MIRAIT Holdings 1417

ミライト・ホールディングス

Recent Updates

2021-11-15

Revisions to full-year earnings outlook and dividend forecast

2021-11-15

1H FY03/22 flash update

2021-09-21

Q1 FY03/22 report update

Get in touch

5-6-36 Toyosu Koto-ku Tokyo, Japan 135-8111

http://mirait.co.jp/index.html

03-6807-3111

Summary

The Mirait corporate group is one of three major telecommunications construction companies. The company was established in October 2010 through the integration of Daimei Telecom Engineering Corp., Commuture Corp., and Todentsu Corp.—companies involved in telecoms infrastructure construction for over half a century—under a holding company. In October 2012, the group businesses were restructured to improve operating efficiency and merged to form the current consolidated entity of Tokyo-based Mirait Corporation and Osaka-based Mirait Technologies Corporation under Mirait Holdings. The group also acquired Lantrovision (S) Ltd. in June 2016.

Construction & Engineering

Key dates

2013-01-30

Coverage initiation

Full Report

2021-11-15

1H FY03/22 flash update

2021-11-15

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Executive summary

A major telecom engineering company aggressively developing business in other fields

The MIRAIT corporate group is one of three major telecommunications construction companies. The company was established in October 2010 through the integration of Daimei Telecom Engineering Corp., Commuture Corp., and Todentsu Corp.—companies involved in telecoms infrastructure construction for over half a century—under a holding company. In October 2012, the group businesses were restructured to improve operating efficiency and merged to form the current consolidated entity of Tokyo-based MIRAIT Corporation and Osaka-based MIRAIT Technologies Corporation under MIRAIT Holdings. In June 2016, the group also acquired Lantrovision (S) Ltd., which designs, constructs, and maintains LAN cables, primarily in Singapore. In October 2018, it merged with TTK Co., Ltd. (TSE2: 1935) through an exchange of shares. Furthermore, in January 2019, the group merged with Solcom Co., Ltd. (TSE2: 1987) and Shikokutsuken Co., Ltd. through share exchanges.

The company has four business categories: the NTT, Multi-carrier, Environmental and Social Innovation, and ICT Solutions businesses. The NTT and Multi-carrier businesses serve the capital investment needs of legacy telecoms companies, and accounted for approximately 55% of consolidated sales in FY03/21. The company is trying to wean itself from a structure reliant on telecoms’ capex activities, and is aggressively pursuing non-telecoms services. Specifically, it is aggressively expanding into other fields, including construction work for solar power generation facilities, recurring income-type businesses such as operation management and maintenance of such facilities, software development, global businesses with a focus on Asia, and even a drone business. As a result, the ratio of sales from non-telecoms services increased from about 29% in FY03/14 to 45% in FY03/21. (See the Business section for more information.)

Trends and outlook

In FY03/21, the company reported consolidated sales of JPY463.7bn (+5.1% YoY), operating profit of JPY30.1bn (+37.0% YoY), recurring profit of JPY31.7bn (+36.8% YoY), and net income attributable to owners of the parent of JPY24.2bn (+59.0% YoY). Orders received totaled JPY475.0bn (+6.4% YoY), and the value of construction contracts carried forward was JPY161.6bn (+7.5% YoY).

Orders received were up 6.2% YoY in the NTT business, up 4.2% in the Multi-carrier business, down 6.1% in the Environmental and Social Innovation business, and up 13.5% in the ICT Solutions business. Sales increased 0.4% YoY in the NTT business and 1.0% in Multi-carrier business but fell 12.9% in the Environmental and Social Innovation business. Sales increased 24.4% in the ICT Solutions businesses.

The gross profit margin was 13.1% (+1.3pp YoY), and the SG&A-to-sales ratio was 6.6% (-0.2pp YoY). As a result, the operating profit margin came to 6.5% (+1.5pp YoY). The company recorded a JPY4.6bn gain on sales of investment securities (JPY56mn in FY03/20) due to the sale of shares held as cross-shareholdings.

The company’s full-year FY03/22 forecast calls for sales of JPY480.0bn (+3.5% YoY), operating profit of JPY32.0bn (+6.2% YoY), recurring profit of JPY33.5bn (+5.5% YoY), net income attributable to owners of the parent of JPY22.5bn (-7.0% YoY), and an annual dividend of JPY55.00 per share (JPY45.00 in FY03/21). There is uncertainty over when the COVID-19 pandemic will come to an end, and the outlook may remain uncertain for some time. However, in addition to expanding optical fiber installation work from the Advanced Wireless Environment Development Promotion Project and increasing mobile construction work from base station installations moving ahead of plan for 5G service expansion, the company will work to transform its business structure by strengthening inter-group collaboration.

The company unveiled a new medium-term business plan that covers three-year period from FY03/20 through FY03/22. The new plan targets FY03/22 sales of JPY450.0bn (+119.7% versus FY03/19), operating profit of JPY27.0bn (+130.4%), and ROE of 8% or more. The company created a new medium-term plan to maximize the utilization of its expanded resources following recent mergers. The aim is to maximize synergies stemming from the mergers and drive further growth as the company accelerates its transformation into a comprehensive engineering and service company.

Strengths and weaknesses

Shared Research sees the company’s strengths as its stable cash flow, its ability to benefit from telecom sophistication, and its financially sound business model; its weaknesses are heavy dependence on capex by telecom carriers, low profitability in the industry overall, and difficulty establishing new businesses. (See the Strengths and weaknesses section for details.)

