Daiki Axis / 4245
COVERAGE INITIATED ON: 2021.04.20 LAST UPDATE: 2021.07.28
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Research Coverage Report by Shared Research Inc. Daiki Axis / 4245 RCoverage LAST UPDATE: 2021.07.28 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
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How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Executive summary ------3 Key financial data ------6 Recent updates ------8 Highlights ------8 Trends and outlook ------11 Quarterly trends and results ------11 Full-year FY12/21 company forecast (out February 12, 2021) ------16 Medium-term management plan (announced on February 22, 2021) ------19 Business ------29 Business overview ------29 Environmental Equipment segment (in FY12/20, 51.0% of total revenue, 59.0% of operating profit) ------31 Household Equipment segment (in FY12/20, 42.6% of total revenue, 15.4% of operating profit) ------42 Renewable Energy segment (in FY12/20, 2.6% of total revenue, 17.1% of operating profit) ------46 Other business segment (in FY12/20, 3.8% of total revenue, 8.5% of operating profit) ------48 Strengths and weaknesses ------51 Financial statements and historical performance ------53 Income statement ------53 Balance sheet ------54 Cash flow statement ------56 Historical performance ------58 Other information ------65 History ------65 News and topics ------66 Corporate governance and top management ------69 Dividend policy ------69 Major shareholders (as of December 31, 2020) ------70 Employees ------70 Origin of the company name ------71 Profile ------71
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Executive summary
Business overview
◤ Company overview: Daiki Axis’s business centers on water treatment. The company manufactures and sells household and industrial wastewater treatment systems. In addition, the company sources and sells household equipment, most of which is used in wet areas (baths and kitchens). In 2018, the company commenced sales of electricity generated using renewable energy. In FY12/20, revenue was JPY34.6bn, operating profit was JPY1.0bn, and OPM was 3.0%. The company has four business segments: the Environmental Equipment, Household Equipment, Renewable Energy, and Other businesses.
The customer bases for the Household Equipment and Environmental Equipment segments overlap, creating synergy. Shared Research understands that this synergy is one reason for the company’s industry-leading share in its mainstay product category (medium-sized and large wastewater treatment tanks—also known as “johkasou”).
◤ Environmental Equipment: This segment posted FY12/20 revenue of JPY17.7bn, which constituted 51.0% of total revenue and 59.0% of total operating profit, while segment OPM was 6.8%. In this segment, the company mainly makes, sells, installs, and maintains wastewater treatment tanks and other wastewater treatment equipment. Wastewater treatment tanks, which are usually installed in areas without sewage systems, treat sewage and household wastewater. The tanks sterilize and disinfect the wastewater to environmental standards so it can be released into public waterways and rivers. The company has four factories in Japan that produce compact wastewater treatment tanks, medium-sized and large wastewater treatment tanks, and industrial wastewater treatment equipment.
Compact wastewater treatment tanks (priced at JPY150,000) are for household use. The company manufactures around 6,000 per year. These compact units account for approximately 10% of segment revenue. GPM on these tanks is at several percent because more than 10 companies make such tanks, and price competition is high. Medium-sized and large wastewater treatment tanks are installed mainly in condominiums and commercial facilities, while industrial wastewater treatment equipment is used in factories. Each year, the company produces about 600 of these tanks each year, which are manufactured to order and include installation. Prices per unit range from tens of millions to hundreds of millions of JPY (including installation), and these tanks account for around 60% of segment revenue. These made-to-order tanks require special expertise in supply and installation, with each unit modified to suit customer needs. GPM is around 20%.
The company also maintains medium-sized and larger equipment; maintenance services account for 30% of segment revenue. As annual maintenance is legally mandated, this is a recurring-revenue business. GPM is approximately 40%. The company receives orders via construction companies with whom it has long-term relationships. Maintenance ensures a stable source of earnings after equipment has been installed.
In this segment, the company also provides maintenance services (cleaning and fire inspections of DIY stores) and wastewater treatment tank maintenance for DCM Daiki Co., Ltd. (unlisted). DCM Daiki is the company’s main customer in the Household Equipment segment. The founder of DCM Daiki started Daiki Axis by splitting it off from its predecessor company. Currently, Daiki Axis and DCM Daiki have no capital relationships.
◤ Household Equipment: This segment recorded revenue of JPY14.7bn in FY12/20, which comprised 42.6% of total revenue and 15.4% operating profit, while segment OPM was 2.1%. In this segment, the company primarily sources and sells household equipment used in wet areas (modular kitchens, toilets, and modular baths), as well handling construction housing equipment and exterior walls. The company has been involved in the sourcing and sales of household fixtures since establishment (1958).
In this segment, the company obtains around 70% of revenue from construction companies, less than 15% from DIY stores, and below 15% from work involving construction of other household fittings and exterior walls. DCM Daiki accounts for
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around 20% of segment revenue (including for construction). Segment GPM is around 10%. By location, more than 80% of revenue is from the Shikoku (where the company is headquartered), Kinki, and Chugoku regions. In the construction category, the company provides exterior wall and flooring materials for public facilities and installs equipment in customers’ stores. The company also handles some store renovation for DCM Daiki.
◤ Renewable Energy: This segment logged FY12/20 revenue of JPY905mn, which constituted 2.6% of total revenue and 17.1% of operating profit, while segment OPM was 38.4%. Within this segment, the company conducts business in the areas of biodiesel fuel, solar power generation, and small wind turbine generation. The company began refining and selling biodiesel fuel in FY12/05, collecting used cooking oil in Ehime Prefecture. Daiki Axis began solar power generation in FY12/18. As of FY12/19, solar power accounted for around 80% of segment revenue, with biodiesel accounting for the remaining 20%.
For electricity sales, the company uses the feed-in tariff system (FIT) and has 20-year sales agreements in place with seven electric utilities. The agreement with Shikoku Electric Power Company, Inc. (TSE1: 9507), for example, stipulates JPY21 per kWh (JPY18/kWh in some cases). Daiki Axis erects the solar panels that generate this electricity on the roofs of DIY stores operated by DCM Holdings Co., Ltd. (TSE1: 3050, which includes the aforementioned DCM Daiki). As the panels are on rooftops, the company need not invest in land development. The company expects this business to deliver OPM of around 50%. In FY12/19, the company also began selling electricity generated by small wind turbines (FIT: JPY55/kWh).
Earnings trends
◤ In FY12/20, the company had revenue of JPY34.6bn (-3.1% YoY, 100.7% of full-year forecast), operating profit of JPY1.0bn (+4.4% YoY, 103.5%), recurring profit of JPY1.2bn (+4.8% YoY, 104.4%), and net income attributable to owners of the parent of JPY477mn (-39.0% YoY, 86.7%). Revenue was down YoY due to comparison with FY12/19, when the company booked large projects (electrical component factories and final waste disposal sites) and a downturn in overseas revenue stemming from the COVID-19 pandemic. Profit was up on comparison with FY12/19, when the company booked unprofitable projects (JPY345mn) in the Environmental Equipment segment. Operating profit in the Renewable Energy segment (+35.7% YoY), which is centrally focused on the solar power generation business, contributed to the companywide rise in operating profit.
◤ The company forecast for FY12/21 (out February 12, 2021) calls for revenue of JPY35.4bn (+2.2% YoY), operating profit of JPY1.2bn (+10.0% YoY), recurring profit of JPY1.3bn (+7.3% YoY), net income attributable to owners of the parent of JPY700mn (+46.7% YoY), and annual dividends per share of JPY24.00 (flat YoY). The company forecast assumes economic activity will remain lackluster in FY12/21 due to the ongoing impact of the COVID-19 pandemic.
◤ The company has announced a three-year (FY12/21 to FY12/23) medium-term management plan dubbed “PROTECT X CHANGE.” The company has not announced numeric targets for the final year of the plan; it says COVID-19 makes the outlook too uncertain to set targets at this stage but also maintains that these targets will be set when possible. The company has also withdrawn the numeric targets it had set for a three-year (FY12/19 to FY12/21) medium-term plan titled “Make FOUNDATION Plan (Promote ESG* management).” Qualitatively, however, the company has said its strategy will focus on boosting profitability. The company’s long-term strategy focuses on promoting ESG management aimed at improving the global environment. A key tenet of the plan is to concentrate on overseas demand rather than the shrinking Japanese market.
In Japan, the company anticipates little growth from spot earnings, due to a decline in housing starts. Instead, Daiki Axis aims to focus on expanding its recurring-revenue businesses: maintenance of wastewater treatment systems and groundwater-to-drinking-water conversion (the clean water ESCO business). Overseas, the company plans to expand business in Southeast Asia, India, and Africa, where sewage systems are insufficient. The company explains that its wastewater treatment tanks can be built at less cost than sewage systems. In addition, the company says its systems are
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unique to Japan, so it has no overseas competitors. The company believes developing countries represent a major business opportunity.
In line with the previous medium-term management plan, in 2020, the company issued green bonds (unsecured corporate bonds limited to qualified institutional investors), which can only go toward environmental fields and will be used to develop overseas business. The company has also put in place a sustainability finance plan for developing its renewable energy business. By raising its profile as a company engaged in environmental businesses, Daiki Axis believes it can build better relationships with customers and gain preferential funding access.
*ESG stands for “environmental, social, and governance.”
Strengths and weaknesses
◤ Strengths: 1) The company has long-term relationships in place with construction companies, including large general contractors. These relationships help the company increase orders for medium- and large-sized wastewater treatment tanks and industrial wastewater treatment facilities, as well as obtain profitable maintenance contracts (GPM of more than 40%). 2) The company has been quicker than competitors to embark on the overseas production of wastewater treatment tanks, a type of low-cost wastewater treatment system unique to Japan. As a result, the company has accumulated expertise in this area. 3) In the solar power generation business, the company can install solar panels on the roofs of stores operated by DCM Holdings.
◤ Weaknesses: 1) In compact wastewater treatment tanks, the company has no way to expand sales except to compete on price. 2) The overseas business, which is driving growth, requires time-consuming personnel development. This time constraint limits growth. 3) In Japan, the company provides compact wastewater treatment tanks. This business, and the Household Equipment segment, are linked to housing starts.
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Key financial data
Income statement FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Revenue 30,754 31,507 32,362 32,811 33,561 36,224 35,749 34,648 35,400 YoY 13.1% 2.4% 2.7% 1.4% 2.3% 7.9% -1.3% -3.1% 2.2% Gross profit 5,338 5,872 6,029 6,215 6,558 6,887 6,969 7,336 YoY 9.5% 10.0% 2.7% 3.1% 5.5% 5.0% 1.2% 5.3% Gross profit margin 17.4% 18.6% 18.6% 18.9% 19.5% 19.0% 19.5% 21.2% Operating profit 529 811 946 931 1,144 923 1,001 1,045 1,150 YoY 56.5% 53.3% 16.7% -1.6% 22.8% -19.3% 8.4% 4.4% 10.0% Operating profit margin 1.7% 2.6% 2.9% 2.8% 3.4% 2.5% 2.8% 3.0% 3.2% Recurring profit 689 941 1,083 1,136 1,343 1,101 1,155 1,211 1,300 YoY 21.9% 36.6% 15.1% 5.0% 18.2% -18.0% 4.9% 4.8% 7.3% Recurring profit margin 2.2% 3.0% 3.3% 3.5% 4.0% 3.0% 3.2% 3.5% 3.7% Net income 403 736 333 648 744 861 783 477 700 YoY 86.0% 82.5% -54.8% 94.8% 14.8% 15.7% -9.1% -39.0% 46.7% Net margin 1.3% 2.3% 1.0% 2.0% 2.2% 2.4% 2.2% 1.4% 2.0% Per-share data (split-adjusted; JPY) Shares issued (year-end; '000) 3,102,200 6,204,400 6,204,400 12,408,800 12,408,800 12,408,800 12,408,800 12,788,800 EPS 20.0 59.8 27.5 53.6 61.7 71.8 65.2 39.6 56.4 EPS (fully diluted) ------39.4 Dividend per share 8.3 15.0 15.0 15.0 20.0 24.0 24.0 24.0 24.0 Book value per share 192 410 475 512 569 560 595 615 Balance sheet (JPYmn) Cash and cash equivalents 3,640 3,289 3,367 3,430 4,517 6,014 7,166 7,896 Total current assets 13,998 13,779 13,656 14,519 15,034 18,764 18,906 17,448 Tangible fixed assets 3,157 3,728 4,331 4,115 4,727 6,338 8,363 8,047 Investments and other assets 1,182 1,153 1,308 1,305 1,780 1,388 1,606 1,541 Intangible fixed assets 481 404 116 84 86 547 1,033 742 Total assets 18,817 19,064 19,411 20,024 21,626 27,037 29,908 27,779 Short-term debt 5,353 5,530 5,675 5,964 6,799 10,744 10,923 9,657 Total current liabilities 11,571 11,367 11,599 12,303 13,259 18,864 18,625 15,879 Long-term debt 1,795 1,906 1,743 1,136 874 350 958 3,210 Total fixed liabilities 2,066 2,141 2,072 1,531 1,543 1,455 2,079 4,265 Total liabilities 13,637 13,508 13,671 13,834 14,802 20,319 20,704 20,144 Shareholders' equity 5,176 5,551 5,741 6,190 6,824 6,718 7,154 7,630 Total net assets 5,181 5,556 5,741 6,190 6,824 6,718 9,203 7,634 Total liabilities and net assets 18,817 19,064 19,411 20,024 21,626 27,037 29,908 27,779 Total interest-bearing debt 7,149 7,436 7,418 7,100 7,673 11,093 11,881 12,567 Cash flow statement (JPYmn) Cash flows from operating activities 439 737 1,369 608 1,868 -105 2,416 2,358 Cash flows from investing activities -198 -1,008 -815 105 -122 -1,402 -2,846 -3,048 Cash flows from financing activities 840 -88 -438 -452 -635 3,030 1,643 1,620 Fina nc ia l r a t ios ROA (RP-based) 3.9% 5.0% 5.6% 5.8% 6.4% 4.5% 4.1% 4.2% ROE 9.0% 13.7% 5.9% 10.9% 11.4% 12.7% 11.3% 6.5% Equity ratio 27.5% 29.1% 29.6% 30.9% 31.6% 24.8% 23.9% 27.5% Total asset turnover 176.2% 166.3% 168.2% 166.4% 161.2% 148.9% 125.6% 120.1% Net margin 1.3% 2.3% 1.0% 2.0% 2.2% 2.4% 2.2% 1.4% Source: Shared Research based on company data Note 1: Figures may differ from company materials due to differences in rounding methods. Note 2: The company conducted a two-for-one stock split on common shares on July 1, 2017. In the table above, EPS and BPS are calculated as if the stock split had occurred at the beginning of FY12/16.
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By business segment FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Orders 13,675 12,601 14,842 15,791 16,874 16,175 15899 YoY - - - -7.9% 17.8% 6.4% 6.9% -4.1% -1.7% Environmental Equipment 11,050 10,813 11,444 11,042 12,790 12,385 12,724 YoY - - - -2.1% 5.8% -3.5% 15.8% -3.2% 2.7% % of total 80.8% 85.8% 77.1% 69.9% 75.8% 76.6% 80.0% Household Equipment 1,985 1,166 2,775 2,906 1,675 2,061 2,333 YoY - - - -41.3% 138.0% 4.7% -42.4% 23.0% 13.2% % of total 14.5% 9.3% 18.7% 18.4% 9.9% 12.7% 14.7% Renewable Energy - - - - - 95 107 125 95 YoY ------12.7%17.3%-24.0% % of total 0.0% 0.0% 0.0% 0.6% 0.6% 0.8% 0.6% Other 640 622 622 1,749 2,302 1,602 745 YoY - - - -2.8% 0.1% 181.1% 31.6% -30.4% -53.5% % of total 4.7% 4.9% 4.2% 11.1% 13.6% 9.9% 4.7% Order backlog 5,610 5,093 5,478 6,565 8,468 7,194 7000 YoY - - - -9.2% 7.6% 19.8% 29.0% -15.0% -2.7% Environmental Equipment 4,323 4,331 4,734 4,355 6,094 4,578 5,901 YoY - - - 0.2% 9.3% -8.0% 39.9% -24.9% 28.9% % of total 77.1% 85.0% 86.4% 66.3% 72.0% 63.6% 84.3% Household Equipment 1,287 725 744 1,750 1,007 1,054 1,098 YoY - - - -43.7% 2.7% 135.1% -42.5% 4.7% 4.2% % of total 22.9% 14.2% 13.6% 26.7% 11.9% 14.7% 15.7% Renewable Energy ------1 7 - YoY ------400.0% - % of total - - - - 0.0% 0.1% 0.0% Other - 38 - 460 1,366 1,553 - YoY ------197.0% 13.7% - % of total - 0.7% - 7.0% 16.1% 21.6% - Revenue 27,202 30,754 31,507 32,362 32,811 33,561 36,224 35,749 34,648 35,400 YoY 9.1% 13.1% 2.4% 2.7% 1.4% 2.3% 7.9% -1.3% -3.1% 2.2% Environmental Equipment 12,997 14,913 15,262 15,407 15,913 16,446 18,513 18,570 17,688 18,857 YoY - 14.7% 2.3% 1.0% 3.3% 3.3% 12.6% 0.3% -4.8% 6.6% % of total 47.8% 48.5% 48.4% 47.6% 48.5% 49.0% 51.1% 51.9% 51.0% 53.3% Household Equipment 13,513 15,178 15,533 16,300 16,166 15,585 15,812 14,642 14,743 14,894 YoY - 12.3% 2.3% 4.9% -0.8% -3.6% 1.5% -7.4% 0.7% 1.0% % of total 49.7% 49.4% 49.3% 50.4% 49.3% 46.4% 43.7% 41.0% 42.6% 42.1% Renewable Energy - - - - - 174 287 699 905 992 YoY ------65.4%143.3% 29.4% 9.6% % of total 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.8% 2.0% 2.6% 2.8% Other 691 660 712 655 732 1,357 1,612 1,838 1,313 655 YoY - -4.5% 7.9% -8.0% 11.6% 85.5% 18.8% 14.0% -28.6% -50.1% % of total 2.5% 2.1% 2.3% 2.0% 2.2% 4.0% 4.4% 5.1% 3.8% 1.9% Operating profit 338 529 811 946 931 1,144 923 1,001 1,045 1,150 YoY - 56.5% 53.3% 16.7% -1.6% 22.8% -19.3% 8.4% 4.4% 10.0% Operating profit margin 1.2%1.7%2.6%2.9%2.8%3.4%2.5%2.8%3.0%3.2% Environmental Equipment 641 956 1,140 1,136 1,199 1,357 1,395 1,068 1,200 1,461 YoY - 49.1% 19.2% -0.3% 5.5% 13.2% 2.8% -23.4% 12.3% 21.8% Operating profit margin 4.9%6.4%7.5%7.4%7.5%8.3%7.5%5.8%6.8%7.7% % of total 77.5% 81.3% 75.1% 70.2% 69.8% 69.6% 69.9% 57.9% 59.0% 63.4% Household Equipment 314 348 466 567 497 579 569 367 313 417 YoY - 10.8% 34.0% 21.6% -12.3% 16.4% -1.7% -35.5% -14.6% 33.0% Operating profit margin 2.3%2.3%3.0%3.5%3.1%3.7%3.6%2.5%2.1%2.8% % of total 38.0% 29.6% 30.7% 35.0% 28.9% 29.7% 28.5% 19.9% 15.4% 18.1% Renewable Energy ------164 -66 256 348 335 YoY ------35.7%-3.6% Operating profit margin ------36.6% 38.4% 33.8% % of total ------8.4% -3.3% 13.9% 17.1% 14.5% Other -128 -128 -89 -84 22 177 98 153 172 92 YoY -----699.6% -44.9% 56.6% 12.4% -46.4% Operating profit margin ----3.0%13.1%6.1%8.3%13.1%14.0% % of total -15.5% -10.9% -5.9% -5.2% 1.3% 9.1% 4.9% 8.3% 8.5% 4.0% Eliminations 121 125 136 149 146 164 127 179 Company-wide expenses -827 -798 -923 -955 -1,218 -1,008 -1,115 -1,335 Source: Shared Research based on company data Note 1: Figures may differ from company materials due to differences in rounding methods. Note 2: Until FY12/16, the Other business segment was included in the biodiesel business (Renewable Energy segment).
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Recent updates
Highlights
On July 28, 2021, Daiki Axis Co., Ltd., announced the planned August 2, 2021, launch of its latest product, the Core Reactor SR industrial wastewater treatment system.
The company has been manufacturing and selling Core Reactor AP as its main industrial wastewater treatment product. Core Reactor AP facilitates running cost reduction by keeping the amount of sludge* generated to a minimum even as it achieves excellent treated water quality. At the same time, aiming to improve the ease of maintenance and management, the company has been working to develop a new product that does not use activated sludge**.
*Sludge: Suspended solids that have settled or surfaced to become soil **Activated sludge: Sludge of organic and inorganic substances containing a high concentration of microorganisms such as aerobic bacteria and protozoans; used to oxidize and purify wastewater
The key feature of the new Core Reactor SR is its combination of the carrier flow method* and contact aeration method** that achieves wastewater treatment through a biofilm process alone, which simplifies maintenance and management. In addition, microorganisms digest the suspended solids trapped in the wastewater treatment tank (contact aeration tank) over a long period of time, resulting in less sludge. In terms of treatment performance (discharge water quality), the product delivers BOD*** of ≤20 mg per liter.
*Carrier flow method: Method of purifying wastewater by making filter media (carrier) flow through the wastewater. The carrier contains microorganisms that actually do the purification. **Contact aeration method: Method of purifying wastewater in which air is blown into the wastewater (aeration) to supply necessary oxygen to microorganisms while also agitating (mixing) the wastewater to bring that oxygen into contact with the contact materials (the aforementioned carrier). ***BOD: biochemical oxygen demand
The company has not yet provided any information on the projected impact of the new product on its FY12/21 results.
On July 2, 2021, Shared Research updated the report following interviews with the company.
On June 30, 2021, the company announced that it has put additional capital into its subsidiary in India and that this same subsidiary has also obtained ISO certifications.
The company has raised capital for its subsidiary in India, Daiki Axis India Pvt. Ltd. The ISO certifications obtained by Daiki Axis India were ISO 9001:2015 and ISO 14001:2015. Daiki Axis India is a wholly owned subsidiary of Daiki Axis Singapore Pte. Ltd (100% owned by the company).
Daiki Axis India: additional capital funding The new capital put into Daiki Axis India will go toward funding investments in additional production facilities as well as working capital needs. With the additional funding, totaling INR50mn (or roughly JPY80mn), Daiki Axis India will have total paid-in capital of INR265mn (JPY400mn) versus INR215mn (JPY320mn) previously.
By way of explanation, the company said that even though the Indian economy has suffered in the wake of the pandemic the country has nevertheless continued building out its environmental infrastructure and demand for wastewater treatment tanks there has continued to grow. In response, the company will increase the production capacity of its local contract manufacturer (from 20 units to 30 units/month) and, with this increase in production, expects to be able to shorten delivery times to local customers while bringing down costs. The new production line is expected to be up and running by September 2021.
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Daiki Axis India: ISO certifications The ISO certifications recently obtained by Daiki Axis India were ISO 9001:2015, which lays out the international standards for quality management systems, and ISO 14001:2015, which sets the standards for environmental management systems. With its ISO certifications, Daiki Axis India is now in a better position to make ongoing improvements to product quality so as to provide high-quality wastewater treatment tanks that will work to the betterment of the quality and safety of the water environment in India.
Officially dated April 8, 2021, the ISO certifications received by Daiki Axis India cover the design/development, production, installation, and maintenance of its wastewater treatment tanks made out of plastic and fiberglass-reinforced plastic.
On the same day, the company announced that it has established a subsidiary in Sri Lanka.
Having established a subsidiary in Sri Lanka, Daiki Axis Environment (PVT) Ltd., the company is now moving ahead with the construction of an assembly plant.
Overview of newly established subsidiary in Sri Lanka
▷ Name: Daiki Axis Environment (PVT) Ltd.
▷ Paid-in capital: LKR200mn (roughly JPY110mn)
▷ Date established: May 12, 2021
▷ Business description: Production (assembly) and sales of wastewater treatment tanks
▷ Relationship with Daiki Axis: Wholly owned subsidiary of Daiki Axis Singapore Pt. Ltd. (100% owned by the company), with directors and employees of Daiki Axis serving on the board of directors. Plans call for Daiki Axis to sell wastewater treatment tanks and related parts and materials to Daiki Axis Environment.
Purpose of Sri Lanka subsidiary Explaining its decision to establish a subsidiary in Sri Lanka, the company noted that a key element of its new medium-term business plan “PROTECT X CHANGE” and its future growth strategy of the group as a whole was the further expansion of overseas businesses, particularly its environmental equipment business.
In Sri Lanka, the company has maintained a presence in the market since 2017, conducting its sales activities via a local distributor. With the help of this partnership, the company has been able to make inroads into Sri Lanka’s public sector market and this in turn has opened the door for greater demand in the local market in the future. The company decided to establish a subsidiary and build its own assembly plant for wastewater treatment tanks so as to be in a better position to support the country in its ongoing efforts to improve the water quality of its seriously degraded rivers, inland lakes/marshes, and coastal waters, and thereby contribute to the larger goal of improving the global environment.
