Business overview: E-J Holdings is a holding company of subsidiaries that provide civil engineering consulting services, mainly for public sector clients. These services include land surveying, geotechnical investigation, and environmental surveying in addition to maintenance of facilities and infrastructure, national and urban planning, environmental assessment, and client support services. Infrastructure projects such as bridges and roads involve five stages: conceptualization, planning, surveying, design, and construction. Civil engineering consultants are involved in all stages—from conceptualization to construction supervision—while land surveyors and geotechnical investigators take part in the surveying stage only. The company provides both civil engineering consulting and surveying services. E-J Holdings was established in June 2007 through a joint share transfer between Eight Consultants Co., Ltd. (formerly Yakumo Sokuryo, founded in March 1955 in Shimane Prefecture) and Japan Engineering Consultants Co., Ltd. (established in 1954; headquartered in Tokyo). In the 2010s, the company expanded by acquiring civil engineering consultants in various regions throughout Japan. As of May 2021, it is a holding company with 12 consolidated subsidiaries and six non-consolidated subsidiaries.
Revenue and profit composition: In FY05/21, revenue was JPY34.3bn (+13.0% YoY), gross profit was JPY11.4bn, and operating profit was JPY3.9bn (+29.3% YoY). Civil engineering consulting revenue was JPY30.2bn (87.9% of total revenue) and gross profit was JPY10.3bn (90.6% of total gross profit), versus surveying revenue of JPY4.2bn (12.1% of total revenue) and gross profit of JPY1.1bn (9.3% of total gross profit). Governmental organizations were the main customers, with Ministry of Land, Infrastructure, Transport and Tourism (MLIT) accounting for 29.8% of revenue and 29.9% of gross profit, prefectural governments for 33.1% and 35.3%, municipal governments for 16.0% and 15.1%, and other clients (private sector and overseas) for 21.1% and 19.7%.
Company characteristics: The Chugoku and Shikoku regions (Tottori, Shimane, Okayama, Hiroshima, Yamaguchi, Tokushima, Kagawa, Ehime, and Kochi prefectures), where the company’s predecessor Eight Consultants was based, is a disaster-prone region with frequent flooding and landslides. E-J Holdings claims that by experiencing these firsthand, it has developed expertise in emergency response and the prompt dispatch of personnel. The company is currently building a nationwide network through M&A to expand this knowledge across Japan.
Competitors: E-J Holdings ranks sixth in terms of revenue in the civil engineering consulting market (based on consolidated results of the most recent fiscal year as of August 2021). Competitors include Nippon Koei Co., Ltd. (TSE1: 1954) and CTI Engineering Co., Ltd. (TSE1: 9621). In FY05/21, E-J Holdings had an OPM of 11.2% and ROE of 12.2%, which were higher than the averages of 7.2% and 8.0% for nine of its closest competitors. Shared Research believes the company’s higher percentages were due to the fact that its overseas business, which has relatively low profit margins, accounts for only 0.8% of total revenue, a smaller percentage than its competitors’ overseas businesses. The company’s higher percentages were also due to the fact that orders for local government clients, which have higher profit margins than orders for the MLIT (29.8% of total revenue), account for a high percentage of the company’s total revenue (prefectural governments account for 33.1% and municipal governments for 16.0%). From FY05/19 to FY05/21, the GPM of orders for the MLIT averaged 30.0%, the GPM of orders for prefectural governments averaged 35.5%, and the GPM of orders for municipal governments averaged 32.0%.
Earnings and cost structure: Orders received is a function of the number of orders received times the average value per order. In FY05/21, orders received numbered 2,996 (-1.3% YoY) and the average value per order was JPY12.3mn (+5.4% YoY). From FY05/13 to FY05/21, the number of orders received grew at a CAGR of 1.7% and average value per order grew at a CAGR of 6.0%. The increase in the latter is explained by factors such as the plentiful amount of work, which has kept bids from becoming uncomfortably low, and an increase in personnel expenses in clients’ project forecasts. Value per order ranges from less than JPY1mn for simple orders to over JPY200mn for large projects carried out over a two-year contract period. Personnel expenses and subcontracting costs are the main cost items. For design work, personnel expenses amount to 42–43% of revenue, subcontracting costs 37–38%, and other expenses (including equipment) about 10%, with the remaining 10% being operating profit.