Key financial data

Income statement				FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)				3 companies	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Orders				241,300	252,000	278,100	282,000	293,600	260,700	323,389	326,326	392,662	446,558	474,984	490,000
		YoY		-4.6%	-	10.4%	1.4%	4.1%	-11.2%	24.0%	0.9%	20.3%	13.7%	6.4%	3.2%
	NTT			111,600	113,700	110,700	96,800	96,500	95,700	104,200	97,500	137,700	154,800	164,400
			Multi-carrier	-	-	-	97,800	94,100	73,100	88,600	88,300	95,100	106,200	110,700
			Environmental and Social Innovation	-	-	-	36,500	55,200	46,200	59,000	54,300	58,400	54,300	51,000
			ICT Solutions	-	-	-	50,900	47,700	45,500	71,400	86,000	101,200	131,000	148,700
Sales				246,603	236,038	271,018	277,720	283,747	269,537	283,236	312,967	375,911	441,166	463,744	480,000
		YoY		-3.4%	-	14.8%	2.5%	2.2%	-5.0%	5.1%	10.5%	20.1%	17.4%	5.1%	3.5%
	NTT			110,000	111,400	109,100	99,900	95,600	95,100	98,200	100,500	128,300	156,300	157,000
			Multi-carrier	-	-	-	98,400	96,100	76,100	76,900	84,100	92,500	97,200	98,200
			Environmental and Social Innovation	-	-	-	28,500	45,800	53,600	42,000	43,600	56,300	66,700	58,100
			ICT Solutions	-	-	-	50,800	46,100	44,500	65,900	84,600	98,700	120,800	150,300
Gross profit				24,345	24,044	29,340	29,976	33,113	25,889	33,536	39,761	46,988	52,174	60,790	63,900
		YoY		-12.5%	-	22.0%	2.2%	10.5%	-21.8%	29.5%	18.6%	18.2%	11.0%	16.5%	5.1%
		GPM for completed construction		9.9%	10.2%	10.8%	10.8%	11.7%	9.6%	11.8%	12.7%	12.5%	11.8%	13.1%	13.3%
Operating profit				4,989	5,267	10,842	11,455	14,139	6,127	10,061	16,715	20,699	21,993	30,129	32,000
		YoY		-41.1%	-	105.8%	5.7%	23.4%	-56.7%	64.2%	66.1%	23.8%	6.3%	37.0%	6.2%
		Operating profit margin		2.0%	2.2%	4.0%	4.1%	5.0%	2.3%	3.6%	5.3%	5.5%	5.0%	6.5%	6.7%
Recurring profit				5,777	6,183	11,765	12,267	14,834	6,735	10,590	17,838	21,992	23,207	31,739	33,500
		YoY		-36.8%	-	90.3%	4.3%	20.9%	-54.6%	57.2%	68.4%	23.3%	5.5%	36.8%	5.5%
		Recurring profit margin		2.3%	2.6%	4.3%	4.4%	5.2%	2.5%	3.7%	5.7%	5.9%	5.3%	6.8%	7.0%
Net income				3,747	3,251	4,200	7,186	11,108	3,631	6,437	11,504	25,711	15,220	24,205	22,500
		YoY		-35.3%	-	29.2%	71.1%	54.6%	-67.3%	77.3%	78.7%	123.5%	-40.8%	59.0%	-7.0%
		Net margin		1.5%	1.4%	1.5%	2.6%	3.9%	1.3%	2.3%	3.7%	6.8%	3.4%	5.2%	4.7%
Per-share data
Shares issued (year-end: '000)				85,382	85,382	85,382	85,382	85,382	85,382	85,382	85,382	108,325	108,325	108,325
EPS				61.10	39.46	50.97	87.30	136.58	44.65	79.81	145.41	295.34	149.93	229.59	224.09
Dividend per share				-	20.00	20.00	20.00	30.00	30.00	30.00	35.00	40.00	40.00	45.00	55.00
Book value per share				1,197.8	1,218.4	1,257.7	1,362.6	1,510.6	1,511.7	1,570.5	1,733.1	1,933.8	2,006.4	2,232.3
Balance sheet (JPYmn)
		Cash and deposits		19,040	20,485	14,850	17,627	30,303	30,284	34,550	33,748	38,206	33,543	44,764
		Accounts receivable–completed construction		60,366	66,154	82,708	78,647	76,941	77,033	86,883	89,367	126,666	137,914	126,862
Total current assets				102,745	107,924	126,542	126,009	134,283	137,112	151,323	154,586	211,085	225,712	233,494
Tangible fixed assets				30,510	30,092	29,225	29,559	30,314	31,730	34,609	44,876	78,840	82,596	86,655
Investments and other assets				12,604	12,396	13,481	16,839	25,325	24,036	25,157	28,509	34,476	37,114	31,052
Intangible assets				2,446	3,297	3,507	3,583	2,777	2,097	6,963	6,516	7,058	6,711	7,549
Total assets				148,307	153,711	172,756	175,992	192,700	194,978	218,053	234,489	331,462	352,134	358,751
		Accounts payable–construction contracts		23,139	29,307	38,109	33,919	35,448	38,154	40,483	38,891	49,366	57,199	60,705
		Short-term debt		182	181	488	64	24	20	736	124	6,560	20,160	3,533
Total current liabilities				35,198	38,781	53,814	49,575	52,643	55,511	59,112	63,648	88,908	104,738	103,018
		Long-term debt		220	44	321	60	36	15	16,586	16,560	23,417	7,607	7,916
Total fixed liabilities				12,344	12,012	12,312	12,243	13,872	12,866	30,104	30,097	42,994	28,685	24,409
Total liabilities				47,542	50,793	66,126	61,818	66,515	68,378	89,216	93,745	131,903	133,424	127,428
Total net assets				100,764	102,917	106,630	114,173	126,184	126,599	128,837	140,744	199,559	218,710	231,323
Total interest-bearing debt				402	225	809	124	60	35	17,322	16,684	29,977	27,767	11,449
Cash flow statement (JPYmn)
Cash flows from operating activities				3,635	5,457	-1,683	9,073	18,683	6,239	4,767	12,562	6,491	7,936	41,602
Cash flows from investing activities				450	-2,394	-1,511	-2,712	-3,870	-3,680	-11,140	-10,021	-13,523	-9,176	1,869
Cash flows from financing activities				-7,147	-2,124	-2,487	-3,546	-2,247	-2,690	10,499	-3,686	-1,928	-2,814	-32,200
Financial ratios
ROA (RP-based)				3.8%	4.1%	7.2%	7.0%	8.0%	3.5%	5.1%	7.9%	7.8%	6.8%	8.9%
ROE				3.7%	3.3%	4.1%	6.7%	9.5%	3.0%	5.2%	8.8%	15.4%	7.4%	11.0%
Equity ratio				66.5%	65.3%	60.0%	63.0%	63.8%	63.1%	56.9%	58.5%	59.3%	61.2%	63.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures for FY03/11 and earlier are the simple aggregate of the three integrated companies. FY03/11 net income and financial ratios exclude negative goodwill of JPY26.9bn.
Note: The company changed its category classifications in FY03/15. Category sales figures in table reflect the new classifications. The figures for FY03/14 are restated for comparison purposes.

Recent updates

Revisions to full-year earnings outlook and dividend forecast

2021-11-15

On November 12, 2021, Mirait Holdings Corp. released a revised full-year FY03/22 earnings forecast.

Additionally, the company announced revisions to its dividend forecast.

Trends and outlook

Quarterly trends and results

Quarterly performance		FY03/20				FY03/21				FY03/22		FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales		83,344	99,629	105,534	152,659	89,546	102,242	112,671	159,285	100,546	111,305
	YoY	26.2%	34.1%	17.7%	4.7%	7.4%	2.6%	6.8%	4.3%	12.3%	8.9%
Gross profit		8,654	10,943	11,642	20,935	9,286	12,125	16,131	23,248	13,061	14,545
	YoY	9.1%	23.8%	1.0%	12.0%	7.3%	10.8%	38.6%	11.0%	40.7%	20.0%
	Gross profit margin	10.4%	11.0%	11.0%	13.7%	10.4%	11.9%	14.3%	14.6%	13.0%	13.1%
SG&A expenses		7,481	7,157	7,537	8,006	7,546	7,120	7,441	8,554	8,353	8,182
	YoY	25.7%	23.1%	12.9%	2.0%	0.9%	-0.5%	-1.3%	6.8%	10.7%	14.9%
	SG&A ratio	9.0%	7.2%	7.1%	5.2%	8.4%	7.0%	6.6%	5.4%	8.3%	7.4%
Operating profit		1,173	3,785	4,106	12,929	1,740	5,004	8,690	14,695	4,707	6,364
	YoY	-40.8%	25.2%	-15.4%	19.3%	48.3%	32.2%	111.6%	13.7%	170.5%	27.2%
	Operating profit margin	1.4%	3.8%	3.9%	8.5%	1.9%	4.9%	7.7%	9.2%	4.7%	5.7%
Recurring profit		1,709	3,878	4,775	12,845	2,560	5,188	9,250	14,741	5,136	6,564
	YoY	-27.2%	16.1%	-7.5%	15.3%	49.8%	33.8%	93.7%	14.8%	100.6%	26.5%
	Recurring profit margin	2.1%	3.9%	4.5%	8.4%	2.9%	5.1%	8.2%	9.3%	5.1%	5.9%
Net income		910	2,442	2,952	8,916	1,279	3,520	9,135	10,271	2,744	5,066
	YoY	-31.9%	7.9%	-42.4%	-47.5%	40.5%	44.1%	209.5%	15.2%	114.5%	43.9%
	Net margin	1.1%	2.5%	2.8%	5.8%	1.4%	3.4%	8.1%	6.4%	2.7%	4.6%
Cumulative		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Sales		83,344	182,973	288,507	441,166	89,546	191,788	304,459	463,744	100,546	211,851	44.1%	480,000
	YoY	26.2%	30.4%	25.4%	17.4%	7.4%	4.8%	5.5%	5.1%	12.3%	10.5%		3.5%
Gross profit		8,654	19,597	31,239	52,174	9,286	21,411	37,542	60,790	13,061	27,606	43.2%	63,900
	YoY	9.1%	16.9%	10.4%	11.0%	7.3%	9.3%	20.2%	16.5%	40.7%	28.9%		5.1%
	Gross profit margin	10.4%	10.7%	10.8%	11.8%	10.4%	11.2%	12.3%	13.1%	13.0%	13.0%		13.3%
SG&A expenses		7,481	14,638	22,175	30,181	7,546	14,666	22,107	30,661	8,353	16,535	51.8%	31,900
	YoY	25.7%	24.5%	20.3%	14.8%	0.9%	0.2%	-0.3%	1.6%	10.7%	12.7%		4.0%
	SG&A ratio	9.0%	8.0%	7.7%	6.8%	8.4%	7.6%	7.3%	6.6%	8.3%	7.8%		6.6%
Operating profit		1,173	4,958	9,064	21,993	1,740	6,744	15,434	30,129	4,707	11,071	34.6%	32,000
	YoY	-40.8%	-1.0%	-8.1%	6.3%	48.3%	36.0%	70.3%	37.0%	170.5%	64.2%		6.2%
	Operating profit margin	1.4%	2.7%	3.1%	5.0%	1.9%	3.5%	5.1%	6.5%	4.7%	5.2%		6.7%
Recurring profit		1,709	5,587	10,362	23,207	2,560	7,748	16,998	31,739	5,136	11,700	34.9%	33,500
	YoY	-27.2%	-1.8%	-4.5%	5.5%	49.8%	38.7%	64.0%	36.8%	100.6%	51.0%		5.5%
	Recurring profit margin	2.1%	3.1%	3.6%	5.3%	2.9%	4.0%	5.6%	6.8%	5.1%	5.5%		7.0%
Net income		910	3,352	6,304	15,220	1,279	4,799	13,934	24,205	2,744	7,810	34.7%	22,500
	YoY	-31.9%	-6.9%	-27.8%	-40.8%	40.5%	43.2%	121.0%	59.0%	114.5%	62.7%		-7.0%
	Net margin	1.1%	1.8%	2.2%	3.4%	1.4%	2.5%	4.6%	5.2%	2.7%	3.7%		4.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Forecasts reflect most recent figures.