According to the company, only about 2.4% of Sri Lanka is served by sewers and water treatment systems, with most of this being confined to the main city of Colombo and surrounding areas. The vast majority of Sri Lanka’s population (96%) use septic tanks that are not up to the task and, as a result, the water quality of Sri Lankan is poor, with levels of water pollutants far exceeding environmental safety standards in most parts of the country.
Recognizing this problem, the national government of Sri Lanka has designated sanitation facilities for handling the advanced treatment of wastewater and helping to improve the country’s living environment as a key component of its recent economic development plans, including both its “Vision 2025” (created in 2017) and “Vision 2030” development plans (created in 2019).
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On May 14, 2021, the company announced earnings results for Q1 FY12/21; see the results section for details.
For previous releases and developments, please refer to the “News and topics” section.
10/72 Daiki Axis / 4245 RCoverage LAST UPDATE: 2021.07.28 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Trends and outlook Quarterly trends and results
Cumulative FY12/19 FY12/20 FY12/21 FY12/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1% of Est.FY Est. Revenue 9,750 17,849 26,590 35,749 9,593 17,444 25,688 34,648 9,878 27.9% 35,400 YoY 0.3% 2.4% 4.4% -1.3% -1.6% -2.3% -3.4% -3.1% 3.0% 2.2% Gross profit 1,943 3,333 5,114 6,969 2,042 3,793 5,431 7,336 2,042 YoY 8.2% -0.5% 5.6% 1.2% 5.1% 13.8% 6.2% 5.3% 0.0% Gross profit margin 19.9% 18.7% 19.2% 19.5% 21.3% 21.7% 21.1% 21.2% 20.7% SG&A expenses 1,472 2,829 4,359 5,968 1,540 3,110 4,600 6,291 1,592 YoY 4.2% -1.0% -0.8% 0.1% 4.6% 9.9% 5.5% 5.4% 3.4% SG&A ratio 15.1% 15.8% 16.4% 16.7% 16.0% 17.8% 17.9% 18.2% 16.1% Operating profit 471 504 755 1,001 503 683 830 1,045 450 39.1% 1,150 YoY 23.1% 2.2% 69.0% 8.4% 6.8% 35.5% 9.9% 4.4% -10.5% 10.0% Operating profit margin 4.8% 2.8% 2.8% 2.8% 5.2% 3.9% 3.2% 3.0% 4.6% 3.2% Recurring profit 514 576 857 1,155 544 757 962 1,211 495 38.1% 1,300 YoY 21.4% -3.5% 46.4% 4.9% 5.8% 31.5% 12.3% 4.8% -8.9% 7.3% Recurring profit margin 5.3% 3.2% 3.2% 3.2% 5.7% 4.3% 3.7% 3.5% 5.0% 3.7% Net income 302 215 426 783 281 282 336 477 277 39.6% 700 YoY 25.3% -32.4% -16.7% -9.1% -7.1% 31.4% -21.2% -39.0% -1.4% 46.7% Net margin 3.1% 1.2% 1.6% 2.2% 2.9% 1.6% 1.3% 1.4% 2.8% 2.0% Quarterly FY12/19 FY12/20 FY12/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Revenue 9,750 8,099 8,741 9,159 9,593 7,851 8,244 8,960 9,878 YoY 0.3% 5.1% 8.6% -14.8% -1.6% -3.1% -5.7% -2.2% 3.0% Gross profit 1,943 1,390 1,781 1,855 2,042 1,751 1,638 1,906 2,042 YoY 8.2% -10.6% 19.5% -9.4% 5.1% 26.0% -8.1% 2.7% 0.0% Gross profit margin 19.9% 17.2% 20.4% 20.3% 21.3% 22.3% 19.9% 21.3% 20.7% SG&A expenses 1,472 1,356 1,530 1,610 1,540 1,570 1,490 1,691 1,592 YoY 4.2% -6.1% -0.4% 2.5% 4.6% 15.8% -2.6% 5.0% 3.4% SG&A ratio 15.1% 16.7% 17.5% 17.6% 16.0% 20.0% 18.1% 18.9% 16.1% Operating profit 471 33 251 245 503 180 147 215 450 YoY 23.1% -69.8% - -48.5% 6.8% 439.3% -41.3% -12.4% -10.5% Operating profit margin 4.8% 0.4% 2.9% 2.7% 5.2% 2.3% 1.8% 2.4% 4.6% Recurring profit 514 62 281 299 544 213 205 249 495 YoY 21.4% -64.4% - -42.1% 5.8% 245.1% -27.2% -16.5% -8.9% Recurring profit margin 5.3% 0.8% 3.2% 3.3% 5.7% 2.7% 2.5% 2.8% 5.0% Net income 302 -88 212 357 281 1 54 141 277 YoY 25.3% - 9.1% 2.0% -7.1% - -74.5% -60.4% -1.4% Net margin 3.1% - 2.4% 3.9% 2.9% 0.0% 0.7% 1.6% 2.8% Source: Shared Research based on company data. The 1H company forecast is not disclosed. Notes: Figures may differ from company materials due to differences in rounding methods.
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Performance by segment By segment (cumulative) FY12/19 FY12/20 FY12/21 FY12/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1% of Est.FY Est. Total revenue 9,750 17,849 26,590 35,749 9,593 17,444 25,688 34,648 9,878 27.9% 35,400 YoY 0.3% 2.4% 4.4% -1.3% -1.6% -2.3% -3.4% -3.1% 3.0% 2.2% Environmental Equipment 5,668 9,515 13,941 18,570 5,042 8,654 12,743 17,688 5,172 27.4% 18,857 YoY 17.3% 13.6% 14.0% 0.3% -11.0% -9.1% -8.6% -4.8% 2.6% 6.6% % of total revenue 58.1% 53.3% 52.4% 51.9% 52.6% 49.6% 49.6% 51.0% 52.4% 53.3% Household Equipment 3,524 7,062 10,635 14,642 3,985 7,380 11,110 14,743 4,363 29.3% 14,894 YoY -19.3% -12.9% -10.1% -7.4% 13.1% 4.5% 4.5% 0.7% 9.5% 1.0% % of total revenue 36.1% 39.6% 40.0% 41.0% 41.5% 42.3% 43.2% 42.6% 44.2% 42.1% Renewable Energy 115 305 514 699 165 446 691 905 184 18.5% 992 YoY 184.4% 227.6% 189.7% 143.3% 43.4% 46.2% 34.3% 29.4% 11.6% 9.6% % of total revenue 1.2% 1.7% 1.9% 2.0% 1.7% 2.6% 2.7% 2.6% 1.9% 2.8% Other 443 967 1,500 1,838 401 964 1,144 1,313 159 24.3% 655 YoY -8.6% 13.6% 20.1% 14.0% -9.5% -0.3% -23.8% -28.6% -60.4% -50.1% % of total revenue 4.5% 5.4% 5.6% 5.1% 4.2% 5.5% 4.5% 3.8% 1.6% 1.9% Operating profit 471 504 755 1,001 503 683 830 1,045 450 39.1% 1,150 YoY 23.1% 2.2% 69.0% 8.4% 6.8% 35.5% 9.9% 4.4% -10.5% 10.0% Operating profit margin 4.8% 2.8% 2.8% 2.8% 5.2% 3.9% 3.2% 3.0% 4.6% 3.2% Environmental Equipment 557 490 694 1,068 501 585 798 1,200 482 33.0% 1,461 YoY 33.9% -17.5% -9.1% -23.4% -10.0% 19.4% 15.0% 12.3% -3.9% 21.8% Operating profit margin 9.8% 5.1% 5.0% 5.8% 9.9% 6.8% 6.3% 6.8% 9.3% 7.7% % of total OP 79.6% 55.2% 51.4% 57.9% 69.9% 51.7% 52.3% 59.0% 65.4% 63.4% Household Equipment 90 203 324 367 123 266 300 313 197 47.3% 417 YoY -45.3% -34.2% -22.4% -35.5% 37.5% 31.0% -7.3% -14.6% 59.8% 33.0% Operating profit margin 2.5% 2.9% 3.0% 2.5% 3.1% 3.6% 2.7% 2.1% 4.5% 2.8% % of total OP 12.8% 22.9% 24.0% 19.9% 17.2% 23.5% 19.7% 15.4% 26.8% 18.1% Renewable Energy 23 108 202 256 30 183 282 348 29 8.8% 335 YoY - - - - 33.1% 70.0% 39.7% 35.7% -1.9% -3.6% Operating profit margin 19.7% 35.3% 39.3% 36.6% 18.3% 41.0% 40.8% 38.4% 16.0% 33.8% % of total OP 3.2% 12.1% 14.9% 13.9% 4.2% 16.2% 18.5% 17.1% 4.0% 14.5% Other 31 87 131 153 62 98 145 172 28 30.5% 92 YoY -50.9% -3.1% 19.1% 56.6% 103.1% 12.3% 10.9% 12.4% -55.1% -46.4% Operating profit margin 6.9% 9.0% 8.7% 8.3% 15.6% 10.2% 12.7% 13.1% 17.6% 14.0% % of total OP 4.4% 9.8% 9.7% 8.3% 8.7% 8.7% 9.5% 8.5% 3.8% 4.0% Eliminations 42 83 123 164 41 69 98 127 38 179 Company-wide expenses -272 -467 -718 -1,008 -255 -517 -792 -1,115 -325 -1334.702 By segment (quarterly) FY12/19 FY12/20 FY12/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Total revenue 9,750 8,099 8,741 9,159 9,593 7,851 8,244 8,960 9,878 YoY 0.3% 5.1% 8.6% -14.8% -1.6% -3.1% -5.7% -2.2% 3.0% Environmental Equipment 5,668 3,847 4,426 4,629 5,042 3,612 4,089 4,944 5,172 YoY 17.3% 8.6% 14.9% -26.4% -11.0% -6.1% -7.6% 6.8% 2.6% % of total revenue 58.1% 47.5% 50.6% 50.5% 52.6% 46.0% 49.6% 55.2% 52.4% Household Equipment 3,524 3,538 3,573 4,007 3,985 3,394 3,730 3,633 4,363 YoY -19.3% -5.5% -3.8% 0.5% 13.1% -4.1% 4.4% -9.3% 9.5% % of total revenue 36.1% 43.7% 40.9% 43.8% 41.5% 43.2% 45.2% 40.5% 44.2% Renewable Energy 115 190 209 185 165 281 245 214 184 YoY 184.4% 260.6% 147.9% 68.3% 43.4% 47.9% 17.0% 15.8% 11.6% % of total revenue 1.2% 2.3% 2.4% 2.0% 1.7% 3.6% 3.0% 2.4% 1.9% Other 443 524 533 338 401 564 179 169 159 YoY -8.6% 42.9% 34.1% -6.9% -9.5% 7.6% -66.4% -50.0% -60.4% % of total revenue 4.5% 6.5% 6.1% 3.7% 4.2% 7.2% 2.2% 1.9% 1.6% Operating profit 471 33 251 245 503 180 147 215 450 YoY 23.1% -69.8% - -48.5% 6.8% 439.3% -41.3% -12.4% -10.5% Operating profit margin 4.8% 0.4% 2.9% 2.7% 5.2% 2.3% 1.8% 2.4% 4.6% Environmental Equipment 557 -67 205 374 501 84 214 401 482 YoY 33.9% - 20.0% -40.8% -10.0% - 4.4% 7.4% -3.9% Operating profit margin 9.8% -1.7% 4.6% 8.1% 9.9% 2.3% 5.2% 8.1% 9.3% % of total OP 79.6% -35.7% 44.2% 75.7% 69.9% 20.2% 54.3% 79.1% 65.4% Household Equipment 90 114 120 43 123 143 34 14 197 YoY -45.3% -21.5% 11.2% -71.5% 37.5% 25.8% -72.0% -68.8% 59.8% Operating profit margin 2.5% 3.2% 3.4% 1.1% 3.1% 4.2% 0.9% 0.4% 4.5% % of total OP 12.8% 60.4% 26.0% 8.8% 17.2% 34.4% 8.6% 2.7% 26.8% Renewable Energy 23 85 94 54 30 153 99 66 29 YoY - - - 652.2% 33.1% 79.8% 5.2% 20.7% -1.9% Operating profit margin 19.7% 44.7% 45.1% 29.4% 18.3% 54.3% 40.5% 30.6% 16.0% % of total OP 3.2% 45.2% 20.4% 11.0% 4.2% 36.8% 25.2% 12.9% 4.0% Other 31 57 43 22 62 36 47 27 28 YoY -50.9% 106.0% 121.0% - 103.1% -37.0% 8.1% 21.2% -55.1% Operating profit margin 6.9% 10.8% 8.1% 6.6% 15.6% 6.3% 26.1% 15.9% 17.6% % of total OP 4.4% 30.1% 9.4% 4.5% 8.7% 8.6% 11.9% 5.3% 3.8% Eliminations 42 41 40 41 41 27 29 30 38 Company-wide expenses -272 -195 -251 -290 -255 -262 -275 -323 -325 Source: Shared Research based on company data. The 1H company forecast is not disclosed. Note: Figures may differ from company materials due to differences in rounding methods.
12/72 Daiki Axis / 4245 RCoverage LAST UPDATE: 2021.07.28 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp
Q1 FY12/21 results (out May 14, 2021) Overview
▷ Revenue: JPY9.9bn (+3.0% YoY, 27.9% of company full-year target; 27.7% of full-year results in Q1 FY12/20)
▷ Operating profit: JPY450mn (-10.5% YoY, 39.1% of target; 48.1% in Q1 FY12/20)
▷ Recurring profit: JPY495mn (-8.9% YoY, 38.1% of target; 44.9% in Q1 FY12/20)
▷ Net income*: JPY277mn (-1.4% YoY, 39.6% of target; 58.9% in Q1 FY12/20)
▷ The full-year company forecast is unchanged (the 1H company forecast is not disclosed) *Net income attributable to owners of the parent
Q1 revenue was 13% higher than projected in the company’s (undisclosed) Q1 forecast while operating profit exceeded projections by 30%.
Revenue was up 3.0% YoY in Q1 FY12/21, due primarily to growth in orders and revenue from large projects in the Environmental Equipment and Household Equipment segments. Factors contributing to revenue gains outweighed the adverse effect of lower overseas revenue and lower revenue in the clean water ESCO business.
Gross profit, operating profit, and recurring profit all declined YoY. Given the difficulty of forecasting results amid the COVID-19 pandemic in Q1 FY12/20, the company revised its provision for bonuses for executives and employees for that period, but there was no such revision in Q1 FY12/21. This, coupled with the sale of unlisted subsidiary DAD Co., Ltd., which handled civil engineering work, at end-Q2 FY12/20, was behind the lower profits. When excluding impact from this revision to the company’s provision for bonuses, the company achieved a YoY increase in operating profit.
In accordance with its projections, the company hired 19 new graduates in April 2021.
Business by segment Environmental Equipment segment
▷ Revenue: JPY5.2bn (+2.6% YoY, 27.4% of company full-year target; 28.5% of full-year results in Q1 FY12/20)
▷ Operating profit: JPY482mn (-3.9% YoY, 33.0% of target; 41.8% in Q1 FY12/20)
▷ OPM: 9.3% (9.9% in Q1 FY12/20)
Sales of Johkasou and wastewater treatment systems (in Japan and overseas) increased 2.6% YoY and were 8% higher than the company projected. Orders for large projects (associated with industrial drainage systems) in Japan contributed to growth in revenue (recorded using the percentage-of-completion method).
Shipments of small Johkasou (primarily for individual home use) in Q1 were commensurate with the company’s projections and are on currently on pace to achieve the company’s full-year forecast (about 6,000 units; level YoY).
Overseas revenue was down (-8% YoY), as performance continued to feel the impact of the COVID-19 pandemic. However, the reader should be advised that the Q1 financial results associated with overseas operations are based on provisional settlements (more details below).
▷ In overseas countries other than China, subsidiaries have fiscal year-ends that differ from the consolidated closing date. When calculating YoY comparisons for its consolidated financial statements for Q1 FY12/21, the company used provisional settlements that set December 31, 2020 as a working fiscal year-end for these overseas companies. Consequently, for purposes of YoY comparison, results in Q1 FY12/21 correspond to results reported in October–December 2019, when impact from the COVID-19 pandemic was minimal.
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▷ As of Q1 FY12/21, the company has not observed any negative impact from the COVID-19 pandemic affecting production at factories in India that have undertaken its operations. The company notes that it is responding to the ongoing emergence of demand in India through exports from its own factories in Indonesia.
Of recurring businesses, revenue from the wastewater treatment tanks and wastewater treatment system maintenance businesses remained roughly on par YoY. In the clean water ESCO business, however, revenue decreased YoY as customers used less water.
Overall operating profit in the Environmental Equipment segment fell 10.5% YoY. Given the difficulty of forecasting results amid the COVID-19 pandemic in Q1 FY12/20, the company revised its provision for bonuses for executives and employees for that period, but there was no such revision in Q1 FY12/21. This was a factor in the decrease in profits. Segment profit increased YoY when excluding impact from this revision of the company’s provision for bonuses.
Household Equipment segment
▷ Revenue: JPY4.4bn (+9.5% YoY, 29.3% of company full-year target; 27.0% of full-year results in Q1 FY12/20)
▷ Operating profit: JPY197mn (+59.8% YoY, 47.3% of target; 39.3% in Q1 FY12/20)
▷ OPM: 4.5% (3.1% in Q1 FY12/20)
Revenue in the Household Equipment segment rose 9.5% YoY, while operating profit increased 59.8% YoY and the segment OPM grew 1.4pp YoY. Segment profit improved due primarily to a YoY increase in highly profitable housing facilities projects. These projects mainly comprised the delivery and installation of food refrigeration and freezing showcases, a core business of Fujiwara Reiki, which became a wholly owned Daiki Axis subsidiary in 2019.
Revenue from construction companies was up YoY. Contributing to the increase were eco-products such as gymnasium cooling equipment and DIY store renovations and other large projects.
▷ Environmentally friendly products: Domestically produced thinned wood (alternative for structural steel and reinforced concrete), dehumidifying radiation heating/cooling systems, etc.
In housing equipment construction, revenue was down YoY. Revenue from freezing and refrigerating equipment increased owing to the effect of large projects, while revenue from agricultural greenhouses and exterior wall construction decreased.
In retail products for DIY stores, revenue was up YoY. Manufacturer shipments were delayed in Q1 FY12/20 due to the pandemic, causing delays in delivery, but Q1 FY12/21 saw no such supply problems. Revenue increased in this product category due primarily to expansion in revenue from no-contact products (automatic taps and faucets equipped with no-touch sensors), which reflected impact from the COVID-19 pandemic.
Revenue in the e-commerce business was down, due in part to the suspension of end-user field surveys and other sales activities impacted by COVID-19.
Renewable Energy segment
▷ Revenue: JPY184mn (+11.6% YoY, 18.5% of company full-year target; 18.2% of full-year results in Q1 FY12/20)
▷ Operating profit: JPY29mn (-1.9% YoY, 8.8% of target; 8.6% in Q1 FY12/20)
▷ OPM: 16.0% (18.3% in Q1 FY12/20)
Revenue from solar-power electricity rose YoY. From FY12/18, the company has been leasing the rooftops of DIY stores operated by DCM Holdings (TSE1: 3050), part of the DCM Group, making use of the space to install solar panels and sell electricity using a feed-in tariff (FIT) system. In accordance with initial projections, the company had completely connected 130 sites to the power grid in place at end-Q1 FY12/21 (126 at end-Q1 FY12/20).
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Revenue from both biodiesel fuel operations and small wind turbine generation businesses was more or less unchanged.
The company recorded JPY7mn of repair costs for its solar power facilities. This was behind the decrease in segment profits despite growth in revenue.
Other business segment
▷ Revenue: JPY159mn (-60.4% YoY, 24.3% of company full-year target; 30.5% of full-year results in Q1 FY12/20)
▷ Operating profit: JPY28mn (-55.1% YoY, 30.5% of target; 36.3% in Q1 FY12/20)
▷ OPM: 17.6% (15.6% in Q1 FY12/20)
Revenue from civil engineering work declined YoY due to the sale of unlisted subsidiary DAD Co., Ltd., which handled civil engineering work, at end-Q2 FY12/20. The household drinking water business turned in steady performance owing to an increase in the number of rental contracts for its water filtration units.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
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Full-year FY12/21 company forecast (out February 12, 2021)
FY12/20 FY12/21 YoY (JPYmn) 1H Act. 2H Act. FY Act. FY Est. FY Est. Revenue 17,444 17,204 34,648 35,400 2.2% Cost of revenue 13,651 13,661 27,312 Gross profit 3,793 3,543 7,336 Gross profit margin 21.7% 20.6% 21.2% SG&A expenses 3,110 3,181 6,291 SG&A ratio 17.8% 18.5% 18.2% Operating profit 683 362 1,045 1,150 10.0% Operating profit margin 3.9% 2.1% 3.0% 3.2% Recurring profit 757 454 1,211 1,300 7.3% Recurring profit margin 4.3% 2.6% 3.5% 3.7% Ne t inc o me 2 82 195 477 700 46.7% Net margin 1.6% 1.1% 1.4% 2.0% Source: Shared Research based on company data. The 1H company forecast is not disclosed. Note: Figures may differ from company materials due to differences in rounding methods.
By segment FY12/20 FY12/21 YoY (JPYmn) 1H Act. 2H Act. FY Act. FY Est. FY Est. Revenue 17,444 17,204 34,648 35,400 2.2% Environmental Equipment 8,654 9,034 17,688 18,857 6.6% Household Equipment 7,380 7,363 14,743 14,894 1.0% Renewable Energy 446 459 905 992 9.6% Other 964 348 1,313 655 -50.1% Operating profit 683 362 1,045 1,150 10.0% Environmental Equipment 585 615 1,200 1,461 21.8% Operating profit margin 6.8% 6.8% 6.8% 7.7% Household Equipment 266 47 313 417 33.0% Operating profit margin 3.6% 0.6% 2.1% 2.8% Renewable Energy 183 165 348 335 -3.6% Operating profit margin 41.0% 35.9% 38.4% 33.8% Other 98 74 172 92 -46.4% Operating profit margin 10.2% 21.2% 13.1% 14.0% Int er-segment eliminat ions 69 59 127 179 Company-wide eliminations -517 -597 -1,115 -1,335 Source: Shared Research based on company data. The 1H company forecast is not disclosed. Note: Figures may differ from company materials due to differences in rounding methods.
On February 12, 2021, the company announced its forecast for FY12/21.
▷ Revenue: JPY35.4bn (+2.2% YoY)
▷ Operating profit: JPY1.2bn (+10.0% YoY)
▷ Recurring profit: JPY1.3bn (+7.3% YoY)
▷ Net income*: JPY700mn (+46.7% YoY) *Net income attributable to owners of the parent
At the time it announced Q1 financial results, the company had made no changes to its full-year forecast. According to the company, results in Q1 either met our outpaced the company’s corresponding projections.
Particularly notable was strong business expansion in the Household Equipment segment (revenue increased 9.5% YoY in Q1 while operating profit grew 59.8% YoY). The company has generated synergy between its existing businesses and the businesses of Fujiwara Reiki (became a Daiki Axis subsidiary in 2019) by sharing customer bases and centralizing procurement, thereby improving efficiency. Daiki Axis expects this impact to contribute positively throughout the year.
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At the same time, the company recognizes that conditions associated with overseas operations remain uncertain due to the COVID-19 pandemic.
Revenue Environmental Equipment The company expects the Environmental Equipment segment to serve as the primary force driving a companywide revenue increase of JPY1.2bn YoY (+6.6% YoY). Overseas revenue is projected to rise 72.8% YoY (JPY729mn YoY) to a total of JPY1.7bn for the full year. By country, the company forecasts revenue of around JPY425mn for China, about JPY560mn for Indonesia, some JPY290mn for Singapore, and about JPY240mn for India.
The company believes that the recouping of work delays caused by lockdowns implemented in FY12/20 to deal with the COVID-19 pandemic will be a key factor contributing to revenue increase in FY12/21. With growing demand for wastewater treatment tanks in India, the company is making plans to produce about 200 units locally and ship more from Indonesia.
In Japan, revenue in the Environmental Equipment segment is forecast to rise by JPY292mn YoY (+1.8% YoY) to JPY16.2bn. The company projects that revenue from compact wastewater treatment tanks (for 5—50 people) will stay almost flat YoY, revenue from medium-sized and large tanks, as well as industrial wastewater treatment systems, will increase (Shared Research projects a 7.0% YoY rise), and revenue from maintenance will rise 6.0% YoY.
As for maintenance, the company expects more maintenance work on wastewater treatment tanks installed at DIY stores operated by group companies under DCM Holdings, as well as major convenience stores chains. In the past, each store had commissioned maintenance work to various service providers, but the company has brought economy of scale to customers by acquiring maintenance orders in large lots and reducing cost per order.