The bidding and ordering process: The national government and local government bodies entrust surveying and design work to civil engineering consultants when commissioning infrastructure projects. For advanced work, these government-affiliated clients use the proposal method (negotiated contract method) whereby civil engineering consultants submit technical proposals in hopes of winning a bid. While most national government projects use technical proposals, most local government projects are based on the price competition method whereby the lowest bid wins. Building a bridge entails conducting a land survey, a geotechnical investigation, and producing technical drawings. Local government bodies and other clients base their cost estimates on a standard cost estimate table (For example, in the case of building a bridge, a hole must be dug on either side of the span for the geotechnical investigation. The cost estimate table indicates the theoretical amount it should cost to dig a single hole). Each civil engineering consultant decides upon bidding prices based on costs calculated from personnel expenses and bids that competitors are expected to put forward.
Public works projects: A company’s track record is an important factor in winning bids for public works projects. For example, the MLIT evaluates contractors after the completion of an order based on certain criteria. Companies that receive favorable evaluations are awarded points to subsequent technical proposal submissions, increasing the likelihood that they will be selected to fulfill these orders. In the case of nomination bidding for local government projects, if there are around 50 companies that have submitted nomination requests through price-competitive bidding, the client will consider the past performance of each and nominate five or so that are suitable for the job.
Financial structure: The company’s cash ratio in FY05/21 was 1.8x, which appears to be high, but is actually a result of the timing at which the company’s fiscal year ends (when cash and deposits are high). In most cases, E-J Holdings completes orders for its national and local government clients in March and books revenue in the same month. In such cases, it receives payment in April or May such that cash and deposits are higher at the end of May, the company’s fiscal year-end, compared to other months. Moreover, revenue tends to concentrate in Q4 (March–May) as most revenue is recognized based on the completed contract method with only some orders using the percentage-of-completion method. Conversely, revenue is low through Q3 (June–February) and the company typically records an operating loss until Q4.
Business environment: The initial budget for public works-related expenditures in Japan from FY2018 to FY2021 was JPY6.1tn. However, in FY2018, a separate “extraordinary special measures” budget of approximately JPY7tn was set aside for implementing emergency measures for disaster prevention, disaster mitigation, and national resilience. Further, in December 2020, the Japanese government put forth the Five-Year Acceleration Measures for Disaster Prevention, Disaster Mitigation, and National Resilience, which calls for JPY15tn of spending over the five years from FY2021 to FY2025.
Growth in five key areas: E-J Holdings identifies five key areas where it expects future growth: environment and energy, natural disaster risk reduction, urban and regional revitalization, infrastructure management, and information and communications. Orders received in these areas accounted for 35.6% of the total in FY05/13 and increased to 57.7% in FY05/21. The five key areas drove growth during these fiscal years, accounting for JPY14.1bn of the JPY16.7bn in growth in orders received.
In FY05/21, revenue was JPY34.3bn (+13.0% YoY), operating profit JPY3.9bn (+29.3% YoY), recurring profit JPY4.1bn (+26.6% YoY), and net income attributable to owners of the parent JPY2.8bn (+37.2% YoY). Orders received was JPY36.9bn (+4.0% YoY) on an increase in orders for client support services. Civil engineering consulting accounted for JPY32.1bn (+2.8% YoY) of orders received, while surveying accounted for JPY4.8bn (+12.4% YoY).
For FY05/22, the company forecasts revenue of JPY35.0bn (+1.9% YoY), operating profit of JPY3.9bn (+1.1% YoY), recurring profit of JPY4.1bn (+1.1% YoY), and net income attributable to owners of the parent of JPY2.8bn (+0.6% YoY). The company targets orders received of JPY35.0bn (-5.2% YoY). The order backlog at the beginning of FY05/22 was JPY27.4bn (+12.3% YoY).