Seasonality: Due to the nature of contracting at MIRAIT, project completion, delivery, and corresponding revenues tend to be high in the fourth quarter of the financial year.

1H FY03/22 results (out November 12, 2021)

Overview

In 1H FY03/22, orders received amounted to JPY249.7bn (+9.0% YoY), while sales came to JPY211.9n (+10.5% YoY), and construction contracts brought forward JPY199.4bn (+6.2% YoY). Operating profit was JPY11.1bn (+64.2% YoY), while recurring profit reached JPY11.7bn (+51.0% YoY) and net income attributable to owners of the parent JPY7.8bn (+62.7% YoY).

At the conclusion of 1H, orders received had achieved 51.0% of the company’s full-year FY03/22 target (48.2% of full-year results in 1H FY03/21), while sales had reached 44.1% (41.4%), operating profit 34.6% (22.4%), recurring profit 34.9% (24.4%), and net income 34.7% (19.8%).

Orders received up 9.0% YoY: Orders received were up 4.8% YoY in the NTT business, up 14.7% in the Multi-carrier business, up 22.3% in the Environmental and Social Innovation business, and up 5.1% in the ICT Solutions business.

Sales up 10.5% YoY: Sales increased 10.1% YoY in the NTT business and 16.8% in Multi-carrier business but fell 13.2% in the Environmental and Social Innovation business. Sales increased 17.2% in the ICT Solutions businesses.

Operating profit up 64.2% YoY: The gross profit margin was 13.0% (+1.9pp YoY), and the SG&A-to-sales ratio rose 7.8% (+0.2pp YoY). Meanwhile, the operating profit margin came to 5.2% (+1.7pp YoY).

Net income up 62.7% YoY: The company recorded an extraordinary gain on sales of investment securities of JPY1.2bn (+JPY687mn YoY).

External environment

In the company’s mainstay ICT engineering business, the restraint on business activities due to the spread of COVID-19 has led to short-term delays in delivery of construction materials and in the progress of some construction projects. However, over the longer term, there are growing expectations for growth in demand for new ICT solutions with the spread of online teaching and digital transformation, in addition to 5G service expansions. Furthermore, an increased focus on renewable energy policies is expected as part of the shift to a carbon-free society.

Company initiatives

As a “comprehensive engineering and service company,” MIRAIT aims to be a trusted corporate group that both establishes and protects social infrastructure (communications and energy) for the future while implementing measures targeting prevention of the COVID-19 pandemic. To this end, MIRAIT is conducting initiatives focused on improving the efficiency of business operation groupwide by facilitating workstyle reforms and promoting digital transformation. At the same time, the company endeavors to raise its corporate value and achieve sustainable growth.

During 1H, the company strove to expand orders received and sales in its NTT business through an increase in optical fiber work stemming from government-supported projects aimed at expanding advanced wireless telecommunication networks. MIRAIT also endeavored to expand orders received and sales within its Multi-carrier business, primarily through growth in mobile work generated by acceleration of plans to build out base stations conducted with the goal of increasing the availability of 5G services. The company also targeted expansion in orders received and sales through its Environmental and Social Innovation business by implementing initiatives aimed at acquiring orders for large-scale electrical work and other goals. Efforts targeting growth in orders received and sales within the ICT Solutions business were primarily focused on increasing sales of mobile-related goods and construction materials and acquiring a higher volume of construction work associated with local area networks and private branch exchanges.

The company is accelerating efforts aimed at transforming its business structure in response to changes in its business environment. These include the launch of a single team organization for its Frontier Domains from October 2021 and initiatives targeting the restructuring of companies within the group (implemented on July 1, 2021).

By segment

Orders and sales by business

Earnings by business		FY03/20				FY03/21				FY03/22		YoY		FY03/22
(JPYbn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Change	Rate of change	Est.	% of Est.
Orders		113.0	222.6	334.5	446.6	109.1	229.2	351.3	475.0	133.2	249.7	20.5	9.0%	490.0	51.0%
	NTT	37.7	77.6	113.8	154.8	37.1	77.8	118.8	164.4	44.7	81.5	3.7	4.8%	155.0	52.6%
	Multi-carrier	28.5	52.9	81.8	106.2	27.9	53.0	82.7	110.7	32.9	60.8	7.8	14.7%	104.5	58.2%
	Environmental and Social Innovation	13.4	25.6	38.6	54.3	10.4	23.3	35.8	51.0	13.4	28.5	5.2	22.3%	69.0	41.3%
	ICT Solutions	33.2	66.4	100.2	131.0	33.5	74.8	113.8	148.7	42.0	78.6	3.8	5.1%	161.5	48.7%
Sales		83.3	182.9	288.5	441.2	89.5	191.8	304.5	463.7	100.5	211.9	20.1	10.5%	480.0	44.1%
	NTT	32.0	65.7	102.2	156.3	32.9	68.3	107.4	157.0	36.7	75.2	6.9	10.1%	160.0	47.0%
	Multi-carrier	17.4	38.7	61.5	97.2	16.5	39.8	65.3	98.2	22.5	46.5	6.7	16.8%	105.0	44.3%
	Environmental and Social Innovation	11.5	26.5	43.3	66.7	13.0	25.8	38.0	58.1	10.8	22.4	-3.4	-13.2%	61.5	36.4%
	ICT Solutions	22.3	51.9	81.3	120.8	27.0	57.7	93.5	150.3	30.3	67.6	9.9	17.2%	153.5	44.0%

Source: Shared Research based on company data

Full-year company forecast for FY03/22

Company forecast		FY03/20			FY03/21			FY03/22
(JPYmn)		1H	2H	Full-year	1H	2H	Full-year	1H Act.	2H Est.	FY Est.
Sales		182,973	258,193	441,166	191,788	271,956	463,744	211,851	268,149	480,000
	YoY	30.4%	9.6%	17.4%	4.8%	5.3%	5.1%	10.5%	-1.4%	3.5%
Cost of sales		163,376	225,616	388,992	170,377	232,577	402,954	184,245	231,855	416,100
Gross profit		19,597	32,577	52,174	21,411	39,379	60,790	27,606	36,294	63,900
	YoY	16.9%	7.8%	11.0%	9.3%	20.9%	16.5%	28.9%	-7.8%	5.1%
	Gross profit margin	10.7%	12.6%	11.8%	11.2%	14.5%	13.1%	13.0%	13.5%	13.3%
SG&A expenses		14,638	15,543	30,181	14,666	15,995	30,661	16,535	15,365	31,900
	SG&A ratio	8.0%	6.0%	6.8%	7.6%	5.9%	6.6%	7.8%	5.7%	6.6%
Operating profit		4,200	17,793	21,993	6,744	23,385	30,129	11,071	20,929	32,000
	YoY	-16.1%	13.4%	6.3%	60.6%	31.4%	37.0%	64.2%	-10.5%	6.2%
	Operating profit margin	2.3%	6.9%	5.0%	3.5%	8.6%	6.5%	5.2%	7.8%	6.7%
Recurring profit		5,000	18,207	23,207	7,748	23,991	31,739	11,700	21,800	33,500
	YoY	-12.1%	11.7%	5.5%	55.0%	31.8%	36.8%	51.0%	-9.1%	5.5%
	Recurring profit margin	2.7%	7.1%	5.3%	4.0%	8.8%	6.8%	5.5%	8.1%	7.0%
Net income		3,000	12,220	15,220	4,799	19,406	24,205	7,810	14,690	22,500
	YoY	-16.7%	-44.7%	-40.8%	60.0%	58.8%	59.0%	62.7%	-24.3%	-7.0%

Source: Shared Research based on company data

Overview

FY03/22 company forecast

The company expects a repeat performance of FY03/21, when it posted record orders, sales, and operating profit. Note: At the end of 1H FY03/22 the value of construction contracts carried forward was JPY199.4bn (+6.2% YoY).

