Assess in the first half how well higher costs can be absorbed despite higher revenue and lower operating profit.

First-quarter operating revenue was ¥492.716 billion, up ¥14.433 billion from ¥478.283 billion in the same period of the previous year, while operating profit was ¥219.165 billion, down ¥2.060 billion from ¥221.225 billion. Operating revenue increased 3.0%, whereas operating profit declined 0.9%, and the operating margin fell 1.8 percentage points from approximately 46.3% to approximately 44.5%. The first point to check is whether the pattern in which higher revenue does not translate directly into profit growth continues in the first-half results.

On the cost side, consolidated operating expenses increased by ¥16.4 billion year on year. The main standalone components shown in the earnings presentation were a ¥2.4 billion increase in personnel expenses, a ¥4.0 billion increase in repair expenses and a ¥3.2 billion increase in operating expenses, totalling ¥9.6 billion across the 3 items. Personnel expenses rose due to base-pay increases, repair expenses due to higher labour-unit costs, and operating expenses due in part to system-related costs. This suggests that increases in fixed and semi-fixed costs may be putting pressure on the profit margin, rather than the rise in costs being purely temporary. In the first-half results, these items need to be checked in the standalone income statement to determine whether they accelerated from first-quarter levels or whether their growth slowed.

Quarterly net income attributable to owners of the parent was ¥142.658 billion, down 1.8% year on year. In addition to the decline in operating profit, the start of the special defence corporation tax increased income taxes and other taxes by ¥2.4 billion, which was cited as a factor depressing net income. Accordingly, the first-half results should be examined not only for the operating margin but also for the conversion from operating profit to ordinary profit, profit before tax and profit attributable to owners of the parent. First-quarter ordinary profit was ¥208.548 billion, up 0.5% year on year, so changes in non-operating income and the tax burden may determine the direction of final profit.

The latest disclosure provided the increase in transport revenue and the main operating-expense items, but did not break down the amount by which changes in volume, unit prices and demand mix affected operating profit. In the first-half results, it will be important to determine whether growth in passenger-kilometres led to an increase in revenue that exceeded cost inflation, and how much of the increases in personnel expenses, repair expenses and operating expenses will be disclosed on a consolidated basis. The company will assess from both revenue and costs in the transport business whether the 44.5% operating margin can be maintained and whether operating profit continues to decline year on year.