Daiki Axis / 4245

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Daiki Axis / 4245 Daiki Axis / 4245 COVERAGE INITIATED ON: 2021.04.20 LAST UPDATE: 2021.07.28 Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg. 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 INDEX 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 02/72 Daiki Axis / 4245 RCoverage LAST UPDATE: 2021.07.28 Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp 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
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