There is uncertainty over when the COVID-19 pandemic will come to an end, and the outlook may remain uncertain for some time. However, in addition to expanding optical fiber installation work from the Advanced Wireless Environment Development Promotion Project and increasing mobile construction work from base station installations moving ahead of plan for 5G service expansion, the company will work to transform its business structure by strengthening inter-group collaboration. Key planks in the company’s medium-term plan ending in FY03/22 have been a focus on profit and margins (FY03/22 targets: operating profit of JPY27.0bn and OPM of 6.0%), and under the new management structure (president and CEO Toshiki Nakayama), the company achieved its targets in FY03/21 (with operating profit of JPY30.1bn, OPM of 6.5%). The key planks are unchanged for FY03/22.

Shareholder returns

Annual dividend per share: JPY55.0 (up JPY10.0 YoY); company forecasts second consecutive year of dividend growth

Share buyback: Up to 1,800,000 shares (1.77% of total shares outstanding excluding treasury shares); maximum value of shares to be acquired: JPY3.0bn; acquisition period: May 17 to September 30, 2021; 1,457,800 shares bought back by end-September 2021 (for JPY3.0bn); third consecutive year of share buybacks

Performance by business category			FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
Orders			282,000	293,600	260,700	323,389	326,326	392,662	446,558	474,984	490,000
	YoY		1.4%	4.1%	-11.2%	24.0%	0.9%	20.3%	13.7%	6.4%	3.2%
	NTT		96,800	96,500	95,700	104,200	97,500	137,700	154,800	164,400	155,000
		YoY	-	-0.3%	-0.8%	8.9%	-6.4%	41.2%	12.4%	6.2%	-5.7%
		% of total	34.3%	32.9%	36.7%	32.2%	29.9%	35.1%	34.7%	34.6%	31.6%
	Multi-carrier		97,800	94,100	73,100	88,600	88,300	95,100	106,200	110,700	104,500
		YoY	-	-3.8%	-22.3%	21.2%	-0.3%	7.7%	11.7%	4.2%	-5.6%
		% of total	34.7%	32.1%	28.0%	27.4%	27.1%	24.2%	23.8%	23.3%	21.3%
	Environmental and Social Innovation		36,500	55,200	46,200	59,000	54,300	58,400	54,300	51,000	69,000
		YoY	-	51.2%	-16.3%	27.7%	-8.0%	7.6%	-7.0%	-6.1%	35.3%
		% of total	12.9%	18.8%	17.7%	18.2%	16.6%	14.9%	12.2%	10.7%	14.1%
	ICT Solutions		50,900	47,700	45,500	71,400	86,000	101,200	131,000	148,700	161,500
		YoY	-	-6.3%	-4.6%	56.9%	20.4%	17.7%	29.4%	13.5%	8.6%
		% of total	18.0%	16.2%	17.5%	22.1%	26.4%	25.8%	29.3%	31.3%	33.0%
	Integrated company (incl. orders carried forward *1)		-	-	-	-	-	-	-	-	-
Sales			277,720	283,747	269,537	283,236	312,967	375,911	441,166	463,744	480,000
	YoY		2.5%	2.2%	-5.0%	5.1%	10.5%	20.1%	17.4%	5.1%	3.5%
	NTT		99,900	95,600	95,100	98,200	100,500	128,300	156,300	157,000	160,000
		YoY	-	-4.3%	-0.5%	3.3%	2.3%	27.7%	21.8%	0.4%	1.9%
		% of total	36.0%	33.7%	35.3%	34.7%	32.1%	34.1%	35.4%	33.9%	33.3%
	Multi-carrier		98,400	96,100	76,100	76,900	84,100	92,500	97,200	98,200	105,000
		YoY	-	-2.3%	-20.8%	1.1%	9.4%	10.0%	5.1%	1.0%	6.9%
		% of total	35.4%	33.9%	28.2%	27.2%	26.9%	24.6%	22.0%	21.2%	21.9%
	Environmental and Social Innovation		28,500	45,800	53,600	42,000	43,600	56,300	66,700	58,100	61,500
		YoY	-	60.7%	17.0%	-21.6%	3.8%	29.1%	18.5%	-12.9%	5.9%
		% of total	10.3%	16.1%	19.9%	14.8%	13.9%	15.0%	15.1%	12.5%	12.8%
	ICT Solutions		50,800	46,100	44,500	65,900	84,600	98,700	120,800	150,300	153,500
		YoY	-	-9.3%	-3.5%	48.1%	28.4%	16.7%	22.4%	24.4%	2.1%
		% of total	18.3%	16.2%	16.5%	23.3%	27.0%	26.3%	27.4%	32.4%	32.0%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Orders for merged companies include construction contracts carried forward at the time of each merger.

The company announced a revision to its full-year forecast on the same day it reported 1H FY03/22 results. The comments below were made prior to the announcement, and Shared Research will update them at a later date based on interviews with the company.

Forecasts by business

NTT business

The company forecasts orders of JPY155.0bn (-5.7% YoY) and sales of JPY160.0bn (+1.9% YoY).

Customer assumptions: The company expects capex by NTT East and NTT West to decline YoY.

The company plans to complete orders from the Advanced Wireless Environment Development Promotion Project received in FY03/21 by the end of the fiscal year. Some associated orders the company expected to receive at the end of FY03/21 were received in April 2021, pushing up the monthly order backlog in April.

Productivity improvements: The key point remains boosting productivity. To extract merger synergies, the company intends to benchmark the three merged entities (TTK, Solcom, and Shikokutsuken) to boost productivity and efficiency and reduce costs. It has collected historical data and is applying multidimensional analysis, and plans to make improvements over several years. When the MIRAIT group was formed, margins of the merged entities differed by several percentage points. The company said that the disparity between the existing group and the three latest merged companies is even larger. It thinks that fixed-line networks will change as 5G takes off in the mobile telecoms space. The company said it would generate profits while taking into account the changing nature of demand and boosting productivity.

Multi-skilled engineers: Augmenting the workforce amid a labor shortage due to the aging population is one aim. At the same time, the company thinks that it needs to boost workflow efficiency by multi-skilling its personnel as fixed-line work at NTT East and NTT West will shift from legacy areas to growth areas. This entails having engineers who specialize in fixed-line work inside households learning new skills to work inside offices, on networks, or even mobile telephony. MIRAIT aims to adapt to technological progress in the fields of AI, IoT, and robotics (RPA) and devices which are increasingly sophisticated, compact, and smart.

Use AI and ICT for advanced, safe facility inspections: MIRAIT will continue its “area round method” (areas for inspection and maintenance are broken down into five NTT reception area groupings that undergo scheduled maintenance every five years). The company is also working to upgrade its operations by leveraging AI and ICT for image analysis and remote inspection.

Worksite consolidation and improved environment: MIRAIT will continue to consolidate offices as it thinks this is important for improvement in employee motivation and productivity.

Multi-carrier business

The company forecasts orders of JPY104.5bn (-5.6% YoY) and sales of JPY105.0bn (+6.9% YoY).