In July 2021, the company announced its long-term management plan (FY05/22–FY05/31) and medium-term management plan (FY05/22–FY05/25). For FY05/25, the company targets revenue of JPY38.0bn (CAGR of 2.6%), recurring profit of JPY4.6bn (CAGR of 3.2%), net income attributable to owners of the parent of JPY3.1bn (CAGR of 2.7%), and ROE of 10% or higher. For FY05/31, the company targets revenue of JPY50.0bn (CAGR of 3.8%), recurring profit of JPY6.0bn (CAGR of 4.0%), net income attributable to owners of the parent of JPY4.0bn (CAGR of 3.7%), and ROE of 10% or higher. The company’s dividend policy is to decide on dividends based on a target dividend on equity (DOE) of 3%.
Consistently outperforms competitors in OPM by concentrating on high-margin operations in Japan and profitable orders from local government bodies in particular
Disaster prevention and mitigation work accounts for a high percentage of revenue, giving the company an edge in capturing growth opportunities in the expanding field of public works
The holding company structure paired with aggressive M&A activity has led to group synergies while retaining the strengths of acquired subsidiaries
The company’s location outside of the Tokyo metropolitan area makes it difficult to recruit new graduates in civil engineering and architecture, which is essential for revenue growth
Public works-related revenue accounts for around 90% of total revenue, making the company’s performance vulnerable to changes in public works spending
Revenue is heavily weighted toward regional areas, making the company susceptible to a projected decline in public works projects in those areas as a result of rapid population decline
|Gross profit margin||25.1%||27.3%||29.8%||28.1%||27.8%||28.2%||29.2%||29.8%||32.6%||33.2%|
|Operating profit margin||-||4.8%||8.8%||6.8%||5.6%||5.5%||6.2%||6.5%||9.8%||11.2%||11.1%|
|Recurring profit margin||0.4%||4.9%||9.0%||7.2%||5.8%||5.5%||6.3%||6.5%||10.5%||11.8%||11.7%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||7,261||7,261||7,261||7,261||7,261||7,261||7,261||7,261||7,261||16,079|
|Treasury shares ('000)||1,652||1,652||1,552||1,521||1,521||1,521||1,521||462||458||159|
|EPS (fully diluted; JPY)||-||-||-||-||-||-||-||-||-||-|
|Dividend per share (JPY)||-||4.0||7.5||11.0||13.0||13.0||15.0||19.0||25.0||35.0||40.0|
|Book value per share (JPY)||867||997||1,140||1,276||1,317||1,287||1,372||1,335||1,494||1,601|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||6,082||7,857||10,341||9,977||9,901||11,461||9,989||10,884||14,138||18,975|
|Total current assets||9,311||11,188||14,205||14,468||14,255||16,200||14,907||16,417||20,580||26,480|
|Tangible fixed assets||3,822||3,753||3,529||3,598||3,566||3,621||4,688||4,744||5,031||5,254|
|Investments and other assets||2,928||3,344||3,389||3,443||3,126||3,356||5,054||5,376||4,253||4,529|
|Total current liabilities||4,287||5,502||6,679||5,715||4,699||5,207||6,069||5,822||9,007||10,721|
|Total fixed liabilities||2,809||2,226||1,912||1,580||1,463||3,476||3,026||2,759||1,852||1,294|
|Total net assets||9,799||11,245||13,072||14,707||15,187||14,772||15,751||18,149||20,324||25,497|
|Total liabilities and net assets||16,896||18,974||21,663||22,002||21,350||23,456||24,846||26,731||31,184||37,512|
|Total interest-bearing debt||1,990||1,515||1,482||655||456||1,049||762||528||1,327||935|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||600||2,301||2,469||812||517||1,251||-158||1,219||5,088||3,397|
|Cash flows from investing activities||263||-115||-80||-380||-185||-10||-876||-1,395||-2,247||-752|
|Cash flows from financing activities||-986||-478||-15||-887||-334||387||-436||1,021||393||1,631|
|Total asset turnover||98.6%||107.3%||109.0%||104.2%||103.7%||102.6%||106.9%||101.5%||105.0%||100.0%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||28.7%||31.1%||33.0%||33.2%||30.8%||33.0%|
|Operating profit margin||-||-||-||11.2%||-||11.1%|
|Recurring profit margin||-||-||-||11.8%||-||11.7%|
