First-quarter revenue rose but profit fell, putting the focus on cost absorption

FY2027-Q1 operating revenue was ¥74,527 million, an increase of ¥1,409 million, or 1.9%, from ¥73,118 million in the same period of the previous year. Operating profit, however, was ¥7,744 million, down ¥788 million, or 9.2%, from ¥8,532 million. The operating margin was 10.4% on a simple calculation, down approximately 1.3 percentage points from approximately 11.7% in the same period of the previous year. Despite securing higher revenue, the company reported lower profit, making cost absorption capacity, rather than the level of demand, the central issue in these results.

The company cited higher depreciation in the railway business and other factors as reasons for the decline in operating profit. Depreciation in the first quarter was ¥7,494 million. The first-quarter disclosure does not sufficiently break down the increase by factor, including personnel expenses and other operating expenses, or clarify whether the depreciation burden associated with railway capital investment is temporary or represents fixed costs that will continue. The interim results should show the year-on-year increase in depreciation, the breakdown by business, including railway and real estate, and how these figures correspond to the capital investment plan.

Ordinary profit was ¥6,850 million, down 13.1% year on year, while profit attributable to owners of the parent was ¥4,711 million, down 13.2%. Because the decline in profit widened beyond the decline in operating profit through non-operating gains and losses and the tax burden, it is necessary to assess whether improvement extends beyond operating profit to ordinary profit. Extraordinary gains in the first quarter totaled ¥54 million, including a ¥47 million gain on the sale of fixed assets, while extraordinary losses totaled ¥110 million, including a ¥109 million loss on the disposal of fixed assets. At least for these results, the change in net profit was not driven by large extraordinary gains or losses.

In the next reporting period, FY2027-H1, we will assess whether the operating margin returns to 10.4% or higher while revenue growth is maintained, or falls further because of increases in depreciation and personnel expenses. First-quarter progress toward the full-year operating profit forecast of ¥45,000 million was only 17.2%, so if the decline in profit does not narrow in the interim period, the profit recovery required in the second half will be substantially larger. It will be important to see whether the company can give specific details on the expected peak timing of cost increases and the extent to which fares, transport demand and hotel rates will offset them.