Customer assumptions: The company says it will specialize on expanding 5G commercial service areas by mobile telecommunications carriers, but that it expects capex overall to decline YoY. Capex plans by mobile carriers call for declines by NTT Docomo and SoftBank and a slight increase by KDDI. Rakuten Mobile’s plans are not disclosed.

Orders grew by 4.2% YoY in FY03/21, but construction progress was less than expected due to supply chain disruptions, delays in equipment deliveries, and suspension of some outdoor construction during the pandemic. There are many front-end processes such as design and consulting resulting in construction lagging slightly.

The company said it forecast a YoY decline in orders for the sake of conservatism, but it expected sales growth as orders from FY03/21 are completed.

5G service initiatives: MIRAIT aims to bundle mobile infrastructure, including 5G and local 5G, with solutions. It has conducted verification tests with a golf course operator looking to improve its operations. To gain quasi-millimeter wave area construction technology and expertise, it has joined hands with an overseas start-up to conduct indoor verification tests of a reflective board (to improve blind spots) in metamaterials (artificial substances that behave unlike natural substances in response to electromagnetic waves such as light).

Moves to improve productivity and pursue merger synergies in mobile business: MIRAIT plans to develop and implement project management systems and expand their use as the key to streamlining operations. The aim is to simplify peripheral work through combinations of automation with robotics processing and general-purpose and in-house developed tools. The company is also developing on-site surveillance cameras that are optimized for base station projects. It aims to pursue synergies across the group as in the fixed telecoms business. The company believes it is important for the merged companies to share construction management approaches for each individual customer as work methods and systems differ among mobile operators such as NTT Docomo, KDDI, SoftBank, and Rakuten. MIRAIT intends to generate synergies by sharing resources, streamlining worksite processes, collaborating in shared work, and training personnel.

Environmental and Social Innovation business

The company forecasts orders of JPY69.0bn (+35.3% YoY) and sales of JPY61.5bn (+5.9% YoY).

In the solar power business, the company is shifting its focus from mega-solar work to self-consumption (multi-store rooftop) in anticipation of the post-FIT era and growth in operations and maintenance (O&M) business, and expects a rebound after bottoming in FY03/21.

MIRAIT plans to work on smart community projects that incorporates eco-friendly materials (EV chargers, storage batteries, and in-house solar power). It will continue construction work to move powerlines underground. The company has expanded the water and sewer construction business with the acquisition of Tokaikoei. It also aims to generate synergies with existing businesses (civil engineering work for NTT’s underground service tunnels that carry telecoms cables).

The company expects solar power projects to shrink, but solid growth for electrical, air-conditioning, and civil engineering projects. However, resources for electrical and civil engineering work are limited so the company plans to continue to shift from sales growth to focus on profit.

In solar power business, the trends are shifting from power sales to self-consumption, from construction to operations and maintenance, and more customers have started to use energy management systems (EMSs). Sales growth has historically come from large orders for mega-solar projects, but these have run their course. The company had anticipated this several years earlier, and in 2015 it established MIRAIT X, a joint venture with ORIX, which focuses on medium-sized solar projects. MIRAIT says that in mega-solar projects, it has obtained some contracts for operations and maintenance of previous projects and is growing the contract numbers.

ICT Solutions business

The company forecasts orders of JPY161.5bn (+8.6% YoY) and sales of JPY153.5bn (+2.1% YoY).

The company plans to take advantage of market developments and business opportunities to expand into new territories by focusing its resources in areas where the group excels.

In the global business, the company is primarily operating in Singapore. However, the impact of the COVID-19 pandemic significantly varies country by country, so MIRAIT is keeping a close eye on the situation.

In LAN/PBX/communications facilities, the company aims to step up collaboration with Lantrovision in Japan and overseas, and looks for slight growth in FY03/22.

Expanding recurring revenue/data center (DC)*¹ businesses

Expanding services with network DC: Expand provision of services such as floor OEM using customer’s brand, total DC management service, and network type virtual DC service.

Contact center solutions: Increase uptake of internally developed Casting Table 3.0*²

Cloud networks: Strengthen services that fulfill companies’ needs for advanced technologies

Enable software routing (connecting function) with software defined wide area network (SD-WAN) for making fast changes to settings across the system, version upgrades, and central management of all equipment connected to the WAN. This will improve performance and reduce costs of customers’ networks.

Hyper converged infrastructure (HCI): Reduce operational load using virtualization technology to create a simple infrastructure that virtualizes server, storage, and other elements of conventional hardware systems.

The company started offering nationwide services with its partners at end-February 2020. Some data center customers want to use the cloud if security is robust enough. MIRAIT plans to provide infrastructure to companies that use public cloud services such as AWS. It plans to build multiple networks to offer a diversified service menu.

In April 2020, MIRAIT started offering a leased data center in the city of Osaka. Through this initiative, the company integrates multiple data centers for companies holding idle real estate by connecting the data center to networks.

Promote the uptake of Wi-Fi: The company plans to promote the uptake of Wi-Fi by hotels, commercial facilities, stadiums, and multi-store customers. At the same time, it plans to have more proposals for packages of network equipment and surveillance cameras.

Drone business: MIRAIT operates drone pilot schools to expand its human resource network and business platform (roughly 500 pilots trained in the past three years). The company is rolling out various drone system services, including orders for all-weather drone, drone leasing service, and orders for drone kitting and maintenance. It also has alliances with the NTT group, Farm Eye, and Kobe City Water Works Bureau, which are leading to concrete business deals.

Product sales: The company expects a decline as sales of computers and servers to schools (Shikokutsuken) under the GIGA School Concept drop out.

Long-term outlook

New medium-term management plan (three-year plan from FY03/20 to FY03/22)

Overview

On May 9, 2019, along with FY03/19 full-year results, MIRAIT released a new medium-term management plan spanning from FY03/20 to FY03/22.

The new management plan calls for final-year (FY03/22) sales of JPY450.0bn (+119.7% versus FY03/19), operating profit of JPY27.0bn (+130.4% YoY), and ROE of 8% or more.

Targets met one year ahead of schedule in FY03/21

In FY03/21, the company posted sales of sales of JPY463.7bn (+5.1% YoY) and operating profit of JPY30.1bn (+37.0% YoY), reaching the medium-term plan targets one year and schedule. The company has not revised its medium-term plan targets, but for FY03/22, the last year of the plan, it forecasts sales of JPY470.0bn (+1.3% YoY), operating profit of JPY30.5bn (+1.2% YoY), recurring profit of JPY32.0bn (+0.8% YoY), and net income attributable to owners of the parent of JPY21.0bn (-13.2% YoY). Since June 2021, the company has been revamping its organizational structure under new management, and is considering new targets for FY03/23 onward. It thus sees FY03/22 as a bridging period.

Overview of key initiatives

There is no change to the company’s key medium-term plan initiatives in FY03/22. It plans to focus on the following.

The company aims to enhance its competitiveness in the market, increase sales, and improve profitability and efficiency amid a favorable environment including the arrival of the 5G era, progress with IoT, and capital spending in energy and social infrastructure.

The company expects OPM to drop to 5.0% in FY03/20 because of merging with three companies with a large NTT fixed-line business weighting, but aims to improve OPM to 6.0% in FY03/22 (the final year of the medium-term plan) by making the NTT business more efficient.

As well as gradually transferring construction know-how and resources to the three merged companies using the existing group as a benchmark, the company plans to expand sales of the ICT Solutions and Environmental & Social Innovation businesses by taking advantage of the three companies’ regional customer base.

The company seeks to transition from its Base Domains to Frontier Domains*², targeting a 50:50 weighting in FY03/22 (see below).

*¹ The group merged with TTK Co., Ltd. (TSE2: 1935) through a share exchange in October 2018. In January 2019, the group also merged with Solcom Co., Ltd. (TSE2: 1987) and Shikokutsuken Co., Ltd. through share exchanges.
*² Base Domain refers to the domestic NTT and Multi-carrier businesses. Frontier Domain refers to the global Multi-carrier business, Environmental and Social Innovation, and ICT Solutions businesses.