Other In the Household Equipment segment, the company expects revenue from construction companies to rise (up JPY275mn YoY, +2.6% YoY), while seeing more revenue from retail products for DIY stores (up JPY195mn, +10.1%) and e-commerce (up JPY117mn, 40×). In housing equipment construction, the company had projected that the absence of large orders in FY12/20 (store renovation) would reduce revenue 19.2% YoY. However, revenue increased 9.5% YoY in Q1, outpacing the company’s initial projections.
By product type, the company projects year-long growth in revenue from so-called “non-contact” products, such as warm-water washing toilet seats with automatic lids (Toto’s Washlet) and sensor-equipped automatic water faucets for lavatories.
In the Renewable Energy segment, the company projects that revenue will rise in the solar generation and electricity retail business (up JPY39mn YoY, +4.9% YoY), the biodiesel fuel business (up JPY28mn, +25.1%), and the small wind turbine generation business (up JPY20mn, about 19×).
In accordance with prior projections, the company has completed the establishment of power generation equipment at 130 locations in its solar power sales business. The company anticipates that sales generated through its compact wind power generation business will grow thanks to the launch of operations at plants in Aomori and Hokkaido.
Operating profit The company forecasts YoY rises in operating profit in the Environmental Equipment segment (up JPY261mn) and the Household Equipment segment (up JPY104mn). In the former category, Shared Research understands that the company’s maintenance services, a recurring-revenue business with a GPM of around 40%, is likely to increase revenue and contribute to profit growth. In the latter category, factors in profit growth include more sales in the so-called “non-contact” products (details above) and the e-commerce business.
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In the Renewable Energy segment, operating profit is expected to decrease by JPY13mn YoY on growing costs on launching small wind turbine generation projects. In the Other business, the sale of subsidiary DAD Co. in FY12/20 has led to a revenue drop, and this will affect segment profit in FY12/21 as well.
On the cost front, Daiki Axis believes companywide expenses will likely increase by JPY220mn YoY on factors such as higher business trip costs. Although the company reduced domestic business trips in FY12/20 to deal with the pandemic, it now expects such expenses to return to pre-pandemic levels in FY12/21.
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Medium-term management plan (announced on February 22, 2021)
Announcement of new medium-term management plan, “PROTECT X CHANGE” On February 22, 2021, the company announced a new medium-term management plan (starting in FY12/21 and ending in FY12/23) called “PROTECT X CHANGE.” The previous plan, “Make FOUNDATION Plan (Promote ESG management),” had been scheduled to run through FY12/21. However, in FY12/20, the company grew uncertain about how COVID-19 would affect the plan’s long-term strategies to boost medium- to long-term growth. Accordingly, the company withdrew its quantitative goals stated in the plan.
Nor has the company indicated quantitative goals for the new medium-term plan. Daiki Axis says the business fallout from COVID-19 that began to be felt in 2020 still makes the environment uncertain in 2021, making it difficult for the company to set such targets for the medium term. But the company says it will announce quantitative goals when possible. A long-term strategy of the previous medium-term plan centered on the qualitative goal of raising profitability. The company says this goal remains a feature of the new medium-term plan.
PROTECT X CHANGE “PROTECT X CHANGE” is a corporate slogan designed to convey a message: “Protect what deserves protection, change what deserves a change.” Daiki Axis defines itself as a company that focuses on water-related businesses and contributes to efforts to build a sustainable society and change the future of society by protecting various environments, including the global environment and living environments. Likewise, the company says its employees must adapt to social changes and be able to distinguish what needs to be maintained from what needs to be changed, with an aim of building a sustainable organization.
Overview Quantitative goals Undecided (as indicated above)
Segment-specific qualitative goals (targets for 2023) Environmental Equipment segment (three elements)
▷ Establish the organizational infrastructure to achieve high productivity
▷ Develop high-quality and environmentally friendly products and wastewater treatment tanks to overseas specs
▷ Expand overseas business (not just sales, but also focusing on steady quality improvement)
Household Equipment segment (three elements)
▷ Establish a renovation business centered on e-commerce
▷ Use M&A to expand marketing areas and products handled
▷ Increase involvement in special projects (public facilities and eco-products) in areas outside the Chugoku/Shikoku region (such as the Kanto and Kansai areas)
Renewable Energy segment (three elements)
▷ Create structures to drive the shift toward a carbon-free society
▷ Cultivate high-value-added businesses and products in preparation for conclusion of FIT policies
▷ Search for new businesses and products so the business development department can help address climate change
In addition, the company will pursue ESG management (discussed later).
Growth strategy The strategy has seven focuses:
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▷ Overseas development: In the Environmental Equipment segment, manufacture wastewater treatment tanks locally in the growth markets of India and Southeast Asia.
▷ Recurring-revenue business: In Japan, redouble initiatives in the maintenance and clean water ESCO businesses.
▷ Technology and product development capabilities: Reinforce technological and development capabilities in response to diverse water-related demands.
▷ Transition from stability to growth: Move toward growth businesses in the Household Equipment segment.
▷ Renewable energy: Promote the sale of solar-power electricity, as well as the biodiesel fuel and wind power generation businesses.
▷ M&A promotion: Promote synergies with existing businesses and initiatives involving new technologies.
▷ IT promotion: Leverage big data and artificial intelligence to streamline business operations, promote marketing, and develop new products.
Overseas development The company plans to proactively develop overseas business for wastewater treatment tanks, where it believes potential demand to be large. Daiki Axis aims to cultivate demand, manufacture tanks locally, and work to increase sales volume. Specific steps are detailed below:
▷ In January 2021, the company established a new section for the oversight of technological matters associated with overseas markets and another section directly under the president’s office for overseas management. On top of the conventional overseas sales section, these additions are aimed at strengthening internal corporate resources for overseas development.
▷ In India, the company will consider the construction of a second factory, which can manufacture wastewater treatment tanks of the cylindrical type (medium-sized and large tanks) in addition to the capsule type (compact tanks). Production capacity will be twice as large as the first factory (200 units a year) or more.
▷ The company plans to build factories to produce wastewater treatment tanks in Myanmar, Sri Lanka, Bangladesh, and Kenya.
▷ In India, the company sets up and operates shops that sell drinking water (Water Kiosks). The company filters water to make it potable and provides the drinking water to nearby consumers, stores, and food stalls.
Simultaneously develop the wastewater treatment business, keeping costs low The company is considering BOO* and BOT** businesses in India, Myanmar, Sri Lanka, Bangladesh, and Kenya. In both categories, the company installs wastewater treatment tanks, retaining ownership. Customers pay the company either at a fixed rate or based on the volume of treated water they use. The company promotes this business as a way to install wastewater treatment tanks while keeping initial costs low. Daiki Axis expects the market for wastewater treatment tanks to increase as more people recognize their effectiveness.
* Under a build-own-operate (BOO) agreement, the Daiki Axis group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities. After the contract ends, the company retains ownership of these facilities, which it can then dismantle or sell.
** With a build-operate-transfer (BOT) agreement, the group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities as under a BOO agreement. However, ownership rights transfer after the contract ends.
Recurring-revenue business The company positions recurring-revenue business as a driver of future growth, alongside overseas business. The medium-term plan identifies two categories of recurring-revenue business for expansion in Japan: the maintenance and clean water ESCO businesses.
In the maintenance business, the company aims to increase bulk orders for wastewater treatment facilities and maintenance from large convenience store chains and large restaurant chains. To expand the biodiesel business, the company plans to target large
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convenience store chains, making use of the waste oil in the kitchens of individual convenience stores and central kitchens. The company also plans to configure IT systems to handle administrative tasks surrounding statutory inspections.
Technology and product development capabilities As part of its overseas development efforts, Daiki Axis plans to augment its technology and product development capabilities to respond to diverse water-related needs, which differ according conditions in different countries. The company aims to offer new high-end household wastewater treatment tanks and commence full-fledged production of household wastewater treatment tanks designed for regions with regulations restricting phosphorous content.
Water pollution in China, Southeast Asian countries, and India contrasts with the sort of pollution found in Japan, due to lifestyle differences. For instance, in these countries, household wastewater typically contains more cooking oil. Also, bathtub use tends to be less frequent, so water consumption is around one-fourth Japan’s level.
In addition to meeting detailed requirements on water quality, the company is working to develop products that are cost-competitive. To this end, the company’s development department strives to reduce quantities of parts and materials. Simultaneously, the company is trying to make production technologies and processes themselves less costly and more efficient. For instance, the company has developed a wastewater treatment tank that uses contact bed filtration. This type of tank makes internal cleaning and inspection work more efficient. Daiki Axis has also developed wastewater treatment tanks using the “lateral flow method of removing impurities” to treat sewage. This method does not require the anaerobic filter media needed for conventional tanks.
Transition from stability to growth In the Household Equipment segment, the company is changing its business model to focus on wholesaling household equipment to DCM Daiki DIY stores. The company plans to expand this business by through the launch of an online shopping site and M&A.
In July 2020, DCM Holdings’ online shopping site (DCM Online) began accepting orders nationwide for construction related to household equipment. Daiki Axis intends to achieve revenue growth through this route. To date, business in the Household Equipment segment has centered on the Shikoku, Chugoku, and Kyushu regions. Through online shopping, the company hopes to expand its business nationwide. Specifically, the company aims to expand into the Kanto region, focusing on the Tokyo Metropolitan Area.
The company expects to run into certain issues (particularly the need to cultivate contractors) as it expands its service network throughout Japan. The company intends to improve profitability through centralized purchasing. To date, departments sourced materials independently. The company believes centralization will help it lower costs.
The company plans to expand the business by taking advantage of products and customer bases from the two companies it converted to subsidiaries in October 2019. These two companies are Fujiwara Reiki Co., Ltd. (unlisted) and Nihon Air Solutions Co., Ltd. (unlisted). Fujiwara Reiki designs, builds, and maintains air conditioning/ventilation and electrical equipment (for offices, schools, homes, and other buildings), as well as freezing and refrigeration equipment, frozen and refrigerated showcases, kitchen equipment, and refrigerated showcases for flowers (for use in distribution outlets and food product factories). Nihon Air Solutions handles the construction side of Fujiwara Reiki’s air conditioning/ventilation equipment business.
Renewable energy The company will continue to sell electricity from solar generation and promote the biodiesel fuel and wind power generation businesses.
In solar generation and electricity sales, the company plans to continue to leverage the DCM network to generate solar power on the sites of DCM-affiliated DIY stores. During the period of the medium-term management plan, the company aims to have solar
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power generation equipment in place at 130 stores (in place at 129 stores as of December 2020). Electricity is sold at the FIT price of JPY21/kWh (JPY18/kWh in some cases).
In the wind power generation business, the company uses small wind turbine generators (horizontal axis). The company plans to increase the number of sites on which these generators are placed to 70, focusing on areas with good wind quality (Tohoku and Hokkaido). For this business, companies are awarded IDs that permit them to expand their sites. The company has received permission for seven sites in Hokkaido and five in Aomori Prefecture. Construction began in FY12/20. For windmills, Daiki Axis uses other companies’ assemblies. Truss-shaped support pillars help maintain strength and keep costs down. This electricity is priced at JPY55/kWh under FIT policies.
M&A promotion The company intends to acquire companies that offer synergies with existing businesses or offer new technologies. Since its establishment in 2005, the company has repeatedly acquired companies to expand its business of providing wastewater treatment systems using its wastewater treatment tanks. These acquisitions, which include overseas companies, were made within the Environmental Equipment segment. In 2019, the company also acquired companies to achieve synergies in the Household Equipment segment. The “History” section later in this report provides company names and other details.
Promotion of IT The company aims to resolve issues along the value chain related to facility management and on-site issues overseas (accounting and HR). The company also expects to make sales activities more efficient. Through big data, the company aims to gain new perspectives for promoting growth. To attain these goals, the company plans to strengthen its IT-related sections and cultivate human resources specializing in data science and other areas.
(Reference) Quantitative targets in the previous medium-term management plan (announced on February 25, 2019) In the previous medium-term plan, “Make FOUNDATION Plan (Promote ESG management),” targets for the final year of the plan, FY12/21, were revenue of JPY40.0bn (JPY36.2bn in FY12/18), operating profit of JPY1.7bn (JPY923mn), recurring profit of JPY1.8bn, ROE of 13.2% or more (12.7%), and ROIC of 5.5% or higher (4.2%). All revenue and profit targets amounted to record highs.
The plan called for overseas revenue to reach 2.6× its prior level over the course of the plan, compared with cumulative growth of 5.5% for domestic business. Thus, the plan clearly outlines the company’s intention to expand by advancing in overseas markets.
While the plan targeted a 5% increase in revenue in the Japanese market, it also called for higher profitability through expansion in recurring-revenue businesses such as maintenance and the clean water business (groundwater-to-drinking-water conversion) and the Renewable Energy segment. At the same time, the plan called for the use of IT to increase business efficiency (higher productivity).
Shared Research estimated that OPM at the end of the medium-term plan would amount to 4.3% (up from 2.5% in FY12/18), and the recurring profit margin 4.5% (3.0%). All revenue, profit, and profitability figures were projected to reach their highest levels since the company’s listing in FY12/13.
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Reference: Previous numeric targets FY12/18 FY12/21 Gro wt h (JPYmn) Act. Target Total CAGR Revenue 36,224 40,000 10.4% 3.4% Operating profit 923 1,700 84.2% 22.6% Operating profit margin 2.5% 4.3% - - Recurring profit 1,101 1,800 63.5% 17.8% Recurring profit margin 3.0% 4.5% - - Net income attributable to owners of the pa 861 1,100 27.7% 8.5% Net margin 2.4% 2.8% - - ROE 12.7% 13.2% or higher - - ROIC 4.2% 5.5% or higher - - Revenue by segment Environmental Equipment 18,513 20,770 12.2% 3.9% Household Equipment 15,812 16,266 2.9% 0.9% Renewable Energy 287 1,040 261.9% 53.5% Other 1,612 1,923 19.3% 6.1% Revenue by region Overseas 1,153 3,000 160.2% 37.5% Japan (SR est.; Total - Overseas) 35,071 37,000 5.5% 1.8% Source: Shared Research based on company data
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ESG management in the medium-term management plan Overview The company carries a slogan aimed at building a firm management base, contributing to building a sustainable environment and society through its business and cooperation with local communities, and improving the quality of life. The company explains that promotion of ESG management is indispensable to the achievement these goals.
Environmental / Social The company recognizes that protecting the global environment is a common challenge associated with the achievement of sustainable social development, and is working to reduce its environmental impact. In addition, the company hopes to contribute to building a sustainable society by improving workstyles through collaboration with customers, local communities, and administrative authorities. Specific steps are as follows:
▷ Contribution as a company in the water-related business: Through its products and services, the company aims to convert dirty water into clean water and improve the water environment on a global scale. Wastewater treatment tanks, Japan’s unique water-treatment system, can process household sewage on the spot. Those tanks are effective in areas overseas, not just in domestic areas where public sewage systems have not been established.
▷ Contribution through drinking water (overseas): The company aims to offer safe drinking water in developing countries where access to clean water is difficult.
▷ Contribution as a producer of biodiesel fuel: The company collects used cooking oil from households, restaurants, convenience stores, and other establishments, and refines the oil into a clean alternative to light oil. The company has obtained the government’s Eco Mark certification for this business, and provides the fuel for use in civil service, convenience store delivery trucks, and other capacities. The company hopes this business will contribute to efforts aimed at achieving carbon neutrality.
▷ Contribution through clean energy produced with solar and wind power generation: They company has installed rooftop solar panels at DIY stores operated by DCM group companies. This means the company has theoretically reduced negative impact on the environment while generating clean energy by saving forests where trees would have been cleared to construct solar panels. The company also plans to use these facilities as lifeline equipment in cases of disaster. The company hopes these efforts will help Japan achieve its goal of net zero emissions by 2050 (equating the amount of greenhouse gas emissions with the amount absorbed by forests by 2050).
▷ Contribution as a supplier of housing equipment: The company aims to expand the lineup of environment-friendly products, such as energy-saving products and those using timber from forest thinning.
▷ Awareness-raising campaigns for environmental improvement: The company plans to offer lectures on clean energy for young students through visits to schools.
▷ Workstyle reform and diversity: By accepting diverse cultures and ways of thinking, the company aims to realize workstyles in line with the “new normal” post-COVID era, recruit human resources from overseas, and appoint female executive board members.
Governance In this category, the company aims to promote efficient and swift business operations; put in place and improve the internal control system; ensure transparency by separating managerial and executive functions; install outside directors and establish the Audit Committee; and disseminate information through company briefings and the disclosure of non-financial information.
(Reference) Details of the ESG management in the previous medium-term management plan Environmental Daiki Axis considers environmental improvement to be its main business. The medium-term plan outlines initiatives for overseas development of the water treatment business (water-related infrastructure business) and expansion of the Renewable Energy segment. To raise cash for these core businesses, the company adopted an approach that differs from typical bond issuance or borrowing. Instead, it issued green bonds* and engaged in sustainability finance** during 2020.
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The point of green bonds is to emphasize that cash is being used for projects that have a positive environmental effect (green projects). The aim is to raise social awareness of the company’s business and gain support among investors.
Prior to issuing these bonds, in June 2019 a subsidiary, Sylphid Inc., raised capital through a third-party allotment of shares. The Shikoku Energy Investment Limited Partnership (Shikoku Energy Fund), established by Shikoku Alliance Capital Co., Ltd.*** (unlisted) provided Sylphid with JPY2.0bn in exchange for non-voting stock. This fund invests in renewable energy projects, such as solar and wind power, and in businesses developing such projects.
Sylphid used the funds it raised to obtain solar power generation assets from Daiki Axis. In the interest of operating efficiency, the Daiki Axis group has made Sylphid centrally responsible for wind and solar power generation management.
*Green bonds are issued to raise funds for green projects (domestic or overseas businesses designed to address global warming or other environmental problems) companies intend to pursue. Green projects come in many varieties. Key areas include renewable energy, energy conservation, sustainable waste treatment, soil use, and water management for addressing environmental problems, businesses targeting biodiversity preservation, construction of traffic systems with low environmental impact, and businesses that address climate change. In addition to raising funds like other corporate bonds, green bonds help companies publicize their fundraising efforts for businesses aimed at environmental improvements. This visibility can help issuers gain support from investors and society at large.
**Sustainability finance refers to financing projects that meet both Green Bond Principles and Social Bond Principles. The Green Bond Principles are guidelines for issuing green bonds to finance green projects. Similarly, the Social Bond Principles are guidelines related to the issuance of social bonds, which finance projects targeting positive social outcomes. Social projects are wide-ranging and might involve water and sewage systems, energy, education, medical welfare, housing supply, food security, and expanded access to government services.
***Shikoku Alliance Capital Co., Ltd. is a fund management company established and jointly funded by four regional banks on the island of Shikoku: Awa Bank (TSE1: 8388), Hyakujushi Bank (TSE1: 8386), Iyo Bank (TSE1: 8385), and Shikoku Bank (TSE1: 8387). In addition to the Shikoku Energy Fund, this fund management company operates the Shikoku Revitalization Fund (addresses customers’ business succession and growth needs) and the Shikoku Small and Medium-Sized Company Support Fund (mainly helps to reinvigorate small and medium-sized companies in Shikoku).
Issuance of green bonds The company issued JPY3.0bn in green bonds with a payment date of February 28, 2020 and a 10-year maturity. On February 28, 2020, the company used all the cash it raised to refinance capital investments related to the sale of solar power electricity and the small wind turbine generation business. See the table below for details.
The company enlisted an outside assessment firm, DNV GL Business Assurance Japan K.K. (DNV GL)*, to judge whether these two businesses were suitable uses (whether the projects were eligible) for the cash raised via green bonds.
For eligible projects, each year the company is required to publicly report on the status of fund allocation and quantify the environmental benefit. The company is required to report on the state of progress for projects under development. After construction is complete, the company must conduct impact reporting each year from the start of operations until the green bonds mature.
To fulfill these reporting requirements, each month the company discloses project generation capacities (kW), annual outputs
(kWh), and environmental improvement effects (amount of CO2 reduction, expressed in kilograms) on its website. CO2 reduction quantities (kg-CO2) are calculated by multiplying the amount of energy generated (kWh) by the CO2 emission factor (amount of
CO2 emissions [kg-CO2] per unit of energy generated [kWh]). The emission factor, also called emission reduction intensity, is expressed as the amount of CO2 emissions reduced per unit of energy generated when compared to conventional energy generation methods. The figure is less than 1 (0.462 in FY12/20).
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Overview of Daiki Axis’s green bond framework Green project category Renewable energy Amount raised JPY3.0bn Redemption period 10 years, entire amount subject to refinancing Project 01 Solar power generation business Solar panels are mounted on the roofs of the DCM group’s existing DIY stores, so no new land development is Overview required. A total of 133 site candidates (maximum) Output, scale 50kW to 900kw/site, total of 23,750kW (maximum) A total of 133 site candidates (maximum) Location of facilities 53 sites in the Chugoku region, 32 sites in the Shikoku region, 19 sites in the Kansai region, 29 sites in other regions Project 02 Small wind turbine generation business Horizontal axis small wind turbine generation, the type of wind power generation the Daiki Axis group is Overview pursuing Total of around 24 site candidates (maximum) Output, scale Two 10kW-class turbines per location: Total of around 240kW (maximum) A total of 24 site candidates (maximum) Location of facilities Throughout Japan, including Kagoshima and Hokkaido Contribution to the SDGs 7. Affordable and clean energy 13. Climate action Source: Shared Research based on company data
*DNV GL, established in 1864, is a third-party evaluation institution headquartered in Oslo, Norway. DNV has extensive experience in providing second-party opinions (SPOs) concerning green bonds, both domestically and abroad. The organization undertakes global activities, serving as a registered party designated by the Ministry of the Environment to support the issuance of green bonds (external review department) and a verifier accredited by the Climate Bond Initiative (an international NGO that promotes large-scale investment toward a low-carbon economy).
Implementing sustainability finance The company’s sustainability finance comprises the issuance of sustainability share acquisition rights (third-party allocation of series two share acquisition rights) and the establishment of a viable-period term loan as a backup loan for this financing. DNV GL assessed the appropriateness of this financing alongside its evaluation of the green bond issue.
The amount raised was JPY2.2bn. This cash will be used to further long-term strategies associated with the overseas business as described in the medium-term plan. Specifically, the cash is to be used in three areas: building and operating factories to produce wastewater treatment tanks, the wastewater treatment business, and the clean water business. Details are provided in the table below. The exercise price for the share acquisition rights is between a maximum of JPY875 and a minimum of JPY805 (can be reduced to JPY725 by a Board of Directors resolution). The exercise period is three years.
The backup loan provides a borrowing facility (JPY2.2bn) to prevent project delays in the event the share acquisition rights fail to generate funds. The loan has a three-year viability period, the same length as the exercise period. If an unpaid balance remains on this loan and the company receives funds through the exercise of share acquisition rights, these funds will be used to repay the remaining unpaid balance.
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Uses of funds raised through sustainability finance (Overview) Project 01 Build and operate factories to produce wastewater treatment tanks Amount of funding JPY916mn Countries Myanmar, Sri Lanka, Bangladesh, Kenya Business overview Funding the acquisition of factory buildings, equipment, and land to increase production and commence new production of wastewater treatment tanks Project 02 Installation and operation of wastewater treatment systems (BOO and BOT**) Amount of funding JPY1.1bn Countries India, Bangladesh, Kenya, Sri Lanka, Myanmar Business overview Provision of wastewater treatment systems as BOO and BOT businesses (whether BOO or BOT undetermined at this stage) Project 03 Provision of clean water via Water Kiosks Amount of funding JPY210mn Countries India Business overview Construction and operation of sales facilities to provide clean water produced using reverse osmosis membranes Source: Shared Research based on company data
** Under a build-own-operate (BOO) agreement, the Daiki Axis group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities. After the contract ends, the company retains ownership of these facilities, which it can then dismantle or sell. With a build-operate-transfer (BOT) agreement, the group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities as under a BOO agreement. However, ownership rights transfer after the contract ends.
Social: Work style reforms, social support, diversity Workstyle reforms include shortening overlong working hours and reforming HR systems. In FY12/16, the company introduced “no-overtime days” to encourage employees in leisure pursuits.
As social support, the company works with local communities to dispose of used cooking oil and helps people with disabilities to play an active role in society. In the biodiesel business, the company works with local communities to collect used cooking oil. It helps people with disabilities to play an active role in society. In addition, the company holds lectures on biomass to raise awareness regarding environmental improvement efforts.
In the diversity category, the company promotes the active participation of women and aims to welcome people from diverse cultures and with different perspectives.
▷ In 2015, Daiki Axis received Kurumin certification*, which enables the company to publicly promote itself as a “company that supports child-rearing.” The company also interviews people on child-rearing leave.
▷ To support employees, the company has set up an external consultation desk and put internal personnel in charge of promoting mental health.
▷ In March 2019, the company appointed a female board member (outside director and member of the Audit Committee).
