project progress, so simple annualisation should not be treated as evidence of a gap against the full-year forecasts. Instead, it is necessary to monitor how closely cumulative H1 revenue of ¥137,300 million and operating profit of ¥3,150 million approach the simple halfway benchmarks.

The Q1 presentation explained that higher sales volumes and improved spreads in the steel business contributed to higher profit, while delays in the progress of existing construction projects, lower margins caused by rising construction costs, and higher selling, general and administrative expenses, including freight and personnel costs, weighed on operating profit. It also stated that gains on the sale of some cross-shareholdings contributed to the increase in ordinary profit and net income, but the Q1 disclosure does not make clear the amount of the gains or the profit category in which they were recorded. Since operating profit and net income moved in opposite directions, it is important to distinguish between a sustainable recovery in the core business and a temporary benefit from asset sales.

In FY2027-H1, the key points to monitor are whether construction project progress normalises and the front-loaded costs incurred in Q1 are eliminated. Specifically, it will be important to see whether revenue builds to around ¥137,300 million and operating profit to around ¥3,150 million, and whether the company maintains or revises its full-year forecasts. In addition, the amount of gains on the sale of cross-shareholdings, the items reconciling operating profit with ordinary profit and net income, and the increases in freight and personnel costs should be monitored to determine whether Q1 profit growth was accompanied by a recovery in the core business.