Basic principles

The company created a new medium-term management plan to maximize its expanded business resources following the merger. The aim is to maximize merger synergies and drive further growth as the company accelerates its transformation into a comprehensive engineering and service company.

With changes looming in the business environment in which the company operates, the business models of its telecom carrier customers are changing. There are prospects for the provision of new services using 5G. Further, there are major changes in prospect in the business environment. When the IoT era is fully up and running, there will be mounting demands for new solutions such as cloud and drone utilization technologies, as well as acceleration of rebuilding social infrastructure put in place in the 1960s and 1970s and solutions to the labor shortage including advances in labor saving and automation as well as expansion of alternative energy facilities.

Shareholder returns policy

MIRAIT aims to maintain stable, long-term dividends. The company will determine the dividend amount targeting a total return ratio of 30% plus, taking earnings, capital position, and other factors into consideration. It will consider share buybacks as a way to reward shareholders with the goal of ROE of 8% plus.

Main strategies

Create new business opportunities

Help revitalize regional economies by leveraging deepened regional coverage resulting from mergers. The Tohoku and Chugoku areas have a high fixed-line telecom business weighting, but close relationships with customers enable business expansion that build on these relationships. The company plans to establish a structure for construction work nationwide.

Help to solve social issues by combining business categories and technologies*2. Harness ICT to improve the group’s productivity and streamline operational costs while winning business opportunities that arise due to a changing business environment.

*² The main business categories and technologies in each business are summarized below. Crossover is found in the four strategic business categories/technologies of robots, IoT, AI, and big data.
・NTT business: Fixed-line infrastructure, Hikari Collaboration, civil engineering, disaster prevention, robots, AI
・Multi-carrier business: 5G, Wi-Fi, Lower power wide area (LPWA; wireless technology that allows long-distance communication over several kilometers on low power), IoT, big data
・Environmental & Social Innovation business: Alternative energy, aged infrastructure, data centers, EVs, storage batteries, robots, AI
・ICT Solutions business: Software, sensors, drones, data centers, IoT, big data

Transition of business structure

Accelerate the transition of the company’s business structure from Base Domains to Frontier Domains*3 to achieve further growth, targeting a 50:50 weighting in FY03/22. The company will also pursue the shift to Frontier Domains for the three merged companies have a large fixed-line business weighting (i.e., Base Domains account for over 70% of sales) at the same time as progressing a transition in quality (i.e., prioritize profit).

Improve productivity and streamline operational costs

Stabilize operation rates of construction work by strengthening collaboration with partner firms

Share systems and centralize common business processes

Strengthen human resource base

The company believes that its human resource base is the driving force of productivity improvement. Its vision is to become an attractive, comprehensive engineering and service company that people find rewarding to work for, because it maximizes the organizational capability of teams and the motivation and abilities of each autonomous employee so that all can work with vitality in sound physical and mental health and be aware of their career development. The company says it will take time to foster human resources, which it considers to be its top long-term priority.

Promote ESG management

The company plans to make a contribution to Sustainable Development Goals (SDGs) through all its business activities, as well as taking a broader view of business risks and opportunities from an Environmental, Social and Governance (ESG) perspective and respond appropriately

Establish the MIRAIT group brand as one that meets customers’ expectations of security and trustworthiness through improvements in safety and quality

Its three priority themes are summarized below (see table below for specific challenges):

Build and protect a pleasant social structure (business activities)
Build and protect safe and secure technological capabilities (safety, quality/human resources)
Build and protect a relationship of trust with society.

Key topics		Relevant goals out of the 17 SDGs
Build and maintain comfortable structure of the society (Business activities)	- Build, maintain, and upgrade social infrastructure	7	11	12	13
	- Promote smart lifestyle
	- Build disaster-resilient communities
Develop and maintain safe and secure technology capabilities (safety, quality; human resources)	- Enhance technology development and engineering capabilities; foster human resources	4	5	9
	- Continuous improvement of safety and quality
	- Promote diversity
	- Promote workstyle reforms and improve work-life balance
Build and maintain trust with the society	- Corporate governance	8	15	17
	- Environmental initiatives in business activities
	- Labor, safety, environmental, and human rights issues at suppliers
	- Regional development

Source: Shared Research based on company data

Capital policy

Maintain sound financial standing

Management mindful of capital cost

Share buybacks to attain ROE of over 8%

Transformation of business structure

Preparation for three-way reorganization/merger

Company establishes office to prepare for new group

The company accelerated the transformation of its business structure in response to changes in the business environment, for example by preparing for a three-way merger of the company and two of its consolidated subsidiaries (MIRAIT Corporation and MIRAIT Technologies Corporation; target date: early FY2022). In July 2021, the company set up an office to oversee preparations for the establishment of the new group, as work to develop the new merged entity got into full swing.

In April 2021, the company launched a single team organization in the solutions area. Now the solutions businesses of MIRAIT and MIRAIT Technologies collaborate on business strategies and planning. The company is also stepping up integration and collaboration including integrated office operation (sales and execution).

In July 2021, the company launched a single team organization in the global business area. By combining management of overseas subsidiaries, it aims to improve efficiency and integration, and also plans to strengthen and integrate business development functions.

In October 2021, the company plans to launch a single team organization in its Frontier Domains. By bringing together human resources, it aims to accelerate business innovation in areas such as 5G, digital twins*, energy management, and smart cities.

*Technology that reproduces data collected from the real world on a computer, similar to a twin (source: NTT Communications). Technology that collects information from real (physical) space through IoT and other means and replicates the real space in cyber (virtual) space based on data transmitted (source: SoftBank).

Aims of three-way merger

Nurture new areas such as solutions to become core businesses

Strengthen existing carrier business earnings structure

Strengthen management foundation

New merged entity

The company is considering adopting a company structure along business lines for the new merged entity. Each company would have enhanced management execution capabilities so would be able to operate in a speedy, flexible manner, and would aim to maximize sales and profit. In solutions, the company aims to boost marketing capabilities and expand business domains by combining MIRAIT and MIRAIT Technologies. In the carrier business, it aims to integrate the fixed and mobile business and gain efficiencies by winnowing out overlapping branches, and build a business operating structure close to regional customers. The company plans to establish companies in East Japan and West Japan respectively. Its plans to strengthen the management foundation by consolidating shared departments and streamlining overheads.

Changes in external environment

Arrival of the 5G era

Overview

The era of 5G (fifth generation)*⁴of mobile communications characterized by enhanced mobile broadband, ultra-reliable and low latency communication, and massive machine-type communication kicked off in Japan with commercial services in March 2020. 5G is elemental technology essential to making IoT (all things being connected to the Internet) a reality.

In April 2019, the Ministry of Internal Affairs and Communications (MIC) allocated frequency bands for 5G to NTT Docomo, KDDI/Okinawa Cellular, SoftBank, and Rakuten Mobile*⁵. In March 2020, NTT Docomo, KDDI/Okinawa Cellular, and SoftBank began commercial 5G services, followed by Rakuten Mobile in September 2020.

*⁴ Mobile communications standard. The fifth generation of mobile communications systems following the first (analog), second (digital; GSM overseas and PDC in Japan), third (based on International Mobile Telecommunication (IMT)-2000 standards; W-CDMA in Japan and UMTS overseas, and CDMA2000 1X), and fourth (IMT-Advanced, including LTE) generations.
5G combines high and low frequencies to achieve ultra-fast data rates exceeding 10Gbps, using low frequency bands to ensure connectivity and mobility and high frequency/wide area frequency bands to provide highly efficient and fast communications (see Heterogeneous Network section below). It will also reduce latency and enables a very large number of devices to connect to the network. Put another way, 5G utilizes high frequency bands (e.g., 10GHz+) not used by conventional mobile networks to provide reliable communication at unprecedented speeds of over 10gbps even in areas with tens and thousands of devices.
*⁵ MIC allocated six frequency slots in the 3.7GHz/4.5GHz band (five units of 100MHz width in the 3.7GHz band and one unit in the 4.5GHz band) and four units of 400MHz width in the 28MHz band in April 2019. Allocations to each company are as follows:
・NTT Docomo: 3,600–3,700MHz (100MHz), 4,500– 4,600MHz (100MHz), 27.4–27.8GHz (400MHz)
・KDDI/Okinawa Cellular: 3,700–3,800 MHz (100MHz), 4,000–4,100MHz (100MHz), 27.8–28.2GHz (400MHz), of which 3,700–3,800 MHz and 27.8–28.2GHz bands expected to be used internationally for 5G (eco-bands)
・SoftBank: 3,900–4,000MHz (100MHz), 29.1–29.5GHz (400MHz)
・Rakuten Mobile: 3,800–3,900MHz (100MHz), 27.0–27.4GHz (400MHz)

Existing 4G frequency bands (700MHz, 1.7GHz, 3.4GHz, and 3.5GHz have been approved for 5G, and their use for 5G began in December 2020. Since the start of 2021, the Ministry of Internal Affairs and Communications approved additional use of the 1.7GHz band for 5G (excluding Tokyo, Nagoya, and Osaka), and is conducting technical studies on the 4.9GHz, 26GHz, and 40GHz bands, and hopes to make additional allocations by the end of the year.

