ShinMaywa Q2 FY2027: Aircraft strength lifts operating profit 40%

ShinMaywa's FY2027 first-half revenue was ¥134.5 billion, up 9.4% from a year earlier. Operating profit rose 40.0% to ¥6.4 billion, while net income attributable to owners of the parent increased 53.6% to ¥4.2 billion. Orders received totaled ¥156.4 billion, up 8.8%, and the year-end order backlog reached ¥383.9 billion, up 13.5%.

• Aircraft: Revenue increased 21.3% year on year and operating profit jumped 143.9%. The sharp profit growth was the biggest driver of the overall increase.
• Special-Purpose Trucks: Higher sales of vehicle bodies and other products, along with growth in maintenance and repair orders and sales, helped lift operating profit 14.9%.
• Fluid: Steady demand in Japan and overseas supported an 8.1% increase in revenue and a 61.2% rise in operating profit.
• Industrial Machinery and Environmental Systems: Environmental-related sales increased, but a decline in mechatronics product sales contributed to a wider operating loss than a year earlier.

A sharp rise in aircraft profit led overall growth, but gains were not uniform across all businesses. Higher revenue and improved profitability in Aircraft, Special-Purpose Trucks and Fluid drove the increase in operating profit. The growing order backlog is a potential source of future sales, while narrowing losses in Industrial Machinery and Environmental Systems remains a challenge.

Aircraft revenue increased 21.3% year on year, while operating profit climbed 143.9%. Orders from Japan's Defense Ministry grew, although sales declined. Civil aviation-related orders and sales both increased, and the year-end order backlog rose 52.0%. The larger backlog could help support the business going forward.

Special-Purpose Trucks revenue rose 8.0% and operating profit increased 14.9%. Orders for vehicle bodies and other products were roughly flat from a year earlier, but sales grew. Maintenance and repair services, as well as forestry machinery, also recorded higher orders and sales. Parking Systems revenue increased 2.4%, while operating profit fell 4.1%. Orders for mechanical parking systems rose as sales declined, while both orders and sales increased for passenger boarding bridges.

Fluid revenue grew 8.1% and operating profit rose 61.2%, reflecting steady demand in Japan and overseas. Industrial Machinery and Environmental Systems revenue increased 8.7%, but its operating loss widened to ¥600 million, partly because of lower sales of wire-processing machines. In Other, construction orders declined, while revenue rose 14.3% and operating profit increased 9.6%.

Aircraft stood out for the growth in its order backlog, while Special-Purpose Trucks and Fluid also ended the period above year-earlier levels. Parking Systems' backlog declined, putting the focus on the business's order and sales trends as well as efforts to improve profitability.

Total assets at the end of the first half were ¥291.6 billion, down ¥4.5 billion from the previous fiscal year-end. The equity ratio rose to 43.4%, from 42.2% at the end of the prior year. The interim dividend was ¥29 per share, up ¥2 from ¥27 a year earlier.

Operating cash flow was negative, reflecting factors including higher inventories and tax payments. Spending on capital investment and other items continued, while long-term borrowing provided funding. Cash and cash equivalents at period-end were ¥28.6 billion, down ¥7.3 billion from the previous fiscal year-end. ShinMaywa forecasts an annual dividend of ¥58, up ¥2 from the previous year. The earnings release did not announce a share buyback.

ShinMaywa revised its FY2027 forecasts, raising revenue to ¥312.0 billion and operating profit to ¥17.5 billion. The increases from its previous forecasts were ¥2.0 billion for revenue and ¥500 million for operating profit. Net income attributable to owners of the parent was unchanged at ¥10.5 billion.

Compared with the previous-year results, the revised forecast calls for revenue to rise 9.5% and operating profit to increase 7.2%. Ordinary profit is forecast to decline 2.0%, and net income 8.8%. The company said it considered first-half results and its outlook for the remainder of the year when revising its forecasts, and will detail the factors behind individual business changes in supplementary materials. Its exchange-rate assumption from November onward is ¥150 per U.S. dollar.

While ShinMaywa reported growth and raised its full-year forecast, it cited inflation, currency fluctuations and geopolitical risks as sources of uncertainty. Converting its order backlog into sales and improving the profitability of loss-making businesses will also influence future results.

• Geopolitical and foreign-exchange risks: Continued geopolitical risks, including those in the Middle East, and currency swings could affect procurement costs and the profitability of overseas operations. The company's exchange-rate assumption from November onward is ¥150 per U.S. dollar.
• Inflation and cost control: If inflation persists, higher materials and labor costs could put pressure on profit.
• Losses in Industrial Machinery and Environmental Systems: Revenue exceeded the year-earlier level, but the operating loss widened. Improving profitability is a priority following lower sales of wire-processing machines and other products.
• Working capital and declining cash: Higher inventories and other factors pushed operating cash flow into negative territory, while cash and cash equivalents also fell from the previous fiscal year-end. The company's ability to turn increased orders into sales and collections will be important.

The larger order backlog offers support for the outlook, but ShinMaywa needs to convert orders into profit and cash. In particular, its ability to manage delivery schedules and profitability while curbing inventory growth will be important in assessing progress toward its full-year plan.