|Gross profit margin||28.7%||33.0%||35.4%||33.3%||30.8%|
|Operating profit margin||-||-||9.8%||21.1%||-|
|Recurring profit margin||-||-||10.5%||21.2%||-|
|By business (cumulative)||FY05/21||FY05/22|
|Civil engineering consulting||3,153||7,107||12,746||30,171||3,330|
|Civil engineering consulting||5,652||12,695||21,352||30,343||6,055|
|Civil engineering consulting||9,151||16,277||20,662||32,125||8,942|
|Civil engineering consulting||28,634||31,805||30,551||24,589||30,832|
|By business (quarterly)||FY05/21||FY05/22|
|Civil engineering consulting||3,153||3,954||5,639||17,425||3,330|
|Civil engineering consulting||5,652||7,043||8,657||8,991||6,055|
|Civil engineering consulting||9,151||7,126||4,385||11,463||8,942|
|Civil engineering consulting||28,634||3,171||-1,254||-5,962||30,832|
Revenue was JPY3.7bn (+8.3% YoY). On the profit front, the company posted an operating loss of JPY591mn (operating loss of JPY718mn in Q1 FY05/21), a recurring loss of JPY577mn (recurring loss of JPY653mn in Q1 FY05/21), and a net loss attributable to owners of the parent of JPY448mn (net loss of JPY482mn in Q1 FY05/21). The losses are explained by the fact that the company receives the majority of its orders from the public sector, so delivery dates tend to be concentrated toward the end of the fiscal year, which means that revenue is heavily weighted toward Q4. Meanwhile, the company incurs fixed costs and SG&A expenses each month in almost equal amounts. In other words, the business structure is such that it is difficult to turn a profit during Q1–Q3. Q1 progress was within expectations, and the company made no change to its full-year FY05/22 earnings forecast.
Gross profit margin was 30.8% (versus 28.7% in Q1 FY05/21). However, Shared Research understands that it is difficult to gauge the company’s performance with GPM for the first nine months of the fiscal year due to the abovementioned characteristic of the company’s business model.
Meanwhile, we think order backlog is an
important factor in estimating the company’s revenue for
FY05/22 as order backlog serves as the source of future revenue. At end-Q1
FY05/22, order backlog was JPY34.4bn, up JPY2.5bn YoY. If the company is to work
through the order backlog during FY05/22, revenue for the full year would be
the sum of Q1 revenue of JPY3.7bn and order backlog at end-Q1 of JPY34.4bn,
which would result in JPY38.1bn, above the company’s full-year
revenue target of JPY35.0bn. Further, having a large order backlog enables the
company to improve production efficiency.
In Q1, orders received were JPY10.1bn (-3.5% YoY). This was in line with the company forecast of JPY35.0bn (-5.2% YoY) in orders received for FY05/22. In December 2020, the Japanese government resolved to implement the Five-Year Acceleration Measures for Disaster Prevention, Disaster Mitigation, and National Resilience and budgeted JPY15tn to this end for the five years from FY2021 to FY2025. Because FY2021 budget covered a 15-month period from January 2021 to March 2022, the government placed orders with the company early in the year. In other words, the company’s orders received for FY05/21 included advanced orders for FY05/22. As a result, order backlog at end-FY05/21 was JPY27.4bn, JPY3.0bn higher YoY. Due in part to this, the company expects orders received for FY05/22 to decline YoY.
E-J Holdings does not disclose segment results as it operates in only one segment, Civil Engineering Consulting. By client, of JPY3.7bn in revenue, JPY1.3bn (34.9% of revenue) was from the central government agencies, JPY1.3bn (33.9%) from local government bodies, JPY1.1bn (30.3%) from private sector companies and others, and JPY32mn (0.9%) from overseas.
As the company began applying the Accounting Standard for Revenue Recognition at the beginning of FY05/22, YoY comparisons for FY05/22 (except for orders received) use the prior accounting standard for FY05/21 figures and are given for reference only.