*Kurumin certification is given by Japan’s Minister of Health, Labour and Welfare to “companies that support child-rearing.” This designation is based on the Act on Advancement of Measures to Support Raising Next-Generation Children (specific-duration legislation through March 31, 2015). To earn Kurumin certification, companies must formulate a general employer action plan, meet certain designated targets and satisfy certain standards. Companies with Kurumin certification may use the associated logo (nicknamed “Kurumin”) on their products and advertising to publicize their efforts to support child-rearing. For assets (buildings and fixtures acquired, built, or expanded during the relevant period [first day of the action plan’s period to the final day of the fiscal year including the date when the period of designation ends]) contributing to support for the next generation, companies may increase their depreciation deductions by up to 32% above ordinary depreciation limits. During the period of the plan, from 2011 to 2015, the company met its goals of at least one male employee taking childcare leave and 75% or more of eligible female employees taking this leave. The company also met its goals for encouraging employees to take four or more days per year of annual paid leave and providing young people (non-employees) with internships and other work-experience opportunities.
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Governance: Management structure reform, risk management, dissemination of information As part of management structure reform, the company introduced an executive officer system in FY12/19 (on March 26) to separate managerial and executive functions more clearly. For risk management, Daiki Axis transitioned to the form of a company with an Audit Committee in FY12/19 (March 26). In FY12/20, the company increased the number of outside directors from two to five. The company takes a proactive approach to disseminating information, holding company briefings and providing ESG reports.
(Reference) Six materiality themes under the UN SDGs and the company’s ESG management
SDGs and Daiki Axis initiatives SDG 6. Clean water and sanitation [Daiki Axis initiatives] Build bases for manufacturing wastewater treatment tanks in countries with large populations: China, India, and Indonesia Sign distribution agreements with local companies in Asian countries (Vietnam, Myanmar, and Sri Lanka) and in Africa (Kenya) [Business segments] Mainly the Environmental Equipment segment
SDGs 7. Affordable and clean energy and 13. Climate action [Daiki Axis initiatives] Work to reduce CO2 through renewable energy businesses, mainly solar and compact wind power generation [Business segments] Mainly the Renewable Energy segment
SDG 12. Responsible consumption and production [Daiki Axis initiatives] Focus on using energy-saving products in each business Promote initiatives to ensure 100% renewable energy generation through the company’s business activities [Business segments] Companywide
SDGs 5. Gender equality and 8. Decent work and economic growth [Daiki Axis initiatives] Workstyle reform and promotion of diversity ・Appoint a female board member ・Obtain Kurumin certification (certification system by the Ministry of Health, Labour and Welfare) for promotion of active female participation [Business segments] Companywide Source: Shared Research based on company data
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Business Business overview Company overview Daiki Axis’s business centers on water treatment. The company manufactures and sells household and industrial wastewater treatment systems. In addition, the company sources and sells household equipment, most of which are used in wet areas (baths and kitchens). The company is also engaged in the sale of electricity produced from renewable sources. Multiple business models exist within the corporate group: manufacturing, construction, wholesaling, electric power, and retailing.
In FY12/20, revenue was JPY34.6bn, operating profit was JPY1.0bn, and OPM was 3.0%. The company has four business segments.
▷ The Environmental Equipment segment posted FY12/20 revenue of JPY17.7bn, which constituted 51.0% of total revenue and 59.0% of total operating profit. In this segment, the company manufactures wastewater treatment tanks, installs and maintains wastewater treatment systems, and engages in clean-water business (groundwater-to-drinking-water conversion).
▷ The Household Equipment segment recorded revenue of JPY14.7bn in FY12/20, which comprised 42.6% of total revenue and 15.4% operating profit. In this segment, the company primarily sources and sells household equipment and performs interior and exterior construction on condominiums and store buildings.
▷ The Renewable Energy segment logged FY12/20 revenue of JPY905mn, which constituted 2.6% of total revenue and 17.1% of operating profit. In this segment, the company sells electricity generated by solar and wind power and refines biodiesel fuel.
▷ The Other business segment posted FY12/20 revenue of JPY1.3bn, which were 3.8% of total revenue and 8.5% of operating profit. In this business, the company sells drinking water to homes on a subscription basis.
Relationship between the company and DCM Daiki Co., Ltd. In 2005, Daiki Axis was established as a wholly owned subsidiary of Daiki Co., Ltd. (now DCM Daiki Co., Ltd.: unlisted). The company took over Daiki’s manufacturing division (the Environmental Equipment segment and the biodiesel fuel business) and wholesaling division (the Household Equipment segment). The company and DCM Daiki have no capital relationship. However, they do have a transactional relationship, as outlined below. The percentage of Daiki Axis revenue from the DCM group was 13.4% in FY12/20.
▷ The company leases its headquarters and some other branches from DCM Daiki.
▷ The company sells household products through DIY stores operated throughout Japan by DCM Holdings Co., Ltd. (TSE1: 3050) group companies DCM Daiki, DCM Kahma Co., Ltd. (unlisted), and DCM Homac Co., Ltd. (unlisted), and others.
▷ The company manages some facility maintenance for companies in the DCM group. For instance, the company maintains wastewater treatment tanks and cleans stores.
▷ The company has agreements in place with DCM group stores to lease roof space, used in the solar power generation business.
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Percentage of company revenue from the DCM group
Cons. (JPYmn) FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 Total revenue 27,202 30,754 31,507 32,362 32,811 33,561 36,224 35,749 34,648 Revenue from DCM group 3,552 4,774 4,210 4,601 6,021 4,660 4,934 4,114 4,631 % of total revenue 13.1% 15.5% 13.4% 14.2% 18.4% 13.9% 13.6% 11.5% 13.4% Revenue by segment Environmental Equipment 12,997 14,913 15,262 15,407 15,913 16,446 18,513 18,570 17,688 Revenue from DCM group 769 802 795 928 1,034 1,123 1,270 1,409 3,013 % of total revenue 5.9% 5.4% 5.2% 6.0% 6.5% 6.8% 6.9% 7.6% 17.0% Household Equipment 13,513 15,178 15,533 16,300 16,166 15,585 15,812 14,642 14,743 Revenue from DCM group 2,768 3,956 3,399 3,656 4,969 3,531 3,618 2,652 1,591 % of total revenue 20.5% 26.1% 21.9% 22.4% 30.7% 22.7% 22.9% 18.1% 10.8% Renewable Energy - - - - - 174 287 699 905 Revenue from DCM group ------41 47 19 % of total revenue ------14.3% 6.7% 2.1% Other 691 660 712 655 732 1,357 1,612 1,838 1,313 Revenue from DCM group 15 16 16 17 18 6 5 6 8 % of total revenue 2.2% 2.5% 2.2% 2.5% 2.4% 0.4% 0.3% 0.3% 0.6% Source: Shared Research based on company data
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Environmental Equipment segment (in FY12/20, 51.0% of total revenue, 59.0% of operating profit)
Performance in the Environmental Equipment segment FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Orders - - 11,050 10,813 11,444 11,042 12,790 12,385 YoY - - - -2.1% 5.8% -3.5% 15.8% -3.2% Order backlog - - 4,323 4,331 4,734 4,355 6,094 4,578 YoY - - - 0.2% 9.3% -8.0% 39.9% -24.9% Segment revenue 12,997 14,913 15,262 15,407 15,913 16,446 18,513 18,570 17,688 18,857 YoY - 14.7% 2.3% 1.0% 3.3% 3.3% 12.6% 0.3% -4.8% 6.6% Water supply 440 461 542 663 538 584 723 864 751 900 YoY - - 17.6% 22.3% -18.9% 8.6% 23.8% 19.5% -13.1% 19.8% % of segment revenue 3.4% 3.1% 3.6% 4.3% 3.4% 3.6% 3.9% 4.7% 4.2% 4.8% Johkasou, wastewater treatment systems 12,556 14,452 14,718 14,742 15,374 15,861 17,789 17,705 16,936 17,956 YoY - 15.1% 1.8% 0.2% 4.3% 3.2% 12.2% -0.5% -4.3% 6.0% % of segment revenue 96.6% 96.9% 96.4% 95.7% 96.6% 96.4% 96.1% 95.3% 95.7% 95.2% Water purification systems 16 49 19 149 18 YoY 210.0% -62.5% 702.5% -88.1% % of segment revenue 0.1%0.3%0.1%0.8%0.1% Domestic small Johkasou (5–50 1,671 1,628 1,722 1,671 1,468 people) YoY -2.6%5.7%-2.9%-12.2% % of segment revenue 10.5%9.9%9.3%9.0%8.3% Wastewater treatment systems 9,675 9,999 11,589 10,956 10,312 YoY 3.3%15.9%-5.5%-5.9% % of segment revenue 60.8%60.8%62.6%59.0%58.3%
Johkasou, wastewater treatment systems 14,718 14,742 15,374 15,861 17,789 17,705 16,936 17,956 Domestic revenue - 14,104 14,159 14,140 14,579 14,494 16,636 16,552 15,933 16,225 YoY - - 0.4% -0.1% 3.1% -0.6% 14.8% -0.5% -3.7% 1.8% % of segment revenue 0.0% 94.6% 92.8% 91.8% 91.6% 88.1% 89.9% 89.1% 90.1% 86.0% Overseas revenue - 348 559 602 795 1,366 1,153 1,153 1,002 1,731 YoY - - 60.6% 7.7% 32.1% 71.8% -15.6% 0.0% -13.1% 72.8% % of segment revenue 0.0% 2.3% 3.7% 3.9% 5.0% 8.3% 6.2% 6.2% 5.7% 9.2%
Johkasou, wastewater treatment systems 12,556 14,452 14,718 14,742 15,374 15,861 17,789 17,705 16,936 17,956 Water purification and wastewater - 10,960 11,112 10,966 11,358 11,679 13,329 12,783 11,792 12,504 YoY - - 1.4% -1.3% 3.6% 2.8% 14.1% -4.1% -7.8% 6.0% % of segment revenue 0.0% 73.5% 72.8% 71.2% 71.4% 71.0% 72.0% 68.8% 66.7% 66.3% Maintenance (incl. overseas) - 3,492 3,606 3,776 4,016 4,182 4,460 4,922 5,144 5,452 YoY - - 3.3% 4.7% 6.4% 4.1% 6.6% 10.4% 4.5% 6.0% % of segment revenue 0.0% 23.4% 23.6% 24.5% 25.2% 25.4% 24.1% 26.5% 29.1% 28.9%
Operating profit 641 956 1,140 1,136 1,199 1,357 1,395 1,068 1,200 1,461 YoY - 49.1% 19.2% -0.3% 5.5% 13.2% 2.8% -23.4% 12.3% 21.8% Operating profit margin 4.9%6.4%7.5%7.4%7.5%8.3%7.5%5.8%6.8%7.7% Source: Shared Research based on company data Business overview
▷ In the clean water business, the company converts customers’ groundwater to drinking water, building systems that provide an alternative to waterworks.
▷ The company builds intermediate water supply systems, which reuse treated household and industrial wastewater. The recycled water is used in ways that do not involve direct human contact, such as in toilets, for watering greenery, and in factories.
▷ In Japan, the company manufactures, sells, and installs compact wastewater treatment tanks—mainly wastewater treatment equipment for detached homes.
▷ In the category of wastewater treatment systems, the company manufactures, sells, and installs medium-sized and large wastewater treatment tanks and industrial wastewater treatment equipment.
▷ Regarding maintenance, compact wastewater treatment tanks are outside the scope of the company’s maintenance services. The company only maintains medium- and large-sized wastewater treatment tanks, as well as industrial wastewater treatment equipment.
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About wastewater treatment tanks (johkasou) Wastewater treatment systems that complement sewage systems Wastewater treatment tanks internally purify household water (sewage and household wastewater emitted from kitchens, baths, clothes washing, and sinks). These tanks are mainly installed in locations without access to public sewage systems. As of March 31, 2020, 79.7% of the Japanese population (101.1mn people) had access to public sewage systems. Conversely, 9.3% (11.7mn) of the population uses wastewater treatment tanks.
Sometimes wastewater treatment tanks are necessary even where sewage systems are available. Large-scale condominiums and commercial facilities that produce substantial quantities of wastewater may need to treat that water before releasing it into sewage systems. The company installs large wastewater treatment tanks for that purpose.
Access to sewage treatment systems (population comparison)
Decent ralized Centralized treatment system Other treatment system Wastewater 79.7% Johkasou 9.3% No access 8.3% Rural communit y sew erage 2.6% (V ault t oilet ) Community plant 0.2% Note: “Rural community sewerage” refers to wastewater treatment systems used in agricultural regions. With these systems, wastewater from individual homes in agricultural communities is moved by sewer pipes to sewage processing plants. Treated water is released into nearby rivers. “Community plants” are small-scale wastewater treatment facilities constructed in accordance with “general waste treatment plans” stipulated by cities, towns, and villages in accordance with the Waste Management and Public Cleansing Act. Source: Shared Research based on data from the Ministry of the Environment Structure of wastewater treatment tanks Wastewater treatment tanks accumulate wastewater internally and filter out (separate) solids. The tanks mainly use bacteria to break down organic matter that causes environmental pollution. The top layer of purified water is released from the tanks into waterways. Environmental standards are stipulated by the Purification Tank Act. Whereas less expensive personal computers and smartphones that offer lower functionality are available, such decreases in functionality are not permitted for treatment tanks. The tanks also must be regularly maintained and inspected, as with automobile engines.
The company categorizes wastewater treatment tanks by capacity: compact (5–50 people), medium (51–500 people), and large (501 or more people). Equipment for handling industrial wastewater, which contains different substances from household wastewater, is outside the scope of the Purification Tank Act and categorized as purification equipment. Compact wastewater treatment tanks are used mainly for detached homes. Medium- and large-sized wastewater treatment tanks are mostly used in condominiums and commercial facilities.
Wastewater treatment tanks
Source: Shared Research based on company data Process for purifying wastewater in tanks Compact wastewater treatment tanks are typically divided into four compartments. The tanks process wastewater in four stages and emit purified water.
▷ In the first compartment, solids are separated out of sewage, and liquid sewage is broken down by anaerobic bacteria (bacteria that breed and multiply without oxygen).
▷ In the second compartment, substances removed by the first compartment are again broken down using anaerobic bacteria.
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▷ In the third compartment, substances not broken down in the first and second compartments are broken down using aerobic bacteria (which breeds and multiplies in the presence of oxygen). Ammonia is oxidized. Suspended matter is precipitated, and the water that rises is sent to the disinfection compartment.
▷ In the final disinfection compartment, treated water is disinfected with chlorine and released.
Wastewater treatment tank structure
Source: Shared Research based on data from the Ministry of the Environment
Compact wastewater treatment tanks have the following main components:
The outer layer is typically plastic, usually a synthetic resin such as fiberglass reinforced plastic (FRP) or polypropylene (PP). Tank exteriors differ in terms of ease of processing, strength, durability, and weight. Some tanks are made of concrete. Concrete may be used to provide better design flexibility in cases where location makes tank shape a factor, or for large facilities where plastic tanks are too small.
Bacteria are applied to structures called “contact media.” Contact media are designed for broad contact between bacteria and wastewater, promoting efficient decomposition. Blowers are affixed to wastewater treatment tanks to oxygenate aerobic bacteria and keep them healthy.
Filtration devices are used to eliminate supernatant substances. Sand may be used for filtration. Alternatively, wastewater may pass through carrier materials loaded with bacteria (filtering materials). Different manufacturers have developed wastewater treatment tanks employing a variety of treatment methods.
Functional standards The Purification Tank Act sets water quality standards for the water released by wastewater treatment tanks. Biochemical oxygen demand (BOD) is one measure used to determine water quality. BOD indicates the amount of oxygen bacteria in wastewater treatment tanks need to break down pollutants. BOD of 20 means that 20mg of oxygen is needed to break down pollutants in one liter of water. The smaller the number, the less pollutant the water contains. The standards stipulate a BOD removal rate, indicating the percentage BOD must be reduced during wastewater treatment.
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The BOD standard under the Purification Tank Act stipulates a removal rate of 90% or more for compact wastewater treatment tanks, and BOD of 20 for released water. For medium-sized tanks, the corresponding figures are ≥70% and ≤60; for large tanks, ≥85% and ≤30. Local governments may set ordinances with stricter standards than under the Purification Tank Act.
In addition to BOD, performance tables show chemical oxygen demand (COD), total nitrogen (T-N), total phosphorous (T-P), and suspended solids (SS).
Performance table (Daiki Axis wastewater treatment tanks)
(Released March 2019) Model: XF Effluent standards (Home, for 5–10 people) (Limit : mg/l) BOD 10 COD 20 T-N 10 T-P 1 SS 10 Source: Shared Research based on company data Differentiating factor on wastewater treatment tanks: cost effectiveness outweighs functionality alone More than 10 companies in Japan manufacture wastewater treatment tanks. The company says this business has a low barrier to entry. Construction materials can help reduce the cost of manufacturing compact wastewater treatment tanks. In addition to performance, technology development focuses on such factors as shapes that are easy to install, strength, lightness of tank weight that reduces transportation costs, and energy-saving blowers.
Another differentiating factor is the simplicity of a tank’s internal structure, which facilitates post-installation cleaning (waste collection) and maintenance. Some end-users are satisfied with any wastewater treatment tank that meets environmental standards, making tanks a price-sensitive commodity item. This tendency is particularly evident with compact wastewater treatment tanks for households.
Barriers to entry and survival strategies in the business of wastewater treatment tanks To create barriers to entry and ensure its survival in the category of compact wastewater treatment tanks, the company situates manufacturing facilities close to demand areas (lowering transportation costs) and maintains sales offices throughout Japan to allow consistent interaction with customers (construction companies).
In the categories of medium- and large-sized wastewater treatment tanks and industrial wastewater treatment equipment, the company supplies products that treat wastewater to various levels of water quality. These product categories also require construction and management capabilities. Daiki Axis has relationships in place with the construction companies that order such products, and the company employs personnel to maintain these relationships. These relationships serve as a barrier to entry for other companies.
Peripheral businesses: waste treatment (cleaning) and maintenance Waste matter that has been separated out from wastewater and retained within wastewater treatment tanks must be removed periodically. Cleaning companies that collect this waste material must hold waste treatment qualifications. Cleaning is typically performed by local authorities or industrial waste treatment companies that have been subcontracted to handle the task. Vacuum trucks go site to site (door to door), collecting waste matter and transporting it to waste treatment facilities.
To maintain functionality, the Purification Tank Act stipulates that wastewater treatment tanks must be managed, including regular cleaning, maintenance, and inspection. For household compact wastewater treatment tanks, often the homeowner is the manager. However, maintenance may be outsourced to licensed operators. Legally mandated cleaning and maintenance of wastewater treatment tanks is a recurring-revenue business with steady demand.
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Business model for the wastewater treatment business In FY12/20, wastewater treatment business (intermediate water supply, sewage, and maintenance) accounted for 95.7% of revenue in the Environmental Equipment segment, with overseas business making up around 6% of this amount. The clean water business provided 4.2% of revenue.
Breakdown of revenue in the Environmental Equipment segment % of Environmental Equipment segment revenue End users FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 Hospitals, welfare facilities, food Water supply (ground water treatment) 3.4% 3.6% 3.9% 4.7% 4.2% processing plants, gyms, other Water purification systems Parks, other 0.1% 0.3% 0.1% 0.8% 0.1% Small Johkasou Individual homes, other 10.5% 9.9% 9.3% 9.0% 8.3%
Condominiums, rural districts, Sewage Wastewater treatment food processing plants, electrical 60.8% 60.8% 62.6% 59.0% 58.3% system and plating plants, other
Maintenance All above excl. individual homes 25.2% 25.4% 24.1% 26.5% 29.1% Source: Shared Research based on company data Domestic sales of wastewater treatment systems (medium- and large-sized wastewater treatment tanks, industrial wastewater treatment facilities) make up 60% of segment revenue Medium- and large-sized wastewater treatment tanks are built to order, and sales prices include construction work. Shared Research understands the company produces around 600 of these wastewater treatment tanks each year (market share of around 15%). According to the company, medium- and large-sized wastewater treatment tanks (standalone) range from JPY3mn to tens of millions of JPY. Larger community plants can cost hundreds of millions of JPY. Unit orders, including construction, are priced at JPY10mn to several hundred million JPY. The average price is around JPY20mn.
Each year, the company manufactures around 6,000 compact wastewater treatment tanks, which are manufactured through BTS production. Units are priced at approximately JPY150,000. Compact wastewater treatment tanks, a founding business for the company, accounted for more than 10% of revenue in FY12/16. By FY12/20, this figure had shrunk to 8%. The company explains this decline by saying it is working to expand business in medium- and large-sized wastewater treatment tanks, where orders include construction, rather than depending on compact wastewater treatment tanks, which are becoming a commodity.
Even though they have become a commodity, compact wastewater treatment tanks present an opportunity to conduct cross-selling with other housing equipment. Accordingly, the company explains that this business helps it retain a broad customer base.
Costs of construction The cost of producing wastewater treatment tanks breaks down roughly as slightly less than 50% for materials, with the remaining total going toward labor, depreciation and amortization, and sundry expenses. Tank exteriors are generally made of synthetic resin (FRP and PP), which the company outsources; its factories instead concentrate on assembly. The company does make cylindrical (medium-sized) wastewater treatment tanks in-house.
Daiki Axis says its GPM on compact wastewater treatment tanks is several percent. Shared Research understands that GPM comes to around 20% for water treatment systems that incorporate medium-sized and large wastewater treatment tanks (including construction). Breaking down the cost of construction completed (non-consolidated basis, for FY12/19, segment total), outsourcing expenses accounted for 51.3%, materials for 40.5%, and labor and expenses for 8.2%. The majority of outsourcing expenses go toward construction. Company technicians supervise the construction of wastewater treatment tanks, but construction is outsourced to firms outside the Daiki Axis group.
Capital investment in manufacturing wastewater treatment tanks was not conducted in FY12/19 or FY12/20. As wastewater treatment tanks are a mature product type, Shared Research understands the company keeps capital investment within the scope of depreciation and amortization, and investment goes mostly toward upgrades. In FY12/14 and FY12/15, the company made capital investments in this segment to strengthen overseas factories.
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Companywide capital investment (including tangible fixed assets accepted and unfinished work) and depreciation and amortization Capex by segment FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Environmental Equipment 705 852 260 210 184 186 60 Manufacturing facilities, other 319 569 29 71 43 - - Ground water treatment systems 386 283 231 139 141 186 60 Household Equipment 401 - 29 - - - 65 Renewable Energy (from FY12/18) 1,704 1,954 454 Other - - - - 42 - 54 Total capital expenditures 1,301 888 343 259 2,038 2,405 777 Depreciation 231 311 341 410 462 594 617 R&D expenses 87 99 51 88 107 66 Source: Shared Research based on company data Sales trends Domestic sales of wastewater treatment systems, centering on medium-sized and large wastewater treatment tanks, have fluctuated every year since the company’s listing on the Second Section of the Tokyo Stock Exchange in FY12/13. However, average annual growth was 1.8% from FY12/13 (JPY14.1bn) to FY12/20 (JPY16.0bn).
The number of new wastewater treatment tanks built in Japan fell by an average of 2.0% per year from FY2014 (April 2014 to March 2015) to FY2018. For medium-sized and large tanks, the rate of decline was 6.1%. Thus, the company has succeeded in increasing sales amid a contracting market.
Overseas business growing faster than business in Japan In FY12/20, overseas revenue accounted for 5.7% of the company total. Although small in comparison to revenue generated through domestic business, overseas revenue have grown by an average of 16.3% per year since the company’s listing in 2013. By comparison, annual domestic revenue growth has averaged 1.8%.
At present, the company has three factories overseas. As of end-FY12/20, the company had the capacity to produce 2,000 tanks per year in China (via Lingzhi Daqi Johkaso (Jiangsu) Co., Ltd.: the company holds 49.0% of voting rights), 250–300 tanks per year in Indonesia (Daiki Axis Indonesia: 100.0%), and around 200 tanks per year in India (Daiki Axis India Private Limited: 100.0%).
Overseas, the company sells its tanks via 23 local distributors. This distribution network includes 16 companies in India, with one each in Nepal, Pakistan, Bangladesh, Vietnam, Myanmar, Sri Lanka, and Kenya.
Business activities overseas The company has cultivated awareness of and demand for wastewater treatment tanks overseas by explaining to national boards of health the cost advantages wastewater treatment tanks present for wastewater treatment systems. The company explains many countries have deep-seated convictions that preventing water pollution in rivers and oceans requires the installation of large-scale sewage systems and final waste disposal sites for sewage treatment.
In October 2020, Daiki Axis obtained recommended approval from India’s central government for wastewater treatment tanks made by the company’s Indian subsidiary. This is the first time India’s central government has recommended decentralized wastewater treatment systems based on wastewater treatment tanks. Encouraged by India’s central government and central research institutes, the company has built a relationship with the central government through the ongoing supply of water quality testing using actual demo equipment.
In India, perspectives on wastewater treatment vary by region, as do treatment methods. Accordingly, when selling wastewater treatment tanks, the company needs to adopt region-specific approaches. Even so, the central government’s recommendation is a boon to sales activities, Shared Research understands.
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Maintenance business accounts for around 30% of revenue Maintenance of wastewater treatment tanks accounts for 30% of segment revenue. Most of this maintenance is for medium-sized and large wastewater treatment tanks and industrial wastewater treatment equipment. The company does not offer maintenance for the compact wastewater treatment tanks used by households. In most cases, these tanks are serviced by local operators that provide door-to-door services.