Changes that 5G will bring

Key changes are data rates of over 10Gbps (maximum capacity: 100x versus 4G), low latency to 1ms or less (ultra-reliable and low latency communication; latency less than 1/10 of 4G-LTE), and a very large number of devices supported (1m devices per 1km², or 100x versus 4G). To this end, 5G will utilize the following technologies: Massive MIMO, which deploys many tens of antennae; beam forming (forming radio wave beams in any desired direction); milliwave frequencies; waveforms and modulations for spectrum sharing technologies, wireless frameworks configured to achieve low latency; and core networks using software-defined networking.

Non-standalone heterogeneous networks

The above technologies are already in use in wireless technologies as part of conventional 4G technologies such as LTE and LTE-Advanced and maintains usage continuity with frequency bands used for 4G (non-standalone heterogeneous networks)*⁶.

*⁶ Heterogeneous networks support various wireless technologies including 5G, LTE-Advanced, and Wi-Fi to provide diverse services depending on usage requirements. They use frequency bands allocated for 5G (3.7GHz, 4.5GHz, and 28GHz) expected to offer large bandwidth, as well as existing 4G frequency bands (700MHz, 800MHz, 900MHz, 1.5GHz, 1.7GHz, 2.1GHz, 3.4GHz, and 3.5GHz). Lower power base stations such as micro cells, which cover a range of several hundred meters, and pico cells that are used within a single building are within the coverage of high-power macro cell base stations with a range of several kilometers. Depending on usage conditions, handsets can select which base station to connect to.

C/U plane split

The C-plane handles control signals within a micro cell by using conventional frequencies for call processing, while the U-plane deals with high-volume data exchanged by users using milliwaves and other high frequencies for which it is easier to secure large bandwidth within small cells. This C/U plane split helps to ensure mobility and stable quality.

Network slicing

Network slicing is a virtualization technology that splits up network resources to provide dedicated virtual networks with functionality specific to the service or customer. Applying this method to core networks and wireless access networks makes it possible to satisfy the required conditions of 5G and adapt to services with different requirements in a flexible way, thereby providing an optimized network for each service.

Mobile edge computing

In mobile edge computing, servers that traditionally provide services in the cloud are positioned close to users. This reduces end-to-end latency.

By taking advantage of the features of the above technologies, 5G is expected to enable diverse services such as transmission of high-resolution 4K/8K video and VR/AR video, self-driving cars, remote medical care (including remote surgery that uses touch interface), remove operation of construction machinery, Industrial Internet of Things (IIoT) in factories, and remote operation of vending machines, surveillance cameras, and communication devices.

5G base station installation

On December 25, 2020, the Ministry of Internal Affairs and Communications released its Master Plan 3.0 on the Regional Development of ICT Infrastructure. A number of mobile operators flagged their intentions to spend about JPY2tn each over the 10 years from 2021 onward on 5G base stations*, so the ministry revised its Master Plan 2.0 (released in July 2020). Through the steady rollout of Master Plan 3.0, the ministry plans to significantly bring forward the nationwide rollout of 5G and optical fiber.

Under Master Plan 3.0, the ministry forecasts that there will be 280,000 5G base stations (including those for 4G) by end-FY03/24, an increase of 70,000 versus the plan for 210,000 base stations under Master Plan 2.0. This is four times the planned number of base stations (5G only) forecast at the time of the comparison review for frequency allocation conducted in 2019.

* Mobile operators’ 5G facility capex plans
NTT Docomo: 5G capex of JPY1tn over five years to FY03/24 (source: NTT Docomo materials (March 18, 2020) 5G, new services, and new products announcement)
KDDI (au): 5G capex of JPY1tn over five years to FY03/24. Cumulative 5G capex of JPY2tn to 2030 (including 6G R&D) (Source: March 23, 2020 press release)
SoftBank: 5G capex of about JPY500bn to FY03/24. Cumulative 5G capex of JPY2.2tn to 2030 (including 6G R&D) (Source: FY03/20 results briefing materials)
Rakuten Mobile: 5G capex of JPY200bn to FY03/24 (4G investment to increase by 30–40% from about JP 600bn) (source: Ministry of Internal Affairs and Communications establishment plan certification materials)

Effects of cell minimization on telecom construction

The way a radio wave is transmitted depends on its frequency (wavelength). Low frequency (long wave) radio waves can navigate around obstacles such as buildings and can travel far, and are not easily affected by rain. However, high frequency (short wave) radio waves travel in a straight line and tends to be reflected off buildings, which means they only travel short distances, as well as being vulnerable to rain and fog. However, high frequency radio waves allow high volume data transmission, because large bandwidth can be secured.

As explained above in the section on heterogeneous networks, lower-power base stations such as micro cells, which over a range of several hundred meters, and pico cells used within a single building are within the coverage of high-power macro cell base stations with a range of several kilometers. Depending on usage conditions, handsets can select which base station to connect to. A primary 5G Specified Base Station (equipped with ultra-fast networks using high-capacity optical fiber that connects to the core network and can support multiple secondary base stations) is installed in each “mesh” 10km square, and multiple secondary base stations and mini base stations are established around it to cover the whole mesh.

Because of the radio wave properties described above, the area covered by a single base stations in 4G (LTE and LTE-Advanced) micro cells is a 2–3km radius, whereas the area covered by 5G small cells is only a 100m radius. Thus, many more base stations are needed for 5G than for 4G. This means the number of construction projects per unit of time for telecom construction companies like MIRAIT is expected to increase, making it crucial for these companies to improve the efficiency of their operations. Work is likely to be performed on diverse locations including building walls, utility poles, lamp posts, and traffic signals.

5G mini base stations are expected to be installed on roofs and walls of medium-height buildings, windows, walls, and signs on lower buildings, and utility poles, lamp posts, and traffic signals*⁸. Base stations are usually placed on the roofs of buildings in urban areas with limited space to build communication towers, and many are already in place.

*⁸ According to a June 3, 2019 article in the Nihon Keizai Shimbun, around 200,000 traffic signals installed by local governments will be offered to domestic mobile carriers for use as 5G base stations. Pilots will begin in multiple cities in FY2020 with nationwide rollout scheduled for FY2023.

Frequency allocation and population coverage

Although frequency allocation is by auction in many countries, in Japan MIC holds a “beauty contest” for mobile carriers applying for allocation. Guidelines are published regarding Specified Base Stations (i.e., base stations that use specified frequencies as provided by the Radio Law). For example, for the 4G 700MHz frequency band, applicants had to attain population coverage of at least 80% by March 31, 2019. Mobile carriers’ 3.5GHz service rollout plans at end-March 2019 targeted population coverage of 55.5% (51.3% at end-June 2019) for NTT Docomo, 51.4% (30.3%) for KDDI/Okinawa Cellular, and 50.5% (34.6%) for SoftBank. For the 4G 3.4GHz band allocated to NTT Docomo and SoftBank and 1.7GHz band allocated to KDDI and Rakuten Mobile in April 2018, target coverage is 50% in five years’ time for 3.4GHz and 80% in eight years’ time for 1.7GHz. Thus, all mobile carriers must invest in infrastructure based on their capex plans.

GIGA School Concept

The GIGA School Concept calls for one tablet device per student and the creation of a high-speed, high-volume network to bring the whole system together. GIGA stands for Global and Innovation Gateway for All.

