Daido Steel Q1 FY2027: Operating profit surges 51% on semiconductor and AI demand

Daido Steel achieved record first-quarter profits despite continued softness in its mainstay automotive market. Revenue rose 14.9% year-on-year to ¥163.5 billion, with both higher sales volumes and improved pricing contributing. The volume increase alone added ¥30 billion, signaling a genuine recovery in demand.

Operating profit jumped 51.4% to ¥13.1 billion, while adjusted operating profit, stripping out one-offs and inventory valuation effects, grew 25.4% to ¥11.5 billion. Pre-tax profit was up 46.9% to ¥14.3 billion, and net income attributable to owners of the parent rose 41.2% to ¥9.1 billion. All figures marked record highs for a fiscal first quarter.

Steel product shipments increased by 16,000 tonnes to 269,000 tonnes, highlighting the volume-driven nature of the recovery, while cost-cutting and successful pass-through of elevated raw material prices (ferrous scrap, nickel) preserved margins.

All five segments posted revenue growth, and all except Engineering recorded higher operating profit.

Specialty Steel Products benefited from recovering demand for industrial machinery, offsetting continued weakness in structural steels for automotive. Functional Materials and Magnetic Materials was the standout, with operating profit nearly doubling as semiconductor equipment makers drove a surge in stainless steel orders. High-alloy sales for electronics also increased, and demand for dysprosium- and terbium-free magnets expanded, partly due to China’s rare-earth export controls.

Automotive and Industrial Machinery Components saw strong engine valve sales in North America, and open-die forgings for aircraft, marine valves, and heavy electrical equipment remained at high levels. Semiconductor-related orders also jumped. Engineering revenue grew on progress in steel melting and heat-treatment furnace projects, but a less favorable project mix weighed on profits. Distribution and Services delivered steady gains.

Total assets expanded by ¥49.5 billion from the end of fiscal 2026 to ¥905.9 billion, driven by higher inventories (up ¥17.2 billion on raw material costs and demand), trade receivables (up ¥11.0 billion on sales growth), and marked-to-market gains on equity holdings (other financial assets up ¥11.5 billion). Strategic capex pushed tangible fixed assets ¥4.4 billion higher.

Liabilities increased by ¥38.1 billion, with interest-bearing debt rising ¥25.9 billion to finance the larger balance sheet. Shareholders’ equity grew ¥11.9 billion to ¥525.3 billion, and the parent’s equity ratio stood at a healthy 53.4% (55.2% at end-FY2026).

On shareholder returns, Daido Steel raised its full-year dividend forecast by ¥3 to ¥52 per share (interim ¥24, year-end ¥28), marking a third consecutive annual increase.

Management flagged several risks:

• Geopolitical uncertainty: Middle East tensions, U.S. trade policy and tariffs, and China’s export controls could disrupt supply chains. Rare-earth curbs have been a tailwind for the magnet business but add procurement risk.
• Sluggish auto demand: Market share losses by Japanese automakers in China and ASEAN continue to pressure steel and tool steel volumes, with no clear recovery timetable.
• Raw material and energy costs: Ferrous scrap, nickel, and LNG remain elevated due to geopolitical factors. While the company has managed to pass costs through so far, customer resistance could compress margins.
• Currency swings: The assumed exchange rate is ¥160.5 per dollar, a weak-yen environment that helps exports but raises import costs.

Daido Steel is mitigating these risks by shifting its portfolio toward non-automotive sectors and expanding high-value products such as rare-earth-free magnets and aerospace forgings.

Full-year consolidated forecasts for FY2027 were left unchanged from the May 2026 announcement. Despite the strong first quarter, management maintained a cautious stance due to second-half uncertainties.

Revenue is projected to rise 9.0% to ¥630.0 billion, but reported operating profit is expected to decline 4.9% to ¥40.0 billion, largely reflecting the reversal of one-off gains (such as equity sale profits) booked in the prior year. On an adjusted basis, operating profit is seen edging up 0.5% to ¥40.1 billion. Net income is forecast at ¥27.5 billion (≠15.7%).

Growth in semiconductor and aerospace orders, along with the ramp-up of new VAR furnaces and a magnet production line commissioned in April 2026, should support results in the second half.

In July 2026, Daido Steel completed a tender offer to raise its stake in Tohoku Special Steel Co. from 34.32% to 57.93%, making it a consolidated subsidiary, with a squeeze-out to full ownership planned. The acquisition cost was ¥7.9 billion. Expected synergies include joint development of EV and non-automotive products, transfer of secondary processing, sharing of manufacturing know-how, and expanded sales through Daido’s global trading network.

In parallel, the company is executing a ¥36.0 billion high-alloy process reform project to upgrade melting and forging capacity for aerospace and energy applications. Two VAR furnaces for semiconductor-grade stainless steel are being installed at the Chita No.2 Plant, and a new production line for EV drive motor magnets began operations in April 2026.

These moves are designed to accelerate the portfolio shift away from automotive and build competitive advantages in next-generation mobility, aerospace, and energy markets, reducing reliance on current semiconductor demand spikes.