The company builds medium-sized and large wastewater treatment tanks to order for its customers (general contractors and other construction companies). The relationships it has in place with these companies make maintenance contracts relatively easy to obtain.
Maintenance is typically provided under contract, separate from construction. The company signs maintenance agreements with end-users. Companies that specialize in maintenance do exist, but the company says being familiar with the designs of the products it has built gives it an advantage in securing maintenance contracts. Handling maintenance also puts the company in a position to recommend repairs. Ultimately, for customers the cost of switching to another provider is high, so annual maintenance contracts typically roll over into following years.
The company does not disclose maintenance costs, but Shared Research understands that the major costs are for water quality tests and cleaning (mainly personnel costs), parts replacement, and expenses involved with operating a 24-hour monitoring system. The company says GPM is around 40%.
Company initiatives in the wastewater treatment tank and wastewater treatment businesses Efforts to differentiate wastewater treatment tanks The company is working to differentiate its wastewater treatment tanks’ exteriors. The company began developing wastewater treatment tanks in 1964 (at the time, as Daiki Co., Ltd.). In 1974, the company received permission under Japan Industrial Standards (JIS) to mark its fiberglass reinforced plastic (FRP) wastewater treatment tanks as compliant. In 1993, the company was the first in the industry to develop wastewater treatment tanks made of dicyclopentadiene (DCPD), a heat-cured resin. In 2013, the company led the industry in developing compact wastewater treatment tanks made of polypropylene (PP).
The company’s PP tanks are more durable and stronger than tanks made of FRP. The company notes that the production process is also less costly. Material costs are approximately 20% higher for PP than for FRP, and equipment costs are high. However, the material is easier to process, reducing the number of working hours required. Due to the labor cost savings, the overall production process is less costly for PP tanks than for wastewater treatment tanks made of FRP.
PP is also more recyclable than FRP. The company believes the environmental impact of PP tanks appeals to customers.
The company manufactures wastewater treatment tanks according to many diverse specifications. Daiki Axis offers a more extensive lineup of large wastewater treatment tanks (treatment capacity of 501 or more people) than the large companies it competes with. (See the “Competitors” section.) The company manufactures, sells, and installs wastewater treatment tanks equipped with garbage disposals. Garbage disposals, located below the kitchen sink, crush household kitchen waste (food scraps and leftovers).
Strengthening the value chain Having factories near areas of demand helps to keep down the cost of construction materials. At the same time, construction companies tend to have strong local connections. For this reason, Daiki Axis’s sales offices throughout Japan remain in close communication with construction companies (their customers), creating a barrier to entry vis-à-vis competitors.
The company has nine production sites across Japan, including those of Daie Industry Co., Ltd. (unlisted), with which Daiki Axis has an operational alliance. The company has four factories for wastewater treatment tanks, one each in Fukushima and Nagano prefectures and two in Ehime Prefecture. The Environmental Equipment segment also has 16 sales offices.
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In 2010, the company entered an operational alliance with Daie Industry Co., Ltd. (unlisted). Daie Industry has five factories for wastewater treatment tanks, two in Ehime Prefecture and one each in Hokkaido, Oita, and Kagoshima prefectures. The two companies’ locations do not overlap, providing synergy.
Daiki Axis and Daie Industry have operations covering the three main demand areas for wastewater treatment tanks: the Kanto, Tokai, and Shikoku/Kyushu regions. (See figure below.) The company uses Daie Industry’s offices to ship products from factories nearby customers, reducing transportation costs.
Areas of demand for wastewater treatment tanks and the company’s business locations
Nu mb er o f Nu mb er o f Number of locations for Johkasou installed new Johkasou Daiki Axis and Daiei Sangyo combined ('000 units) % of total ('000 units) % of total (Branches, sales offices, plants) % of total Hokkaido, Tohoku 732.2 9.7% 12.3 11.0% 6 12.2% Kanto 1,943.2 25.7% 26.9 24.0% 8 16.3% Hokuriku 137.9 1.8% 1.2 1.0% - - Kochinetsu 396.7 5.3% 4.1 3.7% 3 6.1% Tokai 1,442.4 19.1% 19.5 17.3% 8 16.3% Kinki 584.9 7.7% 6.3 5.6% 2 4.1% Chugoku 559.0 7.4% 8.6 7.7% 5 10.2% Shikoku, Kyushu 1,758.9 23.3% 33.3 29.7% 17 34.7% Nationwide 7,555.2 100.0% 112.1 100.0% 49 100.0% Source: Shared Research based on data from the Ministry of the Environment, Daiki Axis, and Daie Industry Focus on facilities for treating industrial wastewater The company manufactures, installs, and maintains industrial wastewater treatment equipment. Like equipment for household use, industrial wastewater treatment equipment uses bacteria to break down organic matter, has a filtration function, and releases water that conforms to environmental standards (may be released into rivers). Under the Water Pollution Prevention Act, water emitted from factories and business sites must meet wastewater standards for individual pollutant types.
In addition to cost considerations, in the industrial wastewater treatment business, customers look for manufacturers that can meet wastewater quality needs that differ by company and industry. This business offers more room for differentiation than compact wastewater treatment tanks. In the field of industrial wastewater, the company concentrates on factories that emit organic pollutants. Examples include wastewater processing in such sectors as livestock, food product manufacturing, supply centers for school meals, and dining establishments. (See the figure below.)
Types of industrial wastewater the company’s treatment facilities can handle Livestock (pigsties, broiler houses, other) Food processing plants (seafood processing, tofu, meat, noodles, bread making, sake brewing, beverages, confectionery, washed rice, prepared food, other) Kitchen wastewater (restaurants, meal facilities, other) Linen supply facilities
Dialysis wastewater Source: Shared Research based on company data
Industrial wastewater treatment equipment is primarily of fiber reinforced plastic (FRP) made at the company’s factories or reinforced concrete (RC) produced locally. In water treatment, the company has a lineup of products for handling physical treatment (filtration, precipitative and surface precipitation), biological treatment with bacteria, and chemical treatment (neutralization, agglutination, adsorption, decolorization, and deodorizing).
Domestic market for wastewater treatment tanks Two types of wastewater treatment tanks exist in the Japanese market: single-treatment and combined-treatment. Single-treatment tanks treat only household sewage. Combined-treatment tanks also handle wastewater produced by kitchens, sinks, baths, washing machines, and the like.
The installation of single-treatment tanks began to rise in the 1960s, along with housing starts. However, the installation of new single-treatment wastewater treatment tanks was disallowed in 2001. The reason was an increase in environmental pollution from
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non-sewage household water, such as from washing machines. At the same time, users of single-treatment wastewater treatment tanks were asked to transition to combined-treatment wastewater treatment tanks (to the best of their abilities). Compliance with this request to replace single-treatment wastewater treatment tanks buried below structures was lax. Typically, tanks were not replaced unless the structures on top of them were rebuilt.
Daiki Axis believes the market for household wastewater treatment tanks is unlikely to grow. The company expects new housing starts to fall as the Japanese population shrinks. Since the company was established in 2005, installation of combined-treatment wastewater treatment tanks has increased. Shared Research understands that some of this demand is due to replacement. However, the total number of wastewater treatment tanks has fallen by more than 1mn (12.5%).
Number of wastewater treatment tanks installed
Total change (units) FY2005 FY2010 FY2015 FY2015 since FY2005 Tandoku-shori Johkasou 6,131,836 4,883,467 4,124,453 3,809,677 -2,322,159 Gappei-shori Johkasou 2,498,735 3,056,648 3,499,462 3,745,513 1,246,778 Total 8,630,571 7,940,115 7,623,915 7,555,190 -1,075,381 Source: Shared Research based on data from the Ministry of the Environment Differences between wastewater treatment tanks and sewage systems Most wastewater treatment systems in Japan are sewage systems. Wastewater treatment tanks are installed in locations not served by sewage systems. Sewage systems purify sewage at final-processing facilities, called wastewater treatment facilities.
Sewage systems are usually centralized treatment systems that service towns. By contrast, wastewater treatment tanks are distributed treatment systems for individual homes. Water quality standards for release by public sewage systems are a BOD of 2mg per liter, for a BOD removal rate of 99%. These requirements are more stringent than for wastewater treatment tanks (20mg or less, 90% or more).
Urban planning and financial measures are usually required for the construction and operation of public sewage systems that include final processing. For wastewater treatment tanks, which are installed for individual households, the cost of installation is usually borne by the property owner or manager. In Japan, individuals who install wastewater treatment tanks receive a national subsidy equivalent to 40% of expenses. Additional subsidiaries may also be available from local governments.
According to data from the Ministry of the Environment, its targets are to have public sewage systems in place in communities of 10,000 people or more and wastewater facilities for agricultural communities in place within agricultural villages of 1,000 or more. Wastewater treatment tanks, being distributed treatment system, may be installed anywhere, regardless of population. Timeframes for the construction of various types of household wastewater treatment system are as follows:
▷ Public sewage systems (including final processing sites): Five years or more
▷ Wastewater facilities for agricultural communities: Three to five years
▷ Wastewater treatment tanks: One week to one year
▷ Sewage processing facilities (which treat waste matter brought in from wastewater treatment tanks by vacuum trucks): Two to three years
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Competing manufacturers of wastewater treatment tanks
Revenue Operating No. of Johkasou Founded/ (completed Nu mb e r o f Plants in Company Listing Fiscal year profit technicians (end Established construction employees Japan (JPYmn) of latest FY) ; JPYmn)
Founded: 1958, Daiki Axis TSE1: 4245 FY12/20 34,648 1,045 794 226 (*FY12/13) 4 Est.:2005
Daiei Sangyo (tie-up with Founded: 1903 Unlisted FY09/20 3,900 - 127 - 5 Daiki Axis)
Founded: 1908, Nikko Company NSE1: 534 FY03/21 11,458 -627 615 81 (End-FY03/20) 2 Est.: 1950
Founded: 1937, Maezawa Kasei Industries Co., TSE1: 7925 FY03/21 20,985 929 587 - 2 Est.: 1954 FujiClean Co., Ltd. Founded: 1961 Unlisted - 18,000 - 500 264 3 Fujiyoshi Co., Ltd. Founded: 1959 Unlisted - - - 190 81 1 AMS Corporation Established: 1960 Unlisted - - - 100–300 - 2 Kubota Johkasou System Co., Founded: 1890, Unlisted - - - - 57 1 Ltd.* Est.: 1994
Founded: 1917 Nishihara Neo Co., Ltd. Unlisted - - - 100–300 - - Est.: 1962 ARECO Co., Ltd. Established: 1970 Unlisted - - - 150 - - IE Vision Co., Ltd. (former Established: 1964 Unlisted ------Ibiden Jusetsu Co., Ltd.)
Sekisui Home Techno Co., Established: 2001 Unlisted FY03/20 28,900 - 36 - Ltd. Daikan Kogyo Co., Ltd. Established: 1984 Unlisted FY09/19 600 - 14 - - Founded: 1962, Housetec Inc.* Unlisted FY03/20 - - 1,477 - 3 Est.: 2001 Ryukyu Setubi Co., Ltd. Established: 1972 Unlisted ------Note: Kubota Johkasou Systems Corporation is a wholly owned subsidiary of Kubota Corporation (TSE1: 6326). Housetec inherited the housing and environmental equipment department from Hitachi Chemical Co., Ltd. (now Showa Denko Materials Co., Ltd.: unlisted). Source: Shared Research based on company data Differences between Daiki Axis and its competitors Most manufacturers of wastewater treatment tanks are unlisted companies, limiting the scope of publicly available information for comparison. However, Shared Research has made the following conclusions based on the available information:
Based on annual unit sales, FujiClean Co., Ltd. (unlisted) is large, with a market share of 40–50%. However, Daiki Axis has a comparable number of technicians (more than 200) who manage the installation of wastewater treatment tanks. Daiki Axis and Daie Industry together operate nine factories in Japan, more than FujiClean.
Shared Research understands that FujiClean focuses on a different market segment (compact wastewater treatment tanks for households) than Daiki Axis, and has higher sales in this category. Daiki Axis manufactures around 6,000 compact wastewater treatment tanks per year. In FY2018, 110,545 such tanks were installed in Japan, giving Daiki Axis a market share of around 5%.
Shared Research compared the processing capacity (by number of people) of the wastewater treatment tanks and wastewater treatment equipment shown on the Daiki Axis and FujiClean websites (as of January 17, 2021). For units handling water treatment for 500 or fewer people (including compact tanks), FujiClean had 14 varieties, while Daiki Axis had 11. For (large) units handling water treatment for 501 or more people, FujiClean offered two varieties, while Daiki Axis had 11. Shared Research believes these numbers demonstrate Daiki Axis’s relative focus on large-scale wastewater treatment tanks.
In the addition to the water treatment business, which centers on wastewater treatment tanks, the company procures and sells household fixtures and refurbishes public facilities and stores (both in the Household Equipment segment). Shared Research understands that the company has a broader customer base than its competitors due to efforts to make use of synergies across business categories.
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Business model for the clean water business (groundwater-to-drinking-water conversion business) In the clean water business, the company offers customers a groundwater-to-drinking-water service that supplies drinking water at a lower cost than through the public water supply. Revenue from this business accounts for 4.2% of the segment total (FY12/20) and had grown each year from the company’s listing in 2013 through FY12/19, with the exception of FY12/16. In FY12/20, revenue fell YoY due to stagnation in orders caused by the COVID-19 pandemic.
How the business works The company digs wells on customer premises and then installs pumps to draw up the groundwater, cisterns to store the water, and treatment equipment. Treated drinking water is stored in a water supply tank, which the customer can access.
To ensure stable water quality, the company digs deep wells that are relatively unaffected by the surface environment. Once a well has been dug, drinking water can be supplied from the well in about four months; water quality tests, administrative procedures, construction, and final water quality tests each require approximately one month.
The company provides equipment for the well, the groundwater pump, water storage tank, and filtration and other treatment equipment. The customer is responsible for the water supply tank and waterworks inside the building. The company provides 24-hour surveillance of the systems. If water quality abnormalities occur, the system is set up to switch over automatically to public water.
The company explains that its system reduces customers’ water costs by an average of 10% to 30%, compared with the public water supply.
Earnings composition The company bears all the costs for system installation and operation. Customers pay a monthly usage fee based on the amount of water used, allowing the company to recoup its capital investment over a long period of time (ESCO* format).
Through FY12/20, the company had installed a total of 131 systems, 97 (74%) of which use the ESCO format. Customers purchased equipment for the remaining 34 systems (26%). Customers who purchase their equipment pay the company for installation and operational costs, as well as maintenance. Annual capital investment in the clean water business was JPY60mn (FY12/20).
As the company receives a fixed monthly service fee, this is a recurring-revenue business. Annual average revenue per customer project (cumulative) is JPY6.6mn.
Principal costs are capital investment for the groundwater-to-drinking-water system (depreciation) and running costs (monitoring and maintenance).
*An energy service company (ESCO) is a company that covers all expenses related to energy-saving businesses through reduced utility costs.
Adoption of groundwater-to-drinking-water conversion systems and ESCO-method sales
Up t o FY12/11 FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 Total FY12/10 No. of ESCO format 23 6 7 7 12 8 7 8 9 9 1 97 implemented (JPYmn) - 243 293 343 412 488 516 563 591 663 641 - No. of systems purchased 9 1 4 2 3 5 0 0 3 6 1 34 Source: Shared Research based on company data Customers Currently, Daiki Axis provides this service only to companies; it has no household customers.
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Adoption by customer (ESCO method) Hospitals 28 W elfare facilit ies 16 Large commercial facilit 12 Gyms 12 Food processing factori 14 Hotels 5 Schools 8 Hot bat h facilit ies 1 Other 1 Source: Shared Research based on company data
Household Equipment segment (in FY12/20, 42.6% of total revenue, 15.4% of operating profit)
FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Orders - - 1,985 1,166 2,775 2,906 1,675 2,061 YoY - - - -41.3% 138.0% 4.7% -42.4% 23.0% Order backlog - - 1,287 725 744 1,750 1,007 1,054 YoY - - - -43.7% 2.7% 135.1% -42.5% 4.7% Revenue 13,513 15,178 15,533 16,300 16,166 15,585 15,812 14,642 14,743 14,894 YoY - 12.3% 2.3% 4.9% -0.8% -3.6% 1.5% -7.4% 0.7% 1.0% Construction industry 10,313 11,571 11,655 11,913 10,943 11,131 11,086 10,457 10,538 10,813 YoY - 12.2% 0.7% 2.2% -8.1% 1.7% -0.4% -5.7% 0.8% 2.6% % of segment revenue 76.3% 76.2% 75.0% 73.1% 67.7% 71.4% 70.1% 71.4% 71.5% 72.6% Home improvement center (retail) 2,191 2,643 2,691 2,658 2,466 2,553 2,306 2,169 1,939 2,134 YoY - 20.6% 1.8% -1.2% -7.2% 3.5% -9.7% -5.9% -10.6% 10.1% % of segment revenue 16.2% 17.4% 17.3% 16.3% 15.3% 16.4% 14.6% 14.8% 13.2% 14.3% E-commerce ------5 3 120 YoY ------0.0% -40.8% 3794.3% % of segment revenue 0.03%0.02%0.81% Housing equipment and materials 1,008 963 1,185 1,727 2,755 1,899 2,418 2,009 2,261 1,827 YoY - -0 23.1% 45.7% 59.5% -31.1% 27.3% -16.9% 12.5% -19.2% % of segment revenue 7.5% 6.3% 7.6% 10.6% 17.0% 12.2% 15.3% 13.7% 15.3% 12.3%
Operating profit 314 348 466 567 497 579 569 367 313 417 YoY - 10.8% 34.0% 21.6% -12.3% 16.4% -1.7% -35.5% -14.6% 33.0% Operating profit margin 2.3%2.3%3.0%3.5%3.1%3.7%3.6%2.5%2.1%2.8% Source: Shared Research based on company data Business model Overview In the Household Equipment segment, the company mainly wholesales materials and provides construction services for the interiors and exteriors of houses, as well as other buildings and facilities. More specifically, the company offers modular kitchens, toilets, and modular baths for general houses and condominiums. The company sells its products to general contractors, local construction companies, and housing manufacturers. The company also accepts orders from government offices for products used in public facilities, such as gymnasium flooring and pools.
Products handled and construction provided are as follows:
▷ Housing-related products: Since its establishment, the company has been a dealer for Toto Ltd., stocking products and selling them on to local construction companies and housing manufacturers. The company also serves as a dedicated sales department for DIY stores under the DCM Holdings umbrella.
▷ Materials for public facilities: The company sells products such as gymnasium floors and pool materials to government offices. It accepts orders to provide construction along with materials.
▷ Construction of exterior walls: The company builds tiled exterior walls for hotels and condominiums and handles construction on the roofs of factory buildings.
▷ Refurbishment and management of customer stores: The company renovates product shelves, inspects equipment, and handles other store management functions.
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The company installs and maintains wastewater treatment tanks for some customers in the Household Equipment segment. Shared Research understands that the company is expanding its business by cross-selling to customers through two business segments.
The table below outlines the products the company handles:
Products handled
Other companies’ products
Category Products Main use Western-style toilets, Japanese-style toilets, Detached houses, housing complexes, offices, hotels, Sanitary porcelain urinals, bidet toilets stores, etc. Detached houses, housing complexes, offices, hotels, Faucets Kitchen faucets, bath faucets, etc. stores, etc. Detached houses, housing complexes, offices, hotels, Lavatory units and counters Lavatory units, artificial marble countertops stores, etc.
Modular baths Modular baths Detached houses, housing complexes, hotels Artificial marble bathtubs, Marbelite bathtubs, Detached houses, etc. Bathtubs stainless bathtubs Cast enamel bathtubs Detached houses, etc. Home sauna baths, commercial-use sauna Sauna baths Detached houses, bath facilities, hotels, etc. baths Handrails Handrails Detached houses, etc. Portable toilets Portable toilets Event venues, construction sites, etc. Easy-flush vault toilets Event venues, construction sites, etc. Toiletry products Odor-free pit latrines Event venues, construction sites, etc. Vinyl chloride pipes, joints (VP, VU, HIVP pipes, Piping materials Construction work etc.) Clean rooms Hospitals Medical and educational facilities Furniture, lab benches, workbenches, cooking Schools tables Entryway storage furniture, front doors Detached houses, housing complexes
Exteriors Gates, fences, garages Detached houses, housing complexes Metal storage sheds Detached houses, housing complexes
Office floors Offices, etc.
Floor materials Floor-heating materials Detached houses, housing complexes, offices, etc. Sports floor systems Sports facilities, condominiums
Interior products Partitions Offices, etc. Interior/exterior tiles, floor tiles, mosaic tiles Exterior walls, floors, interiors
Interior/exterior materials Artistic porcelain tiles Exterior walls, floors, interiors Artificial marble, stone materials Exterior walls, floors
ALC boards Housing complexes, offices Side wall materials Detached houses, housing complexes Exterior wall materials Extruded cement panels (Asloc) Detached houses, housing complexes, offices Extruded cement panels (Lambda Siding) Detached houses, housing complexes, offices
Commercial-use kitchen instruments Hotels, schools, feeding facilities, restaurants Integrated kitchens Detached houses, housing complexes
Kitchen instruments Sink cabinets (standard sizes) Detached houses, housing complexes Gas cooktops, gas stove burners Detached houses, housing complexes IH cooking stoves Detached houses, housing complexes Large water boilers Lodging facilities, hot-spring facilities, etc. Water heaters Small oil boilers Detached houses
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Instantaneous gas water heaters Detached houses Electric water heaters, eco-friendly water Detached houses, housing complexes heaters Metal drainage fittings, manhole covers, Detached houses, housing complexes, offices, etc. grating plates Grease traps Hotels, feeding facilities, restaurants Metal products for construction work Catch basins Detached houses, housing complexes, offices, etc. Air vents, vent hole covers Detached houses, housing complexes, offices Shutters (including motor-powered shutters) Offices, stores, etc. Home-use air conditioners, commercial-use air Detached houses, housing complexes, offices, etc. conditioners Air-conditioning instruments Air handlers Offices, etc. Cooling towers Offices, etc. Electrical equipment-related Ventilating fans, range hoods, lighting Detached houses, housing complexes, offices, stores, etc. products instruments Electrical appliances Home electrical appliances General households Solar generation systems (home use), power Detached houses, housing complexes, offices, factories, Power generators generation equipment etc.
Office automation equipment Photocopiers, fax machines Offices, stores, etc. FRP tanks, SUS tanks, service reservoirs, Elevated reservoirs, heat-storage tanks, FRP pools, SUS pools, water-receiving tanks, swimming Condominiums, hotels, schools, sports clubs, etc. pool-related equipment (*some are Daiki Axis pools products) Fire-extinguishing pumps, lifting pumps, water Pumps Condominiums, hotels, offices, schools, factories, etc. well pumps, underwater pumps Filters Filters Bath facilities, swimming pools Elevators Elevators (including home elevators) Condominiums, offices, stores, etc. Stage equipment Stages, curtains, battens Community halls, amusement facilities, hotels, etc. Building framework reinforcement Hollow core slabs, aluminum braces, energy Construction work materials dissipating dampers Greenhouses Aluminum hothouses, plastic greenhouses Agriculture, tourist facilities, etc. Condominiums, hotels, offices, detached houses, housing Fire equipment Fire hydrants, fire alarms complexes, etc.
Daiki Axis products Category Products Main use
Industrial wastewater treatment Super Comister, etc. Factories, etc. products Disposer wastewater treatment systems Restaurants, meal supply centers, general hospitals, etc. Wastewater treatment tanks (from home use to Detached houses, housing complexes, offices, etc. large facility use) Household wastewater treatment Wastewater treatment tanks compatible with Detached houses products Disposer systems Disposer wastewater treatment system Detached houses, housing complexes, etc.
FRP filters Bath facilities, swimming pools Groundwater-to-drinking-water conversion Hospitals, hotels, schools, factories, elderly care facilities, Products for improving living systems etc. environments Hospitals, hotels, schools, factories, elderly care facilities, Seawater conversion systems etc.
Sterilizer/deodorant (Aquadash AX-01) Hotels, elderly care facilities, car rental stores, etc. Source: Shared Research based on company data
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Construction work
Function Main uses
Tiling Detached houses, housing complexes, facilities, etc.
Roofing Detached houses, housing complexes, facilities, etc.
Exterior walls Detached houses, housing complexes, facilities, etc.
Flooring Detached houses, housing complexes, offices, stores, etc.
Interiors Detached houses, housing complexes, offices, stores, etc.
Power generators Detached houses, housing complexes, offices, factories, etc.
Hothouses Agriculture, tourism, etc.
Building framework reinforcement Various facilities, etc.
Water tanks Condominiums, hotels, etc.
Elevators Condominiums, offices, stores, etc.
ATM installation Stores, financial business offices Source: Shared Research based on company data Revenue and profit composition Revenue in this segment (JPY14.7bn in FY12/20) breaks down into revenue from construction-related entities (71.5% of segment revenue), retail products for DIY stores (13.2%), e-commerce (0.02%), and housing equipment construction (15.3%). In housing equipment construction, the company handles some store renovation work for the DCM group. Revenue from the DCM group accounted for 18.1% of the segment total in FY12/19.
