Rebar Manufacturers Q2 FY2027: Revenue grows, profitability gaps widen

The three companies combined for revenue growth, but operating profit fell at all three from a year earlier. Average revenue was ¥104.43 billion, up 8.4%, while margins varied widely, making the ability to pass costs on to customers a key issue.

• Weak domestic demand: At Godo Steel, labor shortages at construction sites and higher prices for materials and equipment led to project delays and cancellations. Kyoei Steel's domestic shipments also fell 4.4% year on year.
• Higher raw material and energy costs: Higher scrap prices narrowed Kyoei Steel's selling-to-purchasing price spread by 18.9%. Scrap and energy costs weighed on Godo Steel, while higher power costs hurt Tokyo Tekko.
• Different sales destinations: With domestic demand weak, Godo Steel sought to expand exports, while Kyoei Steel grew its overseas steel business. Securing volume alone, however, has not been enough to offset the pressure on profitability.

The pattern of revenue growth alongside shrinking profits was common to all three. But revenue growth at Kyoei Steel was supported by overseas operations, while the other companies were more exposed to domestic demand and the ability to pass on higher prices. The industry average operating margin was 5.2%, with a wide gap in profitability across the group.

Tokyo Tekko stood out for its profitability, with an operating margin of 12.5%. By contrast, Godo Steel swung to an operating loss, with a margin of -0.2%, well below the industry average of 5.2%. Kyoei Steel increased profit in its overseas business, but that was not enough to offset weaker domestic profitability.

• Tokyo Tekko: Its steel business maintained a high margin of 12.2%. But a narrower price spread and higher power costs drove operating profit down 26.0% year on year, so increased shipments did not translate into higher profit.
• Kyoei Steel: Operating profit in its overseas steel business rose 128.4% year on year, thanks to higher production in Vietnam and improved performance in North America. But the domestic steel business had a margin of just 0.3%, with higher scrap prices contributing to the overall decline in profit.
• Godo Steel: Revenue in its steel business increased, but profit from that business fell by ¥5.905 billion from a year earlier. Price increases failed to take hold, particularly for deformed reinforcing bar amid weak demand, leaving the company unable to absorb higher raw material and energy costs.

Tokyo Tekko's high margin shows that profitability cannot be judged by revenue scale alone. Godo Steel's cost of sales rose to ¥85.086 billion from ¥76.718 billion a year earlier, preventing revenue growth from feeding through to profit. The results show how business mix and pricing power shaped profitability.

The companies are taking different approaches, from developing new sales destinations to making greater use of overseas operations and maintaining shareholder returns. In the near term, the test will be whether they can improve margins by passing on costs and lifting the profitability of individual businesses, rather than simply securing sales volume.

• Godo Steel: With domestic demand weak, the company sought to secure shipments by expanding exports. It has set an annual dividend floor of ¥100 for the five years of its Medium-Term Vision 2030, with an interim dividend of ¥40 and a forecast year-end dividend of ¥60.
• Kyoei Steel: Higher production in Vietnam and improved performance in North America helped lift operating profit in its overseas steel business 128.4% year on year. The company cut its full-year operating profit forecast to ¥9.5 billion and kept its annual dividend forecast at ¥70, below the previous year's ¥90.
• Tokyo Tekko: The company kept its full-year forecast unchanged, targeting operating profit of ¥10 billion. Its annual dividend forecast is ¥100 on a post-stock-split basis, comprising an interim dividend of ¥40 and a year-end dividend of ¥60.

Godo Steel's dividend floor and Tokyo Tekko's unchanged outlook signal a commitment to shareholder returns and maintaining guidance, but earnings recovery remains important when profits are falling. Kyoei Steel needs to use overseas growth while rebuilding profitability in its domestic steel business. Their strategies differ, but the shared test is whether they can shift from securing volume to improving margins.

The main risk shared by the companies is rising raw material and energy costs, coupled with delays in passing those costs on through selling prices. Weak domestic demand adds to the pressure. If shipments hold up but profits do not, full-year targets and shareholder return policies could also come under strain.

• Higher scrap prices and narrower spreads: Kyoei Steel's selling-to-purchasing price spread narrowed 18.9% year on year, and its domestic steel business had a margin of 0.3%. The impact on domestic profitability is particularly clear in these results.
• Higher power and energy costs: Tokyo Tekko cited rising power costs, while Godo Steel pointed to higher energy costs amid factors including the weaker yen and the situation in the Middle East. Godo Steel has swung to an operating loss, making its ability to absorb cost increases a pressing issue.
• Stagnant construction demand: Labor shortages and higher material and equipment prices have delayed or canceled projects. This also helps explain Godo Steel's push to expand exports. Weak demand is evident at Kyoei Steel too, where domestic shipments fell 4.4% year on year.
• Volatility in overseas operations: Growth in Kyoei Steel's overseas steel business is supporting its results. Whether overseas sales and operations can maintain that growth will directly affect the company's ability to offset weaker domestic profitability.

Cost increases are common to all three, but the effects have surfaced differently: Godo Steel has swung to a loss, Kyoei Steel has low profitability in its domestic business, and Tokyo Tekko faces a narrower price spread and higher power costs. Rather than assuming raw material prices or demand will move uniformly, investors should watch how much each company can pass on through selling prices.

Net profit fell at all three companies, but the declines varied. Godo Steel's net profit plunged 91.8% year on year, far worse than the industry average decline of 54.7%. Tokyo Tekko's fell 32.4%, while Kyoei Steel's declined 40.0%.

• Godo Steel: First-half net profit was ¥0.4 billion, down 91.8% year on year. Alongside its operating loss, ordinary profit fell 95.9%.
• Kyoei Steel: First-half net profit was ¥3.3 billion, down 40.0% year on year. Higher profit overseas was not enough to make up for the decline in domestic earnings.
• Tokyo Tekko: First-half net profit was ¥3.0 billion, down 32.4% year on year. In addition to lower operating profit, a larger loss from equity-method investments weighed on results.

First-half progress against full-year operating profit forecasts was 64% for Kyoei Steel, 49% for Tokyo Tekko and -9% for Godo Steel. Kyoei Steel lowered its full-year forecast, Tokyo Tekko left its unchanged, and Godo Steel is targeting operating profit of ¥1.8 billion. Progress rates are not directly comparable on their own, but the figures show that the path to profit recovery differs by company.

These results show that work at a rebar maker extends well beyond manufacturing. Procurement of raw materials and power, price negotiations, domestic and overseas sales, and management of profitability by business all affect company earnings.

• Godo Steel: The company is seeking to secure shipment volumes by expanding exports as domestic demand weakens. Delays in passing on costs are also behind its operating loss, putting sales, procurement and cost management close to the center of business performance.
• Kyoei Steel: Revenue from its overseas steel business was ¥109.9 billion, exceeding the ¥62.1 billion from its domestic steel business. Overseas production and sales, alongside improved domestic profitability, are both key to running the business.
• Tokyo Tekko: Steel business revenue was ¥39.0 billion, the core of consolidated revenue. Price spreads and power costs affect profit, making coordination between manufacturing, sales and cost management important.

When comparing employers, candidates should look beyond revenue scale and brand recognition to business mix at home and abroad, as well as the range of work involved in responding to higher raw material costs. Each company also offers different areas of business, including overseas expansion, environmental recycling and agricultural materials. Changes in margins and full-year forecasts can offer clues to the business environment and challenges on the ground.