The Japanese government is moving forward with the GIGA School Concept, which calls for one device per student and the creation of a high-speed, high-volume network to bring the whole system together (a project headquarters was established in December 2019). The government’s 2019 supplementary budget included JPY231.8bn for the project (JPY129.6bn for work related to the network and JPY102.2bn for devices). This is an emergency measure implemented under the authority of the prime minister to help Japan escape its position as an underdeveloped country in terms of ICT education, since budgetary measures that rely on tax revenue allocated to local governments have had no discernible effect in the effort to get one computer into each pupil’s hands by 2020.

This latest move will facilitate provision of devices for one class out of every three at elementary and junior high schools nationwide by FY2022 (providing maximum assistance of JPY45,000 per computer). The goal is for every pupil to have a device by FY2023. The measure will also provide a high-speed, high-volume network.

In addition, the FY2020 supplemental budget plan includes ICT measures for emergencies, such as temporary school closures due to disasters or infectious diseases, as part of the Emergency Economic Measures to Cope with COVID-19 (Cabinet Decision on April 7, 2020). Approximately JPY229.2bn is earmarked for rapidly developing an environment that can ensure continued education for all children. JPY195.1bn is earmarked to accelerate the one device per pupil goal while JPY7.1bn was budgeted for development of a comprehensive network environment to provide service to all schools. Corrective measures were implemented in FY2019 to facilitate early realization of the one device per pupil objective and covered all 5th and 6th grade elementary school students and 1st year junior high school students. This has now been expanded to include 2nd and 3rd year junior high school students and 1st to 4th grade elementary school students (maximum budget per device is JPY45,000).

According to a survey conducted by the Ministry of Education, Culture, Sports, Science and Technology, as of end-March 2019, only 1.8mn computers were being used by 9.6mn elementary and junior high school students (18.5% penetration, or one computer per 5.4 students; excludes computers used by teachers). This would mean additional demand of 7.8mn computers to ultimately achieve the one device per student objective.

Business

Business description

The MIRAIT corporate group is one of three major telecommunications construction companies. The company was established in October 2010 through the integration of Daimei Telecom Engineering Corp., Commuture Corp., and Todentsu Corp.—companies involved in telecoms infrastructure construction for over half a century—under a holding company. In October 2012, the group businesses were restructured to improve operating efficiency and merged to form the current consolidated entity of Tokyo-based MIRAIT Corporation and Osaka-based MIRAIT Technologies Corporation under MIRAIT Holdings. In June 2016, the group also acquired Lantrovision (S) Ltd., which designs, constructs, and maintains LAN cables, primarily in Singapore. Furthermore, the group merged with TTK Co., Ltd. (TSE2: 1935) through an exchange of shares in October 2018, and with Solcom (TSE2: 1987) and Shikokutsuken through share exchanges in January 2019.

Main businesses

The company has four business categories: the NTT, Multi-carrier, Environmental and Social Innovation, and ICT Solutions. The NTT and Multi-carrier businesses serve the capital investment needs of legacy telecoms companies, and accounted for about 55% of consolidated sales in FY03/21. The company is thus trying to wean itself from a structure largely reliant on telecoms’ capex activities, and is aggressively pursuing non-telecoms services. As a result, the ratio of sales from non-telecoms services increased from about 29% in FY03/14 to 45% in FY03/21.

Sales by business category				Old categories			New categories
				FY03/14			FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
(JPYmn)				Cons.	(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Total sales				277,720	Total sales		277,720	283,747	269,537	283,236	312,967	375,911	441,166	463,744
			YoY	2.5%		YoY	2.5%	2.2%	-5.0%	5.1%	10.5%	20.1%	17.4%	5.1%
		NTT		99,900	NTT		99,900	95,600	95,100	98,200	100,500	128,300	156,300	157,000
			YoY	-8.4%		YoY	-	-4.3%	-0.5%	3.3%	2.3%	27.7%	21.8%	0.4%
			% of total	36.0%		% of total	36.0%	33.7%	35.3%	34.7%	32.1%	34.1%	35.4%	33.9%
	Mobile			84,500	Multi-carrier		98,400	96,100	76,100	76,900	84,100	92,500	97,200	98,200
			YoY	3.9%		YoY	-	-2.3%	-20.8%	1.1%	9.4%	10.0%	5.1%	1.0%
			% of total	30.4%		% of total	35.4%	33.9%	28.2%	27.2%	26.9%	24.6%	22.0%	21.2%
		ICT		40,200	Environmental and Social Innovation		28,500	45,800	53,600	42,000	43,600	56,300	66,700	58,100
			YoY	16.2%		YoY	-	60.7%	17.0%	-21.6%	3.8%	29.1%	18.5%	-12.9%
			% of total	14.5%		% of total	10.3%	16.1%	19.9%	14.8%	13.9%	15.0%	15.1%	12.5%
		Civil Engineering		52,900	ICT Solutions		50,800	46,100	44,500	65,900	84,600	98,700	120,800	150,300
			YoY	15.5%		YoY	-	-9.3%	-3.5%	48.1%	28.4%	16.7%	22.4%	24.4%
			% of total	19.0%		% of total	18.3%	16.2%	16.5%	23.3%	27.0%	26.3%	27.4%	32.4%

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.

MIRAIT changed reporting businesses in FY03/15:
The NCC fixed communications, CATV and global networks businesses—formerly included in the mobile and civil engineering businesses— are now consolidated in the Multi-carrier business.
The environmental and social infrastructure, and electricity and air conditioning businesses—formerly included in the civil engineering business— are consolidated in the Environmental and Social Innovation business.
The Wi-Fi, and radio and broadcasting facilities businesses—formerly included in the ICT and civil engineering businesses— are consolidated in the ICT Solutions business.

Sales by business (changes in breakdown)

Source: Shared Research based on company data

Overview of businesses follows.

NTT business (33.9% of sales in FY03/21; 35.4% of sales in FY03/20)

This business focuses on the construction, maintenance, and operation of fixed-line telecoms facilities for subsidiaries of Nippon Telegraph and Telephone Corporation (TSE1: 9432, NTT), namely, Nippon Telegraph and Telephone East Corporation (NTT East) and Nippon Telegraph and Telephone West Corporation (NTT West). The business’s main areas of operation are the Tokyo metropolitan area and the Kansai region. As shown below, the business spans the entire telecom infrastructure spectrum, from NTT’s offices to customers’ premises and all areas in between.

NTT’s Telephone Network (Internal, External, Customer Premises)

Source: Shared Research based on data from NTT Data

Source: Shared Research based on company data

Outsourced operations related to transmission-line construction for IP networks: MIRAIT works with NTT to prepare, submit, and manage construction-application documents; installs and manages relay transmission and monitoring equipment; and conducts various operations related to transmission equipment.

Transmission-line construction on NTT premises: MIRAIT installs transmission equipment and builds power-supply facilities; connects optical fibers to other telecom operators’ facilities; decommissions old facilities; and augments transmission-equipment modules and packages.

Construction of outdoor facilities: The company constructs aerial lines and underground facilities (e.g., manholes, conduit equipment, and common ducts for telecoms and electrical wires).

Provision of network circuits to end users on customer premises: MIRAIT installs fiber optics terminals, sets up routers, and trenches for incoming lines for telecom operators.

Advanced Wireless Environment Development Promotion Project business: The company installs optical fiber to ready an advanced wireless environment suitable for 5G and IoT from telecommunications carriers to the entrances of wireless stations in geographically disadvantaged regions using government subsidies.

Multi-carrier business (21.2% of sales in FY03/21; 22.0% of sales in FY03/20)

In this business, MIRAIT operates nationwide, covering everything from mobile telecommunications-related consulting to mobile network design, construction, conditioning, testing, and maintenance. The business also encompasses NCC fixed communications facilities and cable television construction.

NCC: New Common Carrier. Describes “Type I” telecoms carriers that entered the market following telecoms liberalization in 1985. Includes carriers such as KDDI Corporation (TSE1: 9433) and SoftBank Corporation (TSE1: 9984).

Trends in mobile business

Source: Shared Research based on company data