The company generates between 80% and 90% of segment revenue in the Shikoku, Kinki, and Chugoku regions. This concentration is because most of DCM Daiki’s DIY stores, to which it delivers products, are in the Shikoku and Chugoku regions.
Number of DIY stores in the DCM group Head office FY02/15 FY02/16 FY02/17 FY02/18 FY02/19 FY02/20 FY02/21 DCM Daiki Ehime 161 157 158 158 157 155 154 DCM Kahma Aichi 149 156 167 168 168 167 168 DCM Homac Hokkaido 249 262 277 289 291 297 300 DCM SanwaAomori 34 33 33 33 32 19 DCM KuroganeyaYamanashi 22 21 22 22 22 Keiyo Chiba 183 181 177 172 170 Total 559 609 840 850 848 845 833 Source: Shared Research based on company data (data originally from DCM Holdings)
In July 2020, the company began accepting online orders for the construction of housing-related equipment nationwide via DCM Online, DCM Holdings’ shopping site. By expanding its sales route in this way, the company aims to increase revenue. Through more efficient online sales activities and an expanded commercial area, the company is working to raise GPM (approximately 10% in FY12/20).
Purchasing The company’s purchases of housing-related products came to JPY11.3bn (FY12/19), 39.2% of consolidated cost of revenue. TOTO products accounted for 39.0% of purchases. The company handles approximately 40% of the TOTO products sold in the Shikoku region.
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Renewable Energy segment (in FY12/20, 2.6% of total revenue, 17.1% of operating profit)
FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Orders - - - - - 95 107 125 YoY ------17.3% Order backlog ------1 7 YoY ------400.0% Revenue 171 117 155 105 127 174 287 699 905 992 YoY -38.1% -31.1% 32.2% -32.3% 20.6% 37.0% 65.4% 143.3% 29.4% 9.6% Sales of power from PV power facilities - - - - - 66 172 569 793 832 YoY ------161.5% 229.9% 39.4% 4.9% % of segment revenue 38.0%60.0%81.4%87.6%83.9% Biodiesel fuel 171 117 155 105 127 92 114 128 110 138 YoY -38.1% -31.1% 32.2% -32.3% 20.6% -27.1% 23.5% 11.7% -13.5% 25.1% % of segment revenue 100.0% 100.0% 100.0% 100.0% 100.0% 53.2% 39.7% 18.2% 12.2% 13.9% Small wind power generation - - - - 42 14 - 1 1 21 YoY ------66.7% - - -37.9% 1806.8% % of segment revenue 8.1%- 0.2% 0.1% 2.2%
Operating profit ------164 -66 256 348 335 YoY ------35.7% -3.6% Operating profit margin ------94.2% -22.8% 36.6% 38.4% 33.8% Source: Shared Research based on company data Business model Overview The Renewable Energy segment became a reportable segment in FY12/18. In this segment, the company sells electricity produced through solar generation (87.6% of segment revenue in FY12/20), operates a small wind turbine generation business (manufacturing, sales, and electricity sales: 0.1%), and a biodiesel fuel business (12.2%).
In FY12/19, the company centralized all its business related to solar and wind power generation at subsidiary Sylphid Inc. (unlisted). Until FY12/18, the company handled the sale of electricity produced through solar power generation (non-consolidated basis).
Effective on July 1, 2021, the company will transfer its biodiesel fuel business to consolidated subsidiary Sylphid Inc. By consolidating the Daiki Axis group’s businesses within the Renewable Energy segment to Sylphid, the company aims to generate synergy effects among the businesses and increase operational efficiency.
▷ On the same date, Sylphid will change its trade name to Daiki Axis Sustainable Power Co., Ltd.
Sales of solar power The company uses a feed-in tariff (FIT) system for electric power sales. In FY2017, the company applied to sell power at JPY21/kWh through this system. The following year (FY2018), it applied to sell some power at JPY18/kWh. The company has not made any new applications since.
The company and Sylphid have solar power supply contracts in place with the following seven companies (as of FY12/19):
▷ Tohoku Electric Power Co., Inc. (TSE1: 9506), Hokuriku Electric Power Company (TSE1: 9505), TEPCO Power Grid, Inc. (unlisted), Chubu Electric Power Co., Inc. (TSE1: 9502), Kansai Electric Power Co., Inc. (TSE1: 9503), Chugoku Electric Power Co., Inc. (TSE1: 9504), and Shikoku Electric Power Company, Inc. (TSE1: 9507)
Contract periods are 20 years from the start of electricity supply.
The company generates solar power through solar panels installed on the roofs of stores operated by DCM Daiki (the former parent organization of Daiki Axis that was established by management buyout) and other members of the DCM group. The company signed a contract with DCM Holdings in FY12/18 to lease roof space. As of December 31, 2020, the company was generating solar power at 129 sites, with 23,300kW connected to the grid. The company plans to increase its number of sites to 130.
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Sales performance In FY12/20, electricity sales provided JPY747mn. In an announcement on January 2018, the company anticipated that its facilities would generate annual revenue of JPY800mn and operating profit of JPY400mn (OPM of 50%) if operating at capacity. Costs in this business are for capital investment (depreciation and amortization) and the costs of purchasing and installing the solar panels.
Sales of solar power FY12/18 FY12/19 FY12/20 T ot al PV panels inst alled (st ores) 81 122 129 Power generation capacity (kW) 9,000 19,750 23,300 Power generated ('000 kWh) 4,393 23,820 38,205 Power sales revenue (JPYmn/year) 92 485 747 Capital expenditures (JPYmn/year) 1,627 1,466 2,106 T ot al capit al expendit ures (JPY mn) 1,627 3,093 3,572 Average purchase price (JPY/kWh) 21.0 20.3 19.5 Total capex per store (JPYmn) 20 25 28 Source: Shared Research based on company data Small wind turbine generation Japanese Industrial Standards (JIS) define small wind turbines as wind turbines with a diameter of 16m or less (wind-receiving area of 200sqm or less) and power output of less than 20kW under the Electricity Business Act. Sylphid, a subsidiary, conducts R&D on vertical-axis small wind turbines (output capacity of 3–5kW) and sells power. Sylphid’s small wind turbines provide stand-alone power generation (private power generation) to supply plastic greenhouses, condominiums, and offices with electricity. They have also been used to power blowers on wastewater treatment tanks. In FY12/18 and FY12/19, the company sold no power from wind generation.
Electricity sales The company began electric power sales in FY12/19, introducing horizontal-axis turbines from an overseas manufacturer. The company uses the feed-in tariff (FIT) system. Daiki Axis has acquired a facility operator ID to sell electricity at JPY55/kWh. The company has launched electricity sales from its first site, in Kagoshima Prefecture.
The company also acquired IDs for seven sites in Hokkaido and five in Aomori Prefecture and started construction on these sites in FY12/19. Going forward, the company plans to generate electricity at 70 sites across Japan, with an emphasis on northern Japan, which offers good wind quality.
Technological development and demonstrative project regarding low-voltage wind turbines As announced in January 2021, the company will work to promote the use of wind turbines with output capacity of 50kW as an additional source of energy in parallel with solar power generation. These turbines will be newly developed through collaboration between Zephyr Corporation (unlisted), Ricoh Japan Corp. (unlisted), and Sylphid Inc. (subsidiary). This project has been officially included under the Environment Ministry’s Low Carbon Technology Research and Development Program (commissioned projects in a three-year program).
Each participant in the project will take on the following tasks:
▷ Zephyr will provide overall design for the turbine, design its blades, utilize automotive parts, record field data, and design the controlling algorithm for the turbine.
▷ Ricoh Japan will develop a maintenance assistance tool that leverages artificial intelligence technologies.
▷ Sylphid will help Zephyr design the blades and take charge of their production (using Daiki Axis factories for wastewater treatment tanks).
Daiki Axis plans to utilize an ample amount of data Sylphid has collected through its research and development concerning small wind turbines and its electricity sales business. The company will also take advantage of its expertise in FRP molding, which it accumulated through its Environmental Equipment business over the course of years, to produce cylindrical tanks. The company plans to launch a commercial product by around April 2023
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Biodiesel In the biodiesel business, the company produces biodiesel fuel (derived from plant-based cooking oil) and sells it as an alternative to diesel fuel. The company also builds biodiesel factories. Daiki (the company’s predecessor) started this business in 2002. The business was taken over by the company upon its establishment in 2005.
The company produces and sells two grades of biodiesel fuel: B5 (5% biodiesel) and B100 (100% biodiesel). The company’s factory, in Matsuyama, Ehime Prefecture, can produce 9,400 liters in an eight-hour period.
The company buys waste oil that specialist companies collect from restaurants and food product factories. The company provides refined biodiesel fuel to companies and local governments in Ehime Prefecture, creating a regional recycling system. The biodiesel fuel is used by municipal garbage trucks, transportation companies’ trucks, delivery vehicles operated by large convenience store chains, and in the company’s own vehicles and boilers.
Other business segment (in FY12/20, 3.8% of total revenue, 8.5% of operating profit)
FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Est. Orders - - 640 622 622 1,749 2,302 1,602 YoY - - - -2.8% 0.1% 181.1% 31.6% -30.4% Order backlog - - - 38 - 460 1,366 1,553 YoY ------197.0% 13.7% Segment revenue 691 660 712 655 732 1,357 1,612 1,838 1,313 655 YoY - -4.5% 7.9% -8.0% 11.6% 85.5% 18.8% 14.0% -28.6% -50.1% Household drinking water (former CreCla) 462 512 534 543 561 569 605 599 661 655 YoY - 10.8% 4.3% 1.7% 3.3% 1.4% 6.3% -1.0% 10.4% -0.9% % of segment revenue 66.86% 77.58% 74.97% 82.87% 76.69% 41.94% 37.54% 32.59% 50.36% Biodiesel fuel 171 118 156 105 127 YoY - -30.8% 32.2% -32.7% 21.0% % of segment revenue Transferred to Renewable Energy Small wind power generators - - - - 42 segment YoY - - - - - % of segment revenue Civ il work - - - - - 778 963 1,190 631 YoY ------23.8% 23.6% -47.0% % of segment revenue 57.34% 59.75% 64.75% 48.1% Sold the Rent income - - - - - 9 43 47 19 business YoY ------377.8% 10.2% -59.0% % of segment revenue 0.66% 2.67% 2.58% 1.5% Other 57 30 22 5 YoY - -47.4%-26.7%-77.3% % of segment revenue 8.25%4.55%3.09%0.76%
Operating profit -128 -128 -89 -84 22 177 98 153 172 92 YoY - - - - - 699.6% -44.9% 56.6% 12.4% -46.4% Operating profit margin -18.5% -19.4% -12.5% -12.8% 3.0% 13.1% 6.1% 8.3% 13.1% 14.0% Source: Shared Research based on company data Business model Overview In the household drinking water business, the company delivers bottled water (brand name: CreCla) and rents out water filtration units it calls “water servers” (brand name: Water Stand). The company produces and sells alcohol-based sterilizing and deodorizing liquid (brand name: Aqua Dash). The company sells Aqua Dash to hotels, Japanese-style inns, hot spring bathing facilities, corporations, car rental agencies, used-car dealers, pet stores, sports clubs, and households.
In June 2020, the company sold its civil engineering/construction business to a company in Ehime Prefecture. This work had been performed by Kishimoto Design Works Co., Ltd. (now DAD Co., Ltd. [unlisted]), which became a subsidiary in 2017.
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Household drinking water business The company maintains a bottled water delivery business (brand name: CreCla) under franchise from NAC Co., Ltd. (TSE1: 9788). The source of the drinking water is the groundwater flowing beneath the company’s factory in Ehime Prefecture. The company purifies the water, adds minerals, and bottles and ships the water from this factory. The company delivers bottled water in most of Ehime Prefecture, as well as in the city of Hiroshima and Aki-gun, Hiroshima Prefecture.
The Company rents out water filtration units it calls “water servers” (brand name: Water Stand) under franchise from Water Stand Co., Ltd. (unlisted). The company charges a fixed monthly fee (between JPY3,500 and JPY5,280, as of February 2021) for its water treatment equipment for home kitchens. These devices purify tap water for drinking. The company charges customers a Water Stand rental fee plus the cost of replacing filters. In this business, the company operates in nine prefectures in the Chugoku and Shikoku regions (although not throughout the entirety of these regions).
Consolidated subsidiaries
As of December 31, 2020, the company had 13 subsidiaries (seven in Japan and six overseas) and two equity-method affiliates. Business Voting Name Location Business segment rights 24-hour system for the inspection and Environmental Daitec Co., Ltd. (founded in 1974, Matsuyama, maintenance of wastewater treatment 100.0% Equipment became subsidiary in 2005) Ehime Prefecture facilities; facility renovation, building management Comprehensive environmental surveys (surveys of wastewater, waste gas, Environmental Analysis Center Co., Ltd. indoor air, asbestos, metals, soil, (established in 1974 as Ehime Matsuyama, 100.0% industrial waste, sound, and vibration), Environmental Analysis Center, became Ehime Prefecture working environment measurement, subsidiary in 2005) applications under the Large-Scale Retail Stores Location Law Design, construction, maintenance, and Tobu Co., Ltd. (established in 1965, Nagoya, Aichi inspection of comprehensive water 100.0% became subsidiary in 2007) Prefecture treatment facilities; focused on three prefectures: Ehime, Gifu, and Mie Manufacture and sale of environmental DA Invent Co., Ltd. (established in 1992, Nagoya, Aichi products, including hot water 100.0% became subsidiary in 2018) Prefecture treatment facilities (subcritical devices) and continuous drying systems Design, construction, and sales of Daqi Environmental Protection sewage treatment facilities and water Engineering (Dalian) Co., Ltd. 100.0% China treatment equipment, as well as (established in 1991, became subsidiary management of maintenance on water in 2005) treatment facilities Manufacture and sale of wastewater Pt. Daiki Axis Indonesia (established in 100.0% treatment equipment (sales area: within Indonesia 1998, became subsidiary in 2013) [99.99%] Indonesia and in neighboring countries) Daiki Axis Singapore Pte. Ltd. 100.0% Singapore Management of overseas subsidiaries (established as subsidiary in 2016) Pool maintenance at condominiums Crystal Clear Contractor Pte. Ltd. 100.0% and hotels in Singapore and (established in 2012, became Singapore [100.0%] construction of sanitary drainage for sub-subsidiary in 2018) pool facilities Daiki Axis India Pvt. Ltd. (established as 100.0% Manufacture and sale of wastewater India subsidiary in 2018) [100.0%] treatment tanks in India Daiki Earth Water Private Limited 75.0% Wastewater treatment in India and sale India (established as joint venture in 2019) [75.0%] of drinking water via Water Kiosks
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A joint venture between Qinghai Jieshen Environmental Energy Industry Beijing Jieshenfuji Environment Protection 20.0% Co., Ltd. and DA Invent Co., Ltd.; Tech Co., Ltd. (established in 2013, China [20.0%] design and R&D on energy-saving and became equity-method affiliate in 2018) environmental protection equipment, as well as related plants A joint venture between Lingzhi Lingzhi Daqi Johkaso (Jiangsu) Co., Ltd. Environmental Protection Co., Ltd. (established and became equity-method 49.0% China (51%) and Daiki Axis (49%);
affiliate in 2018) manufacture and sale of wastewater treatment tanks in China Integrated equipment business spanning air conditioning/ventilation, Household Fujiwara Reiki Co., Ltd. (founded in 1973, Matsuyama, water supply and drainage, and 100.0% Equipment became subsidiary in 2019) Ehime Prefecture electrical; design, construction, and maintenance on refrigeration and freezer equipment Nihon Air Solutions Co., Ltd. (established Matsuyama, 100.0% Air conditioning/ventilation equipment in 2017, became subsidiary in 2019) Ehime Prefecture Development, manufacture, sale, and Sylphid Inc. (established in 2011, became construction of small wind turbine 100.0% Chuo-ku, Tokyo Renewable subsidiary in 2012) generators; sales of electricity from solar Energy and small wind turbine generation Nagoya, Aichi Sale of electricity from solar power (Double listing) DA Invent Co., Ltd. 100.0% Prefecture generation
Unconsolidated Matsuyama, CAP Co., Ltd. 100.0% HR development consulting, etc. Subsidiaries Ehime Prefecture Source: Shared Research based on the company’s annual securities report; figures in [ ] indicate the percentage of indirect ownership.
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Strengths and weaknesses
Strengths
The company has long-term relationships in place with construction companies, including large general contractors. These relationships help the company increase orders for medium- and large-sized wastewater treatment tanks and industrial wastewater treatment facilities and obtain profitable maintenance contracts (GPM of more than 40%). Strong relationships with construction companies are essential to receiving orders for medium-sized and large wastewater treatment systems (used in condominiums, commercial facilities, and factories). The company has built relationships with construction companies over the years, starting with the wholesale of household fixtures (dating back to the company’s founding in 1958) and the manufacture and sale of compact wastewater treatment tanks for households (since the 1960s). These relationships have enabled the company to turn medium-sized and large wastewater treatment systems (tens of millions to hundreds of millions of JPY per project) into a mainstay business. Shared Research understands that the company currently has an approximate 15% share of the market for medium- and large-sized wastewater treatment tanks.
Periodic inspection and maintenance of wastewater treatment systems are statutory requirements. The company enters into service agreements with maintenance companies and end-users (condominium management associations and factory owners). For users, switching from a maintenance provider that understands their equipment specifications comes at a high cost, so maintenance contracts tend to be long-lasting. Having built medium- and large-sized systems also gives the company an edge in terms of receiving maintenance contracts on those systems. Whereas building the systems delivers GPM of around 20%, maintenance can have GPM of more than 40% and is a steady source of earnings.
The company has been quicker than competitors to embark on the overseas production of wastewater treatment tanks, a type of low-cost wastewater treatment system unique to Japan. As a result, the company has accumulated expertise in this area. Daiki Axis is the only Japanese company to manufacture wastewater treatment tanks at factories overseas (in China, Indonesia, and India). In FY12/20, overseas revenue amounted to JPY1.0bn (5.7% of revenue in the Environmental Equipment segment). Shared Research understands that wastewater treatment tanks are unique to Japan, and that no overseas manufacturers produce wastewater treatment tanks to Japanese specs. Treatment tanks, which are used for distributed, home-by-home waste treatment, can be less expensive than centralized public sewage systems.
To boost awareness of wastewater treatment tanks in Southeast Asia and India, where such tanks are uncommon, the company is building relationships with local government and regulatory authorities and running awareness campaigns. Daiki Axis is developing products to meet local sewage quality and country-specific regulations (wastewater standards). The company plans to lower costs by manufacturing the tanks at local factories and then increasing revenue.
In the solar power generation business, the company can install solar panels on the roofs of stores operated by DCM Holdings. The company has an agreement in place with DCM Holdings to lease space and install generation equipment on the roofs of its DIY stores. (The company plans to install equipment at 130 sites; installation is complete at 129.) DCM Holdings and Daiki Axis were founded by members of the same family, and the companies have a close business relationship. (In the Household Equipment segment, 20% of revenue are from DCM Holdings.) Shared Research understands that profitability is high in the solar power generation business (estimated OPM of 50%) partly because the company does not incur land development costs.
The company sells the electricity it generates from solar power through a feed-in tariff (FIT) system with a contract period of 20 years. FIT prices for FY2020 are JPY12 or JPY13 per kWh, but the company applied for FIT in FY2017, when most power was being sold at JPY21/kWh. (The average price, as of December 31, 2020, was JPY19.5/kWh.) The company began selling solar power in FY12/18, and the renewable energy business now accounts for 13.9% of operating profit (FY12/20). Shared Research understands that electric power sales are relatively unaffected by economic fluctuations and will provide a stable source of earnings for the next 20 years.
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Weaknesses
In the category of compact wastewater treatment tanks, the company has no way to expand sales except to compete on price. Compact wastewater treatment tanks are generally installed for detached homes. End-users are typically satisfied to meet environmental standards and relatively insensitive to high added value. As the tanks are usually buried, customers usually have little interest in value-added exteriors or design characteristics. They are essentially a construction fixture, limiting the scope for success of a high-price/high-performance sales strategy. Rather, compact wastewater treatment tanks tend to face downward pressure on prices due to efforts aimed at keeping down overall construction costs. The company’s GPM on compact wastewater treatment tanks is in the single digits, whereas medium- and large-sized wastewater treatment tanks generate GPM of around 20% (including construction). Nevertheless, the company considers compact wastewater treatment tanks a meaningful business, as they present the opportunity to cross-sell other products.
The overseas business, which is driving growth, requires time-consuming personnel development. This time constraint limits growth. Daiki Axis already has factories in China, Indonesia, and India. The company also plans to build plants in Sri Lanka, Myanmar, Bangladesh, and Kenya. Wastewater treatment tanks are uncommon in these locations, so increasing sales requires personnel who run awareness campaigns, as well as local staff who manufacture and sell the tanks. Training staff takes time, which Shared Research understands is a bottleneck to growth.
In Japan, the company provides compact wastewater treatment tanks. This business, and the Household Equipment segment, are linked to housing starts. Of the company’s business activities, compact wastewater treatment tanks (4.2% of revenue in FY12/20) and the wholesale of household fixtures (36.0%) are heavily affected by the decline in housing starts within Japan. New housing starts peaked in 1988, during Japan’s economic bubble. By 2020, they had fallen 51% from that apex (average annual decline of 2.2%). The Japanese population, which affects housing demand, is forecast to shrink by around 5% during the 2020s (National Institute of Population and Social Security Research). Based on these trends, Shared Research understands that domestic demand for compact wastewater treatment tanks for households and the wholesale of household fixtures are likely to struggle.
