JFE Q1 FY2027: Business profit surges 99% to ¥32.3bn, outlook held

JFE delivered a strong first quarter, with revenue climbing 4.1% year-on-year to ¥1,161.1 billion and business profit jumping 98.7% to ¥32.3 billion. Net profit attributable to owners of parent skyrocketed 338.1% to ¥31.2 billion, marking a sharp recovery from the same period last year.

The surge was mainly due to a ¥36 billion positive swing in steel inventory valuation and operational gains at its steel mills. In the year-earlier quarter, JFE's steel segment posted a loss, but it turned profitable this time with a segment profit of ¥3.0 billion. The engineering and trading arms also performed solidly.

Operating profit, which includes a one-time ¥15 billion land sale gain, reached ¥47.3 billion, up from ¥16.2 billion a year ago. Excluding that gain, business profit more accurately reflects underlying earnings. JFE kept its full-year forecasts unchanged: revenue of ¥4.85 trillion, business profit of ¥215 billion, and net profit of ¥150 billion. The first-quarter business profit achieved only 15% of the annual target, underscoring a back-loaded earnings pattern. Management cautioned that heightened Middle East tensions could push up procurement costs.

The dividend was left unchanged at an annual ¥80 per share, with an interim and year-end payment of ¥40 each. No share buyback was announced. Interest-bearing debt increased to ¥2,200 billion, raising attention on JFE's balance sheet management.

All three business segments performed as follows:

The steel segment, JFE's largest earnings driver, saw a dramatic turnaround. While external revenue slipped 0.4% to ¥676.1 billion, segment profit swung to ¥3.0 billion from a loss of ¥12.1 billion a year earlier. Crude steel production was nearly flat at 5.25 million tonnes (vs. 5.28 million). The profit improvement was fueled by inventory valuation gains and better mill operations. Earnings from overseas subsidiaries, particularly in India, contributed significantly, lifting overall steel segment profit by ¥15.1 billion year-on-year.

Engineering revenue rose 8.3% to ¥142.5 billion, and segment profit jumped ¥3.2 billion to ¥8.9 billion. The order backlog remains high, with strong demand in waste-to-resource and carbon-neutral projects. The segment maintained a solid 6.3% margin and has already reached 35.8% of its full-year profit forecast of ¥25 billion.

The trading business posted a 12.5% revenue increase to ¥342.4 billion, but segment profit declined slightly to ¥11.3 billion (down ¥1.3 billion). Higher steel and non-ferrous metal sales were offset by inventory valuation reversals and higher selling costs. The margin held steady at 3.3%.

Total assets expanded by ¥290.7 billion from the prior fiscal year-end to ¥6,185.9 billion, mainly due to a ¥36.7 billion increase in inventories and a ¥142.1 billion jump in equity-method investments. The rise in investments reflects improved earnings at affiliates such as Indian joint ventures and currency effects.

Cash and cash equivalents stood at ¥180.4 billion, up ¥12.6 billion from the year-end. Interest-bearing debt rose ¥240.7 billion to ¥2,200 billion, partly after JFE raised ¥105 billion through a subordinated loan in June. The debt-to-equity ratio deteriorated to 66.6% from 59.4%, though on an adjusted basis that considers the equity-like nature of the loan, leverage remained manageable.

The annual dividend was kept at ¥80 per share, implying a payout ratio of around 34% based on forecast net profit. No share buyback was conducted. Earnings per share surged to ¥49.09 from ¥11.21 a year ago. The parent's equity ratio dipped to 42.6% from 44.4%, still a healthy level, but the increase in debt and inventories will keep cash generation in the second half in focus.

JFE faces a cloudy external environment with several headwinds:

• Middle East turmoil: Logistics disruptions and rising raw-material prices are expected to add roughly ¥60 billion in costs for the full year, including at group companies. Higher iron ore and coking coal prices in particular are squeezing steel spreads.
• Weak steel market: Slowing Chinese demand and global oversupply are keeping steel prices subdued. JFE projects its full-year steel spread will shrink by ¥36 billion year-on-year, making price improvement efforts urgent.
• Currency swings: The company assumes an exchange rate of ¥160 per dollar. While a weak yen helps export margins, it also lifts import costs for raw materials, and the net impact remains uncertain.
• Geopolitical risks: The Ukraine conflict and U.S. trade policy uncertainty could affect overseas operations and logistics.
• Tighter environmental regulation: Long-term decarbonization investments are a growing burden. JFE is accelerating spending on next-generation technologies such as electrical steel sheets and hydrogen use, but these will take time to generate returns.