IHI Q1 FY2027: Operating profit soars 250% on aero engines; forecast raised
Revenue
¥374.5B
+10.9%
Full-year forecast
¥1.8T
Operating Profit
¥73.2B
+250.5%
Full-year forecast
¥250.0B
Net Income
¥53.5B
+361.3%
Full-year forecast
¥172.0B
Operating Margin
19.5%
IHI posted a 10.9% revenue increase to ¥374.5 billion and operating profit jumped 250.5% to ¥73.2 billion in the April–June quarter, fueled by civil aero engines and defense. Net income soared 361.3% to ¥53.5 billion. The company raised its full-year operating profit forecast by 51% to ¥250 billion.
Key Results
IHI reported revenue of ¥374.5 billion (+10.9% YoY), operating profit of ¥73.2 billion (+250.5%), and net income attributable to owners of parent of ¥53.5 billion (+361.3%) for its fiscal first quarter (April–June 2026). The sharp profit expansion from just ¥20.8 billion in operating profit a year earlier was driven by booming civil aero engine demand and growth in defense and nuclear.
In civil aero engines, spare parts sales were strong across product lines, from narrowbody to widebody aircraft, especially the PW1100G-JM for Boeing 737 MAX and Airbus A320neo. Defense orders expanded amid rising defense budgets, and the nuclear business saw solid lifecycle service demand in Japan. While divestitures in the prior year created a revenue headwind, growth businesses more than compensated. A one-time gain of about ¥10 billion from real estate sales also boosted operating profit.
Earlier this year, subsidiary IHI Aerospace received a three-month suspension from bidding on JAXA contracts due to false reporting. The impact is currently minimal, but strengthening compliance remains a challenge.
Segment Performance
IHI operates four reportable segments. First-quarter highlights:
Aerospace & Defense: Profit surged on strong civil engine aftermarket demand and expanding defense equipment production. The PW1100G-JM and widebody engine programs performed well. Space-related capacity is being increased for H3 rocket launches.
Resources, Energy & Logistics: Nuclear maintenance and service demand was firm. Combined-cycle power and engine businesses benefited from lifecycle contracts, driving higher revenue and profit. Port crane and logistics system demand also held up.
Industrial Systems & General Machinery: The twin-scroll turbocharger business rebounded sharply into the black thanks to price adjustments and cost cutting. Compressors, separators, and general industrial machinery also contributed, returning the segment to profit. A plan announced in April 2025 to sell a logistics and industrial systems subsidiary (IF0) to Toyota Industries is part of ongoing portfolio optimization.
Social Infrastructure: The segment remained in the red, pressured by rising construction costs and fierce competition in bridges and water gates. Some recovery is seen in parking systems, and a narrower full-year loss is targeted.
| Segment | Prior-Year Profit (est.) | Current Profit (est.) | Key Drivers |
|---|---|---|---|
| Aerospace & Defense | Profitable | Sharply higher | Strong aero engines, defense |
| Resources, Energy & Logistics | Slight profit | Higher profit | Nuclear, lifecycle expansion |
| Industrial Systems & General Machinery | Loss | Turned profitable | Turbocharger recovery, pricing |
| Social Infrastructure | Loss | Loss | Cost inflation, competition |
| Segment | Revenue | Share | Op. Profit | Op. Margin |
|---|---|---|---|---|
| Aerospace & Defense | - | - | - | - |
| Resources, Energy & Logistics | - | - | - | - |
| Industrial Systems & General Machinery | - | - | - | - |
| Social Infrastructure | - | - | - | - |
Financial Position & Capital Policy
Total assets rose ¥32.6 billion from end-FY2026 to ¥2,461.2 billion, mainly due to higher inventories, while cash and equivalents declined. Interest-bearing debt and total liabilities decreased slightly to ¥1,737.4 billion after bond redemptions and loan repayments. The equity ratio improved to 28.3% (from 26.9%).
Operating cash flow turned negative from positive a year earlier, reflecting inventory buildup and tax payments. Investing cash flow was positive thanks to real estate sales, while financing outflows covered dividends and bond redemptions. As a result, cash and equivalents fell during the quarter.
The annual dividend forecast, adjusted for the 7-for-1 stock split in October 2025, is ¥23 per share (interim ¥11.5, year-end ¥11.5): a ¥3 increase from the split-adjusted ¥20 paid last year. No share buyback was announced; balancing capital efficiency and growth investment remains a focus.
Full-Year Outlook
IHI raised its FY2027 (ending March 2027) guidance after the strong Q1. The new forecasts are:
| Item | Previous Forecast | Revised Forecast | FY2026 Actual |
|---|---|---|---|
| Revenue | Not previously disclosed | ¥1,840.0 billion | ¥1,642.8 billion |
| Operating profit | Not previously disclosed | ¥250.0 billion | ¥165.5 billion |
| Net income attributable to owners of parent | Not previously disclosed | ¥172.0 billion | ¥161.0 billion |
The upgrade reflects the robust civil aero engine demand seen in Q1 and a positive outlook for defense and nuclear. The company assumes an exchange rate of $1 = ¥140 for the remainder of the year; a sharp yen strengthening would pose a risk to these numbers.
Risks & Challenges
Key risks outlined in the financial report include:
- Global economic uncertainty: prolonged geopolitical tensions (Ukraine, Middle East) and unclear US trade policy could dampen air travel demand and capital spending.
- China slowdown: a prolonged property slump and weak domestic demand may hit turbochargers for construction equipment and industrial machinery.
- Elevated raw material and energy costs: persistent inflation could squeeze margins.
- Forex volatility: a sharp strengthening of the yen would erode export competitiveness and overseas earnings.
- Intense competition: the aero engine market requires continuous R&D investment to keep pace with GE and Rolls-Royce.
- Compliance: following the false reporting on JAXA contracts uncovered in April 2026, rebuilding trust and reinforcing internal controls is urgent.
Analyst take
IHI’s recovery in civil aero engines is sharp, with aftermarket demand proving exceptionally strong. Defense and nuclear also delivered, and the turbocharger business finally swung to profit, signaling portfolio reform is gaining traction. The Social Infrastructure loss and compliance issues need quick fixes. The full-year upgrade is positive, but the ¥140/$ assumption looks slightly bullish: there could be further upside, or a yen rally could quickly reverse gains. Keep an eye on the balance between growth investment and shareholder returns.