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Financial statements and historical performance Income statement
Income statement FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Revenue 30,754 31,507 32,362 32,811 33,561 36,224 35,749 34,648 YoY 13.1% 2.4% 2.7% 1.4% 2.3% 7.9% -1.3% -3.1% Cost of revenue 25,416 25,634 26,333 26,596 27,003 29,337 28,780 27,312 Gross profit 5,338 5,872 6,029 6,215 6,558 6,887 6,969 7,336 Gross profit margin 17.4% 18.6% 18.6% 18.9% 19.5% 19.0% 19.5% 21.2% SG&A expenses 4,809 5,062 5,083 5,284 5,415 5,964 5,968 6,291 SG&A ratio 15.6% 16.1% 15.7% 16.1% 16.1% 16.5% 16.7% 18.2% Operating profit 529 811 946 931 1,144 923 1,001 1,045 YoY 56.5% 53.3% 16.7% -1.6% 22.8% -19.3% 8.4% 4.4% Operating profit margin 1.7% 2.6% 2.9% 2.8% 3.4% 2.5% 2.8% 3.0% Non-operating income 294 246 230 291 308 275 274 293 Interest income 5 5 5 2 2 4 4 7 Dividend income 13 14 12 14 15 10 4 24 Purchase discounts 157 163 160 156 153 173 171 137 Surrender value of insurance policies - - - 38 - - - - Share of profit of entities accounted for using equity ------4 Other 119 64 53 80 138 89 95 121 Non-operating expenses 134 117 94 86 109 97 120 127 Share subscription rights issuance expenses ------11 Interest expenses 57 55 55 47 38 38 44 40 Stock issuance expenses 21 - - - - - 14 - Share of loss of entities accounted for using equity - - - - - 2 8 - Foreign exchange losses - - - - 5 15 - - Provision for doubtful accounts -1 -1 -1 -1 18 -1 9 - Commission expenses 18 46 24 24 37 28 20 49 Loss on cancellation of insurance policies ------12 - Other 38 17 15 16 11 15 12 27 Recurring profit 689 941 1,083 1,136 1,343 1,101 1,155 1,211 YoY 21.9% 36.6% 15.1% 5.0% 18.2% -18.0% 4.9% 4.8% Recurring profit margin 2.2% 3.0% 3.3% 3.5% 4.0% 3.0% 3.2% 3.5% Extraordinary gains 3 288 32 78 14 489 97 170 Gain on sale of fixed assets 3 288 0 59 6 1 10 11 Gain on negative goodwill - - - - - 8 - - Gain on sale of investment securities - - 31 19 8 480 6 7 Gain on sale of shares of subsidiaries and associate - - 1 - - - - 152 Compensation income ------81 Other 0 ------Extraordinary losses 0 174 267 63 104 85 189 278 Loss on disposal of fixed assets 0 2 1 1 0 53 - 0 Loss on retirement of fixed assets 0 17 15 20 15 24 16 5 Impairment losses - 142 248 36 62 - 163 265 Loss on sale of investment securities - - 3 6 2 7 9 1 Loss on valuation of investment securities ------7 Other 0 13 - - 25 1 - - Income taxes 288 320 516 503 508 644 233 530 Implied tax rate 41.7% 30.3% 60.8% 43.7% 40.6% 42.8% 21.9% 48.1% Net income attributable to non-controlling interests -0 -1 -0 - - - 48 96 Net income attributable to owners of the parent 403 736 333 648 744 861 783 477 YoY 86.0% 82.5% -54.8% 94.8% 14.8% 15.7% -9.1% -39.0% Net margin 1.3% 2.3% 1.0% 2.0% 2.2% 2.4% 2.2% 1.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Averages since stock market listing (FY12/13):
▷ GPM of 19.1% (low of 17.4%, in FY12/13; high of 19.1% in FY12/20)
▷ OPM of 2.7% (low of 1.7% in FY12/13; high of 3.4% in FY12/17)
▷ SG&A expense ratio of 16.4% (low of 15.8% in FY12/13; high of 21.2% in FY12/20)
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Balance sheet
Balance sheet FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 3,640 3,289 3,367 3,430 4,517 6,014 7,166 7,896 Notes and accounts receivable 5,631 5,676 5,230 5,771 6,291 6,303 6,230 5,758 Accounts receivable from completed construction co 1,445 1,572 1,544 2,559 1,200 2,928 2,332 1,359 Securities 9 ------Inventories 1,973 2,127 1,908 2,207 2,487 2,998 2,574 2,063 Merchandise and finished goods 291 268 274 283 297 302 447 347 Work in process 2 13 6 8 9 17 9 11 Costs on construction contracts in progress 1,397 1,614 1,443 1,685 1,905 2,395 1,847 1,462 Raw materials and supplies 284 233 184 231 276 284 270 244 Deferred tax assets 138 222 166 174 179 - - - Unearned revenue 1,040 745 963 182 172 344 458 153 Investment in leases ------51 42 Other 191 199 500 221 232 247 210 312 Allowance for doubtful assets -69 -51 -20 -24 -44 -69 -114 -136 Total current assets 13,998 13,779 13,656 14,519 15,034 18,764 18,906 17,448 Buildings and structures 436 780 1,273 1,195 1,217 1,234 1,381 1,359 Machinery, equipment, and vehicles 705 960 1,092 1,125 1,446 3,321 4,700 4,506 Land 1,811 1,604 1,626 1,462 1,715 1,450 1,624 1,614 Lease assets 96 96 173 111 99 12 40 44 Construction in progress 71 221 84 139 172 266 524 440 Other 38 67 84 83 77 55 94 85 Total tangible fixed assets 3,157 3,728 4,331 4,115 4,727 6,338 8,363 8,047 Goodwill 449 376 62 39 46 507 773 516 Lease assets 22 17 26 14 14 20 215 189 Other 11 11 29 31 25 20 45 37 Total intangible assets 481 404 116 84 86 547 1,033 742 Investment securities 797 760 980 989 1,419 360 375 402 Long-term loans receivable 35 33 45 41 68 64 61 61 Deferred tax assets 1 18 26 27 21 229 376 295 Other 556 540 425 419 473 941 1,010 1,022 Allowance for doubtful assets -207 -198 -169 -170 -200 -207 -215 -238 Investments and other assets 1,182 1,153 1,308 1,305 1,780 1,388 1,606 1,541 Total fixed assets 4,820 5,285 5,755 5,504 6,593 8,273 11,002 10,330 Total assets 18,817 19,064 19,411 20,024 21,626 27,037 29,908 27,779 LIA BILITIES Notes and accounts payable 2,335 2,159 2,136 2,001 2,392 2,118 2,484 2,281 Accounts payable for construction contracts 1,075 1,280 1,112 1,587 1,370 2,207 1,405 1,248 Short-term debt 5,353 5,530 5,675 5,964 6,799 10,744 10,923 9,657 Short-term borrowings 4,731 4,938 5,000 5,367 6,425 10,336 10,701 9,193 Current portion of long-term borrowings 585 555 560 527 319 387 147 83 Current portion of bonds payable ------300 Lease obligations 38 37 115 70 56 20 75 81 Deposits 212 328 197 299 233 480 177 265 Advances received on construction contracts in prog 617 589 748 1,079 1,137 1,501 1,662 823 Provision for bonuses 314 284 237 229 148 197 107 273 Provision for directors' bonuses 81 79 64 91 54 69 10 63 Provision for warranties for completed construction 52 40 48 47 44 46 53 37 Provision for product warranties 15 10 8 7 8 17 7 9 Provision for loss on construction contracts 43 28 0 0 5 26 215 26 Other 1,474 1,040 1,375 1,000 1,070 1,460 1,582 1,198 Total current liabilities 11,571 11,367 11,599 12,303 13,259 18,864 18,625 15,879 Long-term debt 1,795 1,906 1,743 1,136 874 350 958 3,210 Bonds payable ------100 2,575 Long-term borrowings 1,686 1,795 1,544 1,017 803 287 582 405 Lease obligations 109 111 199 118 71 63 276 230 Deferred tax liabilities for land revaluation 129 51 100 122 330 67 25 5 Provision for directors' retirement benefits 8 8 8 8 8 8 8 8 Provision for environmental measures - 33 65 88 83 81 81 76 Retirement benefit liability 68 90 102 117 132 226 361 387 Other 66 53 54 61 117 722 647 580 Total fixed liabilities 2,066 2,141 2,072 1,531 1,543 1,455 2,079 4,265 Total liabilities 13,637 13,508 13,671 13,834 14,802 20,319 20,704 20,144 NET A SSETS Capital stock 1,983 1,983 1,983 1,983 1,983 1,983 1,983 2,159 Capital surplus 1,766 1,766 1,766 1,766 1,766 1,766 1,766 1,898 Retained earnings 1,136 1,702 1,824 2,286 2,813 3,401 3,866 4,034 Treasury stock - -159 -159 -151 -309 -307 -295 -290 Accumulated other comprehensive income 290 259 327 305 571 -126 -167 -171 Valuation difference on marketable securities 252 226 370 408 624 -13 23 57 Deferred gains (losses) on hedges ------Difference on revaluation of land ------Foreign currency translation adjustments 38 33 -44 -103 -53 -113 -190 -228 Remeasurements of defined benefit plans ------Share subscription rights ------3 Non-controlling interests 5 4 - - - - 2,050 1 Total net assets 5,181 5,556 5,741 6,190 6,824 6,718 9,203 7,634 Total liabilities and net assets 18,817 19,064 19,411 20,024 21,626 27,037 29,908 27,779 Working capital 5,023 5,347 4,686 5,871 5,079 6,403 5,584 4,828 Total interest-bearing debt 7,149 7,436 7,418 7,100 7,673 11,093 11,881 12,567 Net debt 3,509 4,148 4,051 3,669 3,155 5,080 4,715 4,671 Note: Figures may differ from company materials due to differences in rounding methods. Source: Shared Research based on company data
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Cash conversion cycle FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 Notes and accounts receivable turnover 5.5 5.6 5.9 6.0 5.6 5.8 5.7 5.8 Days in notes and accounts receivable 66.8 65.5 61.5 61.2 65.6 63.4 64.0 63.1 Accounts receivable turnover on completed construction 21.3 20.9 20.8 16.0 17.9 17.6 13.6 18.8 Days in accounts receivable on completed construction 17.2 17.5 17.6 22.8 20.4 20.8 26.9 19.4 Inventory turnover 13.1 12.5 13.1 12.9 11.5 10.7 10.3 11.8 Days in inventory 27.9 29.2 28.0 28.2 31.7 34.1 35.3 31.0 Notes and accounts payable turnover 10.9 11.4 12.3 12.9 12.3 13.0 12.5 11.5 Days in notes and accounts payable 33.5 32.0 29.8 28.4 29.7 28.1 29.2 31.8 Accounts payable turnover for construction contracts 23.7 21.8 22.0 19.7 18.3 16.4 15.9 20.6 Days in accounts payable for construction contracts 15.4 16.8 16.6 18.5 20.0 22.2 22.9 17.7 Turnov er of adv ances receiv ed for construction contracts in progress 49.8 52.3 48.4 35.9 30.3 27.5 22.6 27.9 Days in advances received on construction contracts in progress 7.3 7.0 7.5 10.2 12.0 13.3 16.1 13.1 Cash conversion cycle (days) 55.6 56.4 53.2 55.2 56.0 54.8 57.9 50.9 (Reference) Days in cash and cash equivalents 43.2 38.1 38.0 38.2 49.1 60.6 73.2 83.2 Note: Figures may differ from company materials due to differences in rounding methods. Source: Shared Research based on company data
Averages since stock market listing (FY12/13):
▷ Of inventories, 75.0% was construction in process, 13.7% was completed products (including compact wastewater treatment tanks), and 10.9% was raw materials and supplies.
▷ Of liabilities, 55.4% was interest-bearing debt.
▷ The debt ratio was 71.0% (low of 68.4% in FY12/17, high of 75.2% in FY12/18).
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Cash flow statement
Cash flow statement FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 439 737 1,369 608 1,868 -105 2,416 2,358 Pre-tax profit 691 1,055 848 1,151 1,252 1,505 1,063 1,103 Depreciation 186 231 311 341 410 462 594 617 Amortization of goodwill 38 60 58 20 26 44 91 111 Stock issuance expenses ------14 - Share subscription rights issuance expenses ------11 Gain on negative goodwill -6,415 - - - - -8 - - Surrender value of insurance policies - - - -38 - - - - Impairment losses - 142 248 36 62 - 163 265 Change in provision for doubtful accounts -110 -28 -58 5 50 32 52 45 Change in provision for bonuses 105 -30 -46 -8 -80 49 -98 165 Change in provision for directors' bonuses 29 -1 -16 28 -38 16 -60 53 Change in provision for product warranties -1 -5 -2 -1 1 10 -10 2 Change in provision for warranties for completed construction 9 -12 9 -1 -3 2 7 -16 Change in provision for loss on construction contracts 1 -14 -28 0 5 21 189 -174 Change in provision for share-based remuneration - 33 33 22 -5 - - -5 Interest and dividend income -18 -19 -17 -16 -18 -14 -9 -31 Interest expenses 57 55 55 47 38 38 44 40 Share of loss (profit) of entities accounted for using equity method - - - - - 2 8 -4 Loss (gain) on sale of fixed assets -2 -287 1 -58 -6 51 -10 -11 Loss on retirement of fixed assets 0 17 15 20 15 24 16 5 Loss on valuation of investment securities ------7 Loss on sale of investment securities - - -28 -13 -6 -473 3 -6 Loss on sale of shares of subsidiaries and associat es - - -1 - - - - -152 Change in working capital -423 -294 455 -406 761 -1,411 796 1,082 Decrease (increase) in trade receivables -737 -141 463 -1,573 1,062 -1,682 910 1,320 Decrease (increase) in inventories -1 -138 212 -302 -40 -514 471 315 Decrease (increase) in unearned revenue - - -195 785 26 -119 -16 335 Increase (decrease) in trade payables 586 22 -186 345 -6 537 -717 -295 Increase (decrease) in advances received on construction contracts in progress -272 -36 161 339 -280 367 148 -592 Change in consumption taxes payable ------132 399 -351 Other 143 237 200 -54 -37 178 -36 13 Interest and dividend income 17 19 16 15 18 14 8 30 Interest expenses -66 -54 -55 -47 -38 -37 -43 -39 Income taxes paid -213 -368 -628 -433 -540 -477 -767 -402 Cash flows from investing activities (2) -198 -1,008 -815 105 -122 -1,402 -2,846 -3,048 Purchase of tangible fixed assets -384 -1,252 -787 -339 -256 -2,038 -2,382 -772 Proceeds from sale of tangible fixed assets 80 235 2 215 10 278 26 76 Proceeds from deposit on sale of tangible fixed assets 342 ------Purchase of investment securities -3 -11 -210 -228 -314 -163 -151 -105 Proceeds from sale of investment securities - 9 221 273 211 823 184 105 Proceeds from purchase of share of subsidiaries - - - - 235 600 - - result ing in scope of consolidat ion Purchase of share of subsidiaries result ing in scope of -119 - - - - -508 -502 - consolidat ion Payments for sale of share of subsidiaries resulting in - - -4 - - - - -308 scope of consolidation Loan advances -4 -0 -9 - -32 -8 -4 - Collection of loans receivable 2 4 4 4 35 4 33 2 Payments into time deposits -109 -56 -87 -174 -53 -56 -33 -35 Proceeds from withdrawal of time deposits 115 77 89 141 89 73 36 36 Purchase of shares of subsidiaries ------2,044 Payments of guarantee deposits - - - - -5 -362 -7 -4 Other -118 -15 -32 3 -43 -46 -47 - Free cash flow (1+2) 241 -271 554 713 1,746 -1,508 -430 -690 Cash flows from financing activities 840 -88 -438 -452 -635 3,030 1,643 1,620 Payments for issuance of share subscription rights ------7 Net increase in short-term borrowings -648 206 62 367 649 3,912 225 -806 Net increase in long-term borrowings 870 79 -246 -560 -832 -553 -206 -170 Proceeds from long-term borrowings 2,100 780 400 - - - 200 - Repayments of long-term borrowings -1,230 -701 -646 -560 -832 -553 -406 -170 Purchase of treasury shares - -159 - - -162 -0 - - Proceeds from issuance of, and redemption of, bonds ------2,775 Proceeds from issuance of bonds ------3,000 Redemption of bonds ------225 Proceeds from issuance of shares ------350 Dividends paid -37 -171 -211 -186 -217 -273 -298 -298 Div idends paid to former shareholders of consolidated subsidiaries ------20 - Payments for issuance of shares ------14 - Proceeds from share issuance to non-controlling shareholders ------2,000 - Dividends paid to non-controlling interests ------144 Repayments of lease obligations -45 -44 -43 -81 -73 -55 -44 -81 Depreciation and amortization (A) 224 291 369 360 435 506 685 728 Capital expenditures (B) Change in working capital (C) Simple FCF (NI + A + B - C) Effect of exchange rate change on cash and cash equivalents 32 30 -37 -21 12 -9 -58 -19 Change in cash and cash equivalents 1,112 -330 79 31 1,123 1,513 1,155 911 Cash and cash equivalents (beginning of year) 2,440 3,552 3,223 3,302 3,333 4,456 5,970 7,125 Cash and cash equivalents (year-end) 3,552 3,223 3,302 3,333 4,456 5,970 7,125 8,035 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Operating activities have provided cash each year since listing, except for FY12/18. Investing activities have resulted in cash outflow each year since listing, except for FY12/16. In FY12/14 and FY12/15, the company made capital investments in a factory in Indonesia. In FY12/18 and FY12/19, the company invested in capital in the solar-power electricity business, leading to increased outflows. In FY12/18 and FY12/19, the company raised funds for capital investment and consequently reported net inflows of cash from financing activities.
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Historical performance
Full-year FY12/20 results (out February 12, 2021) Overview
▷ Revenue: JPY34.6bn (-3.1% YoY, 100.7% of full-year target)
▷ Operating profit: JPY1.0bn (+4.4% YoY, 103.5%)
▷ Recurring profit: JPY1.2bn (+4.8% YoY, 104.4%)
▷ Net income*: JPY477mn (-39.0% YoY, 86.7%) *Net income attributable to owners of the parent
Key reasons for the revenue decline in FY12/20 were the absence in FY12/20 of large projects in the Environmental Equipment segment that were present in FY12/19 and lower overseas revenue stemming from the COVID-19 pandemic. In the Other business segment, revenue was down due to the end-Q2 sale of DAD Co., Ltd., which handled civil engineering work.
Gross profit, operating profit, and recurring profit all rose YoY. Due to higher profitability across the company, GPM was 21.2% (up from 19.5% in FY12/19). The SG&A expense ratio was 18.2% (up from 16.7%), but OPM was 3.0%, improving from 2.8% in FY12/19.
Net income attributable to owners of the parent declined YoY. Although the company recorded a gain on sales of shares of subsidiaries and associates (JPY152mn) as extraordinary income, it posted an impairment loss of JPY265mn. In addition, total corporate taxes were up 127.8% (JPY297mn). The company recorded JPY96mn in net income attributable to non-controlling interests from annual preferred dividends (equivalent to 4.8% of total annual investment) issued to eligible holders of shares in Sylphid Inc., a consolidated subsidiary.
Breakdown of the impairment loss:
▷ In the Environmental Equipment segment, the company recorded a JPY135mn impairment loss on goodwill associated with Crystal Clear Contractor Pte. Ltd., a consolidated subsidiary in Singapore.
▷ In the same segment, the company recorded a JPY99mn impairment loss on fixed assets related to the clean water business.
▷ In the Renewable Energy segment, the company recorded a JPY19mn impairment loss on fixed assets related to the small wind turbine generation business.
▷ The company logged a JPY10mn impairment loss on fixed assets related to the biodiesel fuel business.
Business by segment Environmental Equipment segment
▷ Revenue: JPY17.7bn (-4.8% YoY)
▷ Operating profit: JPY1.2bn (+12.3% YoY)
Revenue from wastewater treatment tanks and wastewater treatment systems was down 4.3% YoY. The decrease of about JPY510mn reflected a downturn in large projects (for electrical component factories and final waste disposal sites), which had boosted domestic revenue in FY12/19. Although income from these projects was posted as revenue in FY12/19 using the percentage-of-completion method, the company did not record project revenue on an equivalent scale in FY12/20. In addition, restrictions on sales activities caused by the COVID-19 pandemic delayed orders, becoming another factor in the revenue drop.
Overseas revenue fell 13.1% YoY due mainly to slow progress in work stemming from the lockdowns to deal with COVID-19. By country, the company’s business in China suffered a revenue drop of around JPY110mn, Indonesia about JPY35mn, Singapore (swimming pool maintenance) about JPY30mn. In overseas countries other than China, subsidiaries have fiscal year-ends that
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differ from the consolidated closing date. For YoY comparisons, the consolidated financial statements use trial calculations, assuming September 30, 2020 as the fiscal year-end for these overseas companies.
Of recurring businesses, revenue from the maintenance business rose 4.5% YoY. Maintenance orders from major convenience store chains became a major factor in the revenue increase.
In the clean water ESCO business, revenue decreased 13.1% YoY as customers used less water. Again, a major factor was the spread of COVID-19 forcing operators of schools, sports gyms, and warm bath facilities to suspend or shorten operations.
In FY12/20, only two clients introduced the company’s system to convert groundwater to drinking water (one client used the pay-as-you-go ESCO format while the other purchased equipment). This represents a drop from 15 in FY12/19. The company explained that the slowdown in sales activities stemming from the pandemic served as a major factor, and that potential customers placed less priority on this service in terms of capital investment.
Profits rose YoY, owing to the absence of impact from unprofitable projects in wastewater treatment tanks and wastewater treatment systems in FY12/19 (JPY345mn in losses) and a steady rise in maintenance revenue.
Household Equipment segment
▷ Revenue: JPY14.7bn (+0.7% YoY)
▷ Operating profit: JPY313mn (-14.6% YoY)
Revenue from construction companies rose 0.8% YoY. Business was affected by product delays as many suppliers source products from China, but the company was able to source alternative products. COVID-19 hampered renovation-related demand, but the company benefited from new demand from the DCM group (a customer) for store installations, as well as demand stemming from the group’s increase in stores, which was aimed at expanding its coverage area.
In housing equipment construction, the company reported a 12.5% revenue rise YoY. Overall, the number of medium- and large-sized projects declined, but the company benefited from new store construction conducted by the DCM group. Another factor in the revenue rise was contribution from Fujiwara Reiki Co., Ltd. (unlisted), which became a consolidated subsidiary in October 2019.
In retail products for DIY stores, revenue declined 10.6% YoY. The company is a dealer for Toto Ltd. (TSE1: 5332), and Toto products were affected by delays in house renovation stemming from the pandemic. Also, the e-commerce business was affected by the suspension of end-user field surveys and other sales activities due to COVID-19.
Overall segment profit fell YoY. Although the company made Fujiwara Reiki a subsidiary and reported higher revenue in housing equipment construction, this increase was more than offset by a revenue drop in retail products for DIY stores as well as a rise in fixed costs.
Renewable Energy segment
▷ Revenue: JPY905mn (+29.4% YoY)
▷ Operating profit: JPY348mn (+35.7% YoY)
Revenue from solar-power electricity rose 39.4% YoY, owing to the start of electricity sales from seven sites in FY12/20. The company’s electricity sales plan includes only one more site (in Kashima, Ibaraki Prefecture).
Revenue from biodiesel fuel operations decreased 13.5% YoY. The company said that although it had secured a sufficient amount of waste cooking oil as an ingredient, demand for biodiesel fuel remained low. In addition, small wind turbine generation
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businesses logged a 37.9% revenue drop YoY.
On the profit front, larger revenue from solar power generation offset revenue drops in the biodiesel and small wind turbine generation businesses.
Other business segment
▷ Revenue: JPY1.3bn (-28.6% YoY)
▷ Operating profit: JPY172mn (+12.4% YoY)
Revenue from civil engineering work fell 47.0% YoY, due to the sale of DAD Co., Ltd. at the end of Q2. In the household drinking water business, revenue was up 10.4% YoY.
Cumulative Q3 FY12/20 results (out November 13, 2020) Overview
▷ Revenue: JPY25.7bn (-3.4% YoY, reaching 74.7% of the company’s full-year target).
▷ Operating profit: JPY830mn (+9.9% YoY, 82.2%).
▷ Recurring profit: JPY962mn (+12.3% YoY, 82.9%).
▷ Net income*: JPY336mn (-21.2% YoY, 61.0%). *Net income attributable to owners of the parent
In cumulative Q3 FY12/20, revenue was down YoY for the fourth consecutive quarter. Key reasons for the decline were the absence of large projects in the Environmental Equipment segment that were present in the previous year and lower overseas revenue stemming from the COVID-19 pandemic. In the Other business segment, revenue was down due to the end-Q2 sale of DAD Co., Ltd., which handled civil engineering work.
Gross profit, operating profit, and recurring profit all rose YoY, due to higher profit in the Environmental Equipment segment, the renewable energy business, and the Other business segment. Operating profit was up YoY for the 7th consecutive quarter.
However, net income attributable to owners of the parent declined YoY. The company recorded a gain on sales of shares of subsidiaries and associates (JPY152mn) as extraordinary income and posted an impairment loss of JPY236mn. In addition, total corporate taxes were up 21.8% YoY (JPY85mn). The company recorded JPY72mn in net income attributable to non-controlling interests from annual preferred dividends (equivalent to 4.8% of total annual investment) issued eligible holders of shares in Sylphid, a consolidated subsidiary.
Breakdown of the impairment loss:
▷ In the Environmental Equipment segment, the company recorded a JPY135mn impairment loss on goodwill associated with Crystal Clear Contractor Pte. Ltd., a consolidated subsidiary in Singapore.
▷ In the same segment, the company recorded a JPY73mn impairment loss on fixed assets related to the clean water business.
▷ In the Renewable Energy segment, the company recorded a JPY19mn impairment loss on fixed assets related to the small wind turbine generation business
▷ The company incurred a JPY8mn impairment loss on fixed assets related to the biodiesel fuel business.
Business by segment Environmental Equipment segment Revenue from wastewater treatment tanks and wastewater treatment systems was down YoY. The decrease reflected a downturn in large projects (for electrical component factories and final waste disposal sites), which boosted domestic revenue in cumulative Q3 FY12/19. Overseas revenue deteriorated due to the business downturn stemming from COVID-19.
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Of recurring businesses, revenue from the maintenance business was solid YoY. However, in the clean water ESCO business, revenue decreased as customers used less water, although the number of contracts rose YoY.
Household Equipment segment Revenue from construction companies were affected by product delays, as many suppliers source products from China, but the company was able to source alternative products. The company also benefited from replacement demand for store fixtures. In housing equipment construction, the company benefited from large new store construction projects, but overall, the number of medium-sized and large projects declined.
Nevertheless, revenue was more robust YoY due contribution from Fujiwara Reiki Co., Ltd. (unlisted), which became a consolidated subsidiary in October 2019. In retail products for DIY stores, revenue from existing stores declined. Business in the e-commerce business was affected by the suspension of end-user field surveys and other sales activities due to COVID-19.
Renewable Energy segment Revenue from electricity produced through solar power generation rose YoY thanks to the launch of sales from six sites in cumulative Q3 FY12/20. The company’s electricity sales plan includes only two other sites (in Kanazawa, Ishikawa Prefecture, and Kashima, Ibaraki Prefecture). Revenue from the biodiesel fuel and small wind turbine generation businesses decreased YoY.
Other business segment Revenue from civil engineering work fell YoY, due to the sale of DAD Co., Ltd. at the end of Q2. In the household drinking water business, revenue was firm YoY.
FY12/20 company forecast (out November 13, 2020) FY12/18 FY12/19 FY12/20 YoY (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Act. 2H Est. FY Est. 1H Act. 2H Est. FY Est. Sales 17,429 18,795 36,224 17,849 17,900 35,749 17,444 16,956 34,400 -2.3% -5.3% -3.8% Cost of sales 14,079 15,258 29,337 14,516 14,264 28,780 13,651 Gross profit 3,350 3,537 6,887 3,333 3,636 6,969 3,793 GPM 19.2% 18.8% 19.0% 18.7% 20.3% 19.5% 21.7% SG&A expenses 2,857 3,107 5,964 2,829 3,140 5,968 3,110 SG&A ratio 16.4% 16.5% 16.5% 15.8% 17.5% 16.7% 17.8% Operating profit 493 430 923 504 496 1,001 683 327 1,010 35.5% -34.1% 0.9% OPM 2.8% 2.3% 2.5% 2.8% 2.8% 2.8% 3.9% 1.9% 2.9% Recurring profit 597 504 1,101 576 580 1,155 757 403 1,160 31.5% -30.5% 0.4% RPM 3.4% 2.7% 3.0% 3.2% 3.2% 3.2% 4.3% 2.4% 3.4% Ne t in c o me 3 18 544 861 215 568 783 282 268 550 31.4% -52.8% -29.7% Net margin 1.8% 2.9% 2.4% 1.2% 3.2% 2.2% 1.6% 1.6% 1.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
On November 13, 2020, the company announced its full-year forecast for FY12/20, which had been undetermined until that point.
▷ Revenue: JPY34.4bn (-3.8% YoY)
▷ Operating profit: JPY1.0bn (+0.9% YoY)
▷ Recurring profit: JPY1.2bn (+0.4% YoY)
▷ Net income*: JPY550mn (-29.7% YoY) *Net income attributable to owners of the parent
On February 14, 2020, the company had announced the following forecast for FY12/20:
▷ Revenue: JPY39.4bn
▷ Operating profit: JPY1.4bn
▷ Recurring profit: JPY1.5bn
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▷ Net income*: JPY900mn *Net income attributable to owners of the parent
However, on May 29, 2020 the company changed its forecast to “undetermined,” stating that the impact of the COVID-19 pandemic has complicated the formulation of reasonable estimates. With restrictions on movement being lifted in Japan and other countries, the company calculated its new consolidated earnings forecast based on currently available information (as of November 13, 2020) and cumulative Q3 results.
1H FY12/20 results Overview
▷ Revenue: JPY17.4bn (-2.3% YoY, reaching 50.7% of full-year target)
▷ Operating profit: JPY683mn (+35.9% YoY, 67.6%)
▷ Recurring profit: JPY757mn (+31.5% YoY, 65.3%)
▷ Net income*: JPY282mn (+31.4% YoY, 51.3%) *Net income attributable to owners of the parent
In 1H FY12/20, revenue was down YoY for the third consecutive quarter. Key reasons for the decline were an absence of large projects in Environmental Equipment segment that were present in the previous year and lower overseas revenue stemming from the COVID-19 pandemic. Also, revenue from civil engineering work was down due to construction delays.
Gross profit, operating profit, recurring profit, and net income attributable to owners of the parent all rose YoY due to higher revenue from recurring-revenue businesses and an absence of loss-generating projects that were present in 1H FY12/19.
Under extraordinary items, the company recorded a gain on sales of shares of subsidiaries and associates (JPY152mn) as extraordinary income and posted an impairment loss of JPY236mn. In addition, the company recorded JPY48mn in net income attributable to non-controlling interests from annual preferred dividends (equivalent to 4.8% of total annual investment) issued to eligible holders of shares in Sylphid, a consolidated subsidiary.
Breakdown of the impairment loss:
▷ In the Environmental Equipment segment, the company recorded a JPY135mn impairment loss on goodwill associated with Crystal Clear Contractor Pte. Ltd., a consolidated subsidiary in Singapore.
▷ In the same segment, the company recorded a JPY73mn impairment loss on fixed assets related to the clean water business.
▷ In the Renewable Energy segment, the company recorded a JPY19mn impairment loss on fixed assets related to the small wind turbine generation business
▷ The company logged a JPY8mn impairment loss on fixed assets related to the biodiesel fuel business.
Business by segment Environmental Equipment segment Sales of wastewater treatment tanks and wastewater treatment systems were down 6.8% YoY. The decrease reflected a downturn in large projects (for electrical component factories and final waste disposal sites), which boosted domestic revenue in 1H FY12/19. Overseas revenue dropped 25.5% YoY. Business deteriorated most noticeably in China, which was affected early by the COVID-19 pandemic.
In recurring businesses, revenue from maintenance business rose 5.3% YoY. However, in the clean water ESCO business, revenue decreased 30.7% YoY as customers used less water, although the number of contracts increased.
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Household Equipment segment Revenue from construction companies was up 11.0% YoY. Business in this segment was affected by product delays, as many suppliers source products from China, but the company was able to source alternative products. The company also benefited from replacement demand for store fixtures. Revenue from housing equipment construction fell 4.1% YoY. 1H performance included revenue from Fujiwara Reiki Co., Ltd. (unlisted), which became a consolidated subsidiary in October 2019, but medium- and large-sized projects were scarce.
In retail products for DIY stores, revenue declined 16.0% YoY. Revenue from existing stores was down, and performance in the e-commerce business was affected by the suspension of end-user field surveys and other sales activities due to COVID-19.
Renewable Energy segment Revenue from solar-power electricity rose 63.8% YoY, owing to the start of sales from five sites in 1H FY12/20. The company’s electricity sales plan includes only three others (in Imizu, Toyama Prefecture; Kanazawa, Ishikawa Prefecture; and Kashima, Ibaraki Prefecture). Revenue decreased 23.3% YoY from the biodiesel fuel business, and revenue from the small wind turbine generation business fell 56.5% YoY.
Other business segment Revenue from civil engineering work was down 4.5% YoY. Large projects faced construction delays. DAD Co., Ltd., which performs civil engineering work, was transferred to another company with a presumptive sale date of end-1H. Revenue from the household drinking water business rose 11.4% YoY.
Q1 FY12/20 results
▷ Revenue: JPY9.6bn (-1.6% YoY, reaching 27.9% of full-year target)
▷ Operating profit: JPY503mn (+6.8% YoY, 49.8%)
▷ Recurring profit: JPY544mn (+5.8% YoY, 46.9%)
▷ Net income*: JPY281mn (-7.1% YoY, 51.1%) *Net income attributable to owners of the parent
In Q1 FY12/20, revenue was down YoY for the second consecutive quarter. Key reasons for the decline were an absence of large projects in the Environmental Equipment segment that were present in the previous year. Overseas revenue was affected by project delays to Q2 and beyond, stemming from the COVID-19 pandemic. Also, revenue from civil engineering work was down due to construction delays.
Gross profit, operating profit, and recurring profit rose YoY due to higher revenue from recurring-revenue businesses and an absence of loss-generating projects that were present in Q1 FY12/19. Net income attributable to owners of the parent fell 7.1% YoY. The company posted an impairment loss of JPY93mn. In addition, the company recorded JPY24mn in income from annual preferred dividends (equivalent to 4.8% of total annual investment) issued to eligible holders of shares in Sylphid, a consolidated subsidiary.
Breakdown of the impairment loss:
▷ In the Environmental Equipment segment, the company recorded a JPY73mn impairment loss on fixed assets related to the clean water business.
▷ In the Renewable Energy segment, the company recorded a JPY19mn impairment loss on fixed assets related to the small wind turbine generation business.
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Business by segment Environmental Equipment segment Domestic sales of wastewater treatment tanks and wastewater treatment systems were down YoY. The decrease reflected a downturn in large projects (for electrical component factories and final waste disposal sites), which boosted domestic revenue in Q1 FY12/19. Overseas revenue dropped 25.5% YoY.
Business deteriorated most noticeably in China, which was affected early by the COVID-19 pandemic, as citywide lockdowns affected performance, and the booking of project sales was delayed until Q2 or later. In overseas countries other than China, subsidiaries have fiscal year ends that differ from the company’s consolidated closing date. For YoY comparisons, the company’s consolidated financial statements are based on provisional account settlements that assume December 31, 2019 as the fiscal year end date for overseas companies. Accordingly, the impact of the pandemic on Q1 performance was slight.
In recurring businesses, revenue from the maintenance and clean water ESCO businesses were firm YoY.
Household Equipment segment Revenue from construction companies was solid. Performance in this segment was affected by product delays, as many suppliers source products from China, but the company was able to source alternative products. The company also benefited from replacement demand for some products. Revenue from housing equipment construction was robust. Sales of medium- and large-sized projects were scarce, but revenue in this category incorporated performance from Fujiwara Reiki Co., Ltd. (unlisted), which became a consolidated subsidiary in October 2019.
In retail products for DIY stores, revenue from existing stores was down, and performance in the e-commerce business was affected by the suspension of end-user field surveys and other sales activities due to COVID-19.
Renewable Energy segment Revenue from electricity produced through solar power generation grew YoY, as the company steadily launched sales at new sites. Revenue was down YoY in both the biodiesel fuel business and the small wind turbine generation business.
Other business segment Revenue from civil engineering work was down. Some large projects were completed, but most of the revenue from these projects was recorded in the preceding fiscal year due to the company’s application of the percentage-of-completion accounting method. Progress on similar projects was slow. Revenue was favorable in the household drinking water business.
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Other information
History
Founding The company started with the 1958 establishment of Ogame Shoji (name changed to Daiki Shoji in 1970). The company was founded by Takahiro Ogame, the father of the current president and CEO (Hiroshi Ogame). Ogame Shoji specialized in the procurement and sale of tiles and sanitary porcelain. This business is the origin of the current Household Equipment segment. In 1964, another member of the founding family (Takahiro’s younger brother, Fumio), established a separate company from Ogame Shoji named Daiki Co., Ltd. Daiki began developing wastewater treatment tanks for household wastewater (sewage). This was at a time when demand was rising for wastewater treatment tanks as a way to resolve environmental pollution. This business of manufacturing and selling wastewater treatment tanks (to construction companies) marked the start of the present-day Environmental Equipment segment.
In an attempt to survive the sluggish business climate following the oil shocks, members of the founding family established Dick Co., Ltd. in 1978, entering the business of operating DIY stores. These DIY stores sourced household products (tiles, construction materials, cisterns, and wastewater treatment tanks) from Daiki Co., Ltd., Daiki Shoji, and other manufacturers, selling these items on to consumers. Group companies expanded their sales routes as a result. The Daiki name became commonly known, particularly in the Shikoku region. In 1989, Daiki Shoji (wholesale and retail), Daiki Co., Ltd. (manufacturing), and Dick Co., Ltd. (retail) merged to form Daiki Co., Ltd.
After establishment In 2005, Daiki Co., Ltd. decided on a management integration with DIY store operators Kahma Co., Ltd. and Homac Co., Ltd. This move marked the establishment of Daiki Axis through a company split in which it took over all businesses from Daiki Co., Ltd. other than the business of operating DIY stores. Specifically, these included the Environmental Equipment (mainly the manufacture and sale of wastewater treatment tanks), Household Equipment (sales of sanitary porcelain), and biodiesel (launched in 2002) businesses.
Initially (July 2005), Daiki Axis was established as a wholly owned subsidiary of Daiki Co., Ltd. Thereafter (November 2005), Daiki Co., Ltd. transferred all shares in Daiki Axis to its president (Hiroshi Ogame), a venture capital firm, and the company’s bank. Daiki Axis later became independent from Daiki Co., Ltd. Currently, no capital relationship exists between Daiki Axis and Daiki Co., Ltd. (now DCM Daiki Co., Ltd.). Subsidiaries (seven companies, including four manufacturing plants) were transferred to Daiki Axis when it became independent in 2005.
In 2010, the company entered an operational alliance with Daie Industry Co., Ltd. (unlisted), a manufacturer of wastewater treatment tanks. Like Daiki Axis, Daie Industry develops and manufactures wastewater treatment tanks for general households and housing complexes, as well as industrial wastewater treatment equipment for factories, selling them throughout Japan.
In 2012, Sylphid Inc. (unlisted) became a subsidiary, and the company entered the Renewable Energy business (electric power sales). Daiki Axis commenced business overseas in 2013. That year, the company acquired a 99.9% stake in PT. Bestindo Aquatek Sejahtera of Indonesia, converting it into a subsidiary. With the Japanese market maturing and shrinking, the company began looking to overseas business as a source of growth. Before Daiki Axis’s establishment, Daiki Co., Ltd. (now DCM Daiki Co., Ltd.) had set up a company in the city of Dalian, China, in 1991 (Daqi Environmental Protection Engineering (Dalian) Co., Ltd.) to sell water treatment systems in China. The subsidiary in Indonesia was the company’s first overseas foray since then.
In December 2013, Daiki Axis listed on the Second Section of the Tokyo Stock Exchange. The company was reassigned to the First Section in December 2014.
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From 2005 to 2019, the company acquired specialized construction and maintenance companies and converted them into subsidiaries. In the process, Daiki Axis created a business model offering one-stop solutions consisting of manufacturing, construction, and maintenance. (See the “Consolidated subsidiaries” section.)
News and topics
April 2021 On April 20, 2021, Shared Research initiated coverage of the company.
March 2021 On March 26, 2021, the company announced a transfer of business to a consolidated subsidiary and a change in the subsidiary’s trade name.
Overview of business transfer
▷ At a meeting of board of directors on March 26, 2021, the company resolved to transfer its biodiesel fuel business to consolidated subsidiary Sylphid Inc. and change Sylphid’s trade name, with the aim of strengthening its Renewable Energy business. The business transfer and the trade name change are scheduled to take effect on July 1, 2021.
▷ By consolidating the Daiki Axis group’s businesses within the Renewable Energy segment to Sylphid, the company aims to generate synergy effects among the businesses and increase operational efficiency.
▷ Sylphid’s new trade name will be Daiki Axis Sustainable Power Co., Ltd. With the new name, Sylphid is expected to strengthen ties with the parent as a member of the Daiki Axis group, which promotes ESG management. The new name is also intended to express the group’s basic philosophy—contribute to building a low-carbon society and aim for the realization of global environmental sustainability.
February 2021 On February 22, 2021, the company announced a new medium-term management plan (FY12/21 through FY12/23) called “PROTECT X CHANGE.”
Overview The company’s new medium-term management plan “PROTECT X CHANGE” concludes in FY12/23.
The previous plan, “Make FOUNDATION Plan (Promote ESG management),” had been scheduled to run through FY12/21. However, in FY12/20 the company grew uncertain about how COVID-19 would affect the plan’s long-term strategies to boost medium- to long-term growth. Accordingly, the company withdrew its quantitative goals mid-plan.
Nor has the company indicated quantitative goals for the new medium-term plan. Daiki Axis says the business fallout from COVID-19 that began to be felt in 2020 continues to cause environmental uncertainty in 2021, making it difficult for the company to set such targets for the medium term. But the company says it will announce quantitative goals when possible.
A long-term strategy of the previous medium-term plan centered on the qualitative goal of raising profitability. The company says this goal remains a feature of the new medium-term plan.
Growth strategy The strategy has seven focuses: a transition from stability to growth (Household Equipment segment), overseas development (Environmental Equipment segment), recurring-revenue business expansion, stronger technology and product development capabilities, the Renewable Energy segment, M&A promotion, and advances in IT. Under the previous medium-term plan,
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advances in IT was not part of the growth strategy. Rather, it was positioned as a way to continue using management resources efficiently. Advances in IT is positioned as part of the company’s growth strategy under the new plan.
Targets for 2023 (segment-specific qualitative goals) Environmental Equipment segment (three elements): establish the organizational infrastructure necessary to achieve high productivity, develop high-quality and environmentally friendly products and wastewater treatment tanks to overseas specs, and expand overseas business (not just sales, but also focusing on steady quality improvement)
▷ Fundamental policies (seven elements): cultivate new customers (design offices, general contractors, and subcontractors), eliminate complaints originating from the production process, actively recruit overseas personnel, expand recurring-revenue business, proactively use IT tools, cultivate human resources (reinforce specialized expertise), and reassess systems and rules for overseas business and formulate new ones
Household Equipment segment (three elements): establish a renovation business centered on e-commerce, use M&A to expand the commercial zone and products handled, and increase involvement in special projects (public facilities and eco-products) in areas outside the Chugoku/Shikoku region (such as the Kanto and Kansai areas)
▷ Fundamental policies (seven elements): expand the sales region targeting DIY stores (nationwide), cultivate new stores and introduce/sell new products, become involved in new construction business, continue working to lower procurement costs by introducing centralized purchasing, proactively utilize IT tools, launch e-commerce business, cultivate human resources (strengthen management capabilities), make visible and equalize back-office and other business processes (achieve mutually complementary relationships between employees)
Renewable Energy segment (three elements): create structures to drive the shift toward a carbon-free society, cultivate high-value-added businesses and products in preparation for the conclusion of FIT policies, and search for new businesses and products so the business development department can help address climate change
▷ Fundamental policies (four elements): increase the sales volume of D-Oil (biodiesel) and work with local government bodies to enlarge the waste oil collection area; continue to develop and stably operate wind and solar power generation sites; research trends, collaborate, and make proposals targeting companies that are advanced in the area of renewable energy (such as RE100 and RE Action member companies); further reduce environmental impact, promote electricity storage technologies, enact disaster prevention and mitigation measures, and propose high-value-added businesses that will contribute to production in areas of consumption in the post-FIT era
On the same day, the company announced a capital increase at a consolidated subsidiary.
At a Board of Directors meeting on February 22, 2021, the company resolved to increase capital at Daiki Axis Singapore Pte. Ltd., a wholly owned subsidiary that manages overseas subsidiaries.
Overview of capital increase
▷ Expected increase: Approx. SGD7.5mn (JPY600mn)
▷ Expected pay-in date: February 2021
▷ Paid-in capital: SGD23.1mn (approx. JPY1.9bn) before the increase, SGD30.6mn (approx. JPY2.5bn) after
▷ The capital increase and post-increase amounts are in SGD based on current exchange rates. The company expects to revise these amounts in line with exchange rate fluctuations.
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Reasons for capital increase “Overseas development” is an ongoing focus of the company’s long-term strategy under both previous and current medium-term management plans. Funding details are outlined in press releases (Japanese only) dated August 21, 2020, entitled “Notice related to sustainability finance,” “Issuance of share acquisition rights,” and “Conclusion of a backup loan agreement.”
COVID-19 has hampered the Daiki Axis group’s sales efforts in various countries since 2020. However, the company has been making progress on overseas development through the use of IT, particularly in India. The company is working to expand and build new overseas plants, set up new overseas subsidiaries, and increase capital at others. The company believes that raising capital at Daiki Axis Singapore Pte. Ltd., its headquarters for overseas subsidiaries, will help it implement these measures in a flexible and timely manner.
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Corporate governance and top management
Form of organization and capital structure Form of organization Company with Audit & Supervisory Board Controlling shareholder and parent company None Directors and Audit & Supervisory Board members Number of directors under Articles of Incorporation 15 Number of directors 12 Directors' terms under Articles of Incorporation 1 Chairman of the Board of Directors President Number of outside directors 5 Number of independent outside directors 4 Number of members of Audit & Supervisory Board 3 Number of outside members of Audit & Supervisory Board 3 Number of independent outside members of Audit & Supervisory Board 2 Ot her Participation in electronic voting platform None Providing convocation notice in English None Implementation of measures regarding director incentives Performance-linked remuneration Eligible for stock option None Disclosure of individual director's compensation Yes Policy on determining amount of compensation and calculation methodology In place Corporate takeover defenses None Source: Shared Research based on company data Top management (CEO’s career history) Hiroshi Ogame, president, CEO, and CGO (born May 26, 1960) April 1987 Joined Daiki Co., Ltd. April 2004 Representative and managing director, Daiki Co., Ltd. July 2005 Establishment of Daiki Axis Co., Ltd., president and representative director April 2012 Sylphid Inc. president and representative director October 2013 President and representative director, PT. Betsindo Aquatek Sejahtera (now Pt. Daiki Axis Indonesia) May 2015 Director, DCM Daiki Co., Ltd. (current position) May 2016 Director, DCM Holdings Co., Ltd. (current position) March 2017 President, representative director, and general manager of global business headquarters, Daiki Axis March 2019 President, CEO, and CGO (current position)
Holds 116,800 shares in the company (as of December 31, 2020); also a representative of You Planning YK, Daiki Axis’s largest shareholder. Mr. Ogame’s oldest son, Hiroki Ogame, holds the titles of director, managing executive officer, CIO, and executive secretary.
Dividend policy
The company’s fundamental dividend policy is to target stable return of profits to shareholders and sustainable growth. Accordingly, the company takes consolidated annual operating performance, the dividend payout ratio, and internal reserves into overall consideration when determining dividends.
Per-share data (split-adjusted) FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 FY12/21 (JPY) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Shares issued (year-end) 3,102,200 6,204,400 6,204,400 12,408,800 12,408,800 12,408,800 12,408,800 12,788,800 Treasury shares - 162,700 162,700 308,600 422,741 418,798 394,598 383,698 EPS 20.0 59.8 27.5 53.6 61.7 71.8 65.2 39.6 56.43 EPS (fully diluted) ------39.4 Dividend per share 8.3 15.0 15.0 15.0 20.0 24.0 24.0 24.0 24.00 Book value per share 768.2 820.4 950.2 511.5 569.4 560.3 595.4 615.0 Payout ratio 20.6% 25.1% 54.5% 28.0% 32.4% 33.4% 36.8% 60.6% 42.5% Source: Shared Research based on company data
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Major shareholders (as of December 31, 2020)
Shareholding Top shareholders Shares held ratio
YOU Planning Limited 4,140,000 32.40% The Iyo Bank, Ltd. 600,000 4.70% Ehime Bank, Ltd. 480,000 3.80% Trust & Custody Services Bank, Ltd. 383,500 3.00% Japan Trustee Services Bank, Ltd. (Trust account) 376,700 2.90% Akifusa Daizen 334,000 2.60% Mayoko Daizen 324,000 2.50% Daiki Axis Employee Stock Ownership Plan 245,800 1.90% Kazuo Matsuura 208,200 1.60% Japan Trustee Services Bank, Ltd. (Trust account 5) 199,400 1.60%
SUM 7,291,600 57.00% Note: As of December 31, 2020. Calculations of shareholding ratios exclude treasury stock. The 383,500 shares held by Custody Bank of Japan, Ltd. (trust account E) are due to the company’s introduction of Board Benefit Trust (BBT) and Japan Employee Stock Ownership Plan (J-ESOP) systems. These shares are treated as treasury stock in the company’s securities reports, consolidated financial statements, and non-consolidated financial statements. However, these shares are not excluded from calculations of shareholding ratios listed on the company’s website and in shareholder newsletters. For that reason, shareholding ratios differ slightly, depending on the information source. Source: Shared Research based on company data Employees
No. of employees (year-end) FY12/13 FY12/14 FY12/15 FY12/16 FY12/17 FY12/18 FY12/19 FY12/20 Consolidated (ex. part-time and contract) 609 642 653 671 715 747 810 794 Part-time and contract workers 139 132 122 121 138 146 154 148
Parent employees 421 440 442 443 451 481 490 494 Cons. Subsidiaries (cons. - parent) 188 202 211 228 264 266 320 300
Consolidated, by segment Environmental Equipment 438 454 477 484 512 548 564 Part-time and contract workers 104 93 91 101 107 115 110 Household Equipment 113 108 111 117 119 144 146 Part-time and contract workers 25 24 25 24 22 24 26 Renewable Energy - - - - - 9 9 7 Part-time and contract workers - - - - - 8 5 8 Other 65 57 56 88 82 82 46 Part-time and contract workers 2 2 4 10 6 6 - Corporate 26 34 27 26 25 27 31 Part-time and contract workers 3 3 1 3 3 4 4
Parent No. of employees (ex. part-time and contract) 421 440 442 443 451 481 490 494 Part-time and contract workers 61 68 63 64 74 71 80 90 Average age 42 42 43 42 42 42.4 42.8 Average years of service 14 14 14 14 14 14.1 14.1 Average annual salary (JPY'000) 4,881 4,867 4,855 4,631 4,520 4,710 4,895
Parent, by segment Environmental Equipment 240 250 252 253 275 282 292 Part-time and contract workers 40 36 35 41 40 47 52 Household Equipment 113 108 111 117 119 121 123 Part-time and contract workers 23 23 25 24 22 23 26 Renewable Energy - - - - - 6 5 3 Part-time and contract workers - - - - - 4 5 8 Other 61 57 53 55 56 55 45 Part-time and contract workers 2 2 3 6 2 1 - Corporate 26 27 27 26 25 27 31 Part-time and contract workers 3 2 1 3 3 4 4 Source: Shared Research based on company data
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The company has 794 employees. Of this figure, 564 (71%) work in the Environmental Equipment segment. In the Environmental Equipment segment, approximately 100 employees work in maintenance, 100 in construction, 150 in manufacturing, and 150 in other capacities. In the Household Equipment segment, the company has around 100 salespeople.
Origin of the company name
“Daiki” comes from an alternative reading of the Chinese characters that make up the name of the founding family, Ogame). “Axis” expresses the idea that “water treatment is the central axis for the business.” The circle above the “i” in the company logo incorporates the idea of “starting from zero.”
Profile
Company Name Head Office Matsuyama head office 1-9-1 Misawa, Matsuyama, Ehime 791-8022 Daiki Axis Co., Ltd. Tokyo head office 2-15-4 Higashi Nihonbashi, Chuo-ku Tokyo 103-0004 Phone Listed On +81-89-927-2222 First Section of the Tokyo Stock Exchange Established Exchange Listing July 12, 2005 December 19, 2013 Website Fiscal Year-End http://www.daiki-axis.com/english/ December IR Contact IR Web http://www.daiki-axis.com/form/ir_index.html http://www.daiki-axis.com/ir/info/index09.html
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