As a result of applying the Accounting Standard for Revenue Recognition, in Q1 revenue and cost of revenue increased by JPY283mn and JPY179mn, respectively, and operating loss, recurring loss, and pre-tax loss each shrank by JPY103mn.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
The company targets orders received of JPY35.0bn (-5.2% YoY). The order backlog at the beginning of FY05/22 was JPY27.4bn (+12.3% YoY). The company expects to pay a dividend of JPY40 per share.
E-J Holdings began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) at the beginning of FY05/22. The company’s forecast for FY05/22 reflects the application of the new accounting standard. Since the company believes that the impact of this change will be minimal, its forecast includes projections regarding YoY change (these, however, are not included in the company’s financial statement summary).
Unlike services provided by construction companies, it is difficult to use the percentage-of-completion method for civil engineering consulting services because the latter’s value cannot be represented incrementally by progress reports, but only as a whole when services have been delivered and construction completed. Therefore, although the revenue recognition standard will change in FY05/22, it will continue to be based on the completed contract method. However, the changes will grant the ability to account for completion of each part of a project on a piecemeal basis. Specifically, when carrying out a project that includes surveying and design work, a company will be able to recognize revenue for the surveying portion when the survey is completed. Under the new standard, single projects can be broken down into parts and completed one at a time. In addition, the standard will allow client support services revenue to be recorded on a percentage-of-completion basis determined by the number of people supported each month.
In December 2020, the Japanese government put forth the Five-Year Acceleration Measures for Disaster Prevention, Disaster Mitigation, and National Resilience, which calls for the spending of JPY15tn over the five years from FY2021 to FY2025. The supplementary budget in the 15-month budget for FY2021 included early orders, of which E-J Holdings received approximately JPY1.5bn in FY05/21 for the promotion of acceleration measures. The 15-month budget is a fiscal management tool in which the supplementary budget and the following year’s initial budget are lumped together in the fall. The rationale for using this kind of arrangement is to ensure that work can proceed seamlessly from January to March in accordance with demand without having to wait for the budget to renew in April of the following fiscal year. Both budgets are to be approved by the Cabinet in December. The FY2020 budget was JPY1.1tn to ensure solid headway in implementing the Three-Year Emergency Response Plan for Disaster Prevention, Disaster Mitigation, and Building National Resilience. The FY2021 budget for disaster prevention, disaster mitigation, and national resilience (to ensure safety and security) was JPY3.1tn, a threefold increase.
The initial budget for public works-related expenses in FY2021 was JPY6.1tn. However, E-J Holdings estimates that the public works budget will decrease by 15% YoY as local government bodies allocate substantial resources to deal with the COVID-19 pandemic. Meanwhile, the official development assistance (ODA) budget (targeting overseas projects) for FY2021 was JPY568.0bn, but it is possible that the pandemic will cause delays in operations due to travel restrictions and the implementation of quarantine policies.
The company expects operating profit to rise by 1.1% YoY due to IT investment to improve operational efficiency, higher personnel and training expenses to strengthen human resources, and higher R&D expenses for business expansion.
|Results vs. Initial Est.||FY05/12||FY05/13||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Revenue (Initial Est.)||16,900||18,000||19,500||22,000||23,200||24,200||25,000||26,500||29,000||33,000|
|Results vs. Initial Est.||0.1%||6.9%||13.6%||3.4%||-3.1%||-5.0%||3.3%||-1.2%||4.8%||4.0%|
|Operating profit (Initial Est.)||150||550||950||1,400||1,510||1,500||1,400||1,630||2,000||3,000|
|Operating profit (Results)||-33||926||1,943||1,548||1,250||1,274||1,594||1,711||2,984||3,857|
|Results vs. Initial Est.||-||68.4%||104.5%||10.6%||-17.2%||-15.1%||13.9%||5.0%||49.2%||28.6%|
|Recurring profit (Initial Est.)||230||580||950||1,500||1,610||1,550||1,450||1,690||2,100||3,100|
|Recurring profit (Results)||63||947||1,986||1,630||1,293||1,260||1,639||1,709||3,203||4,054|
|Results vs. Initial Est.||-72.6%||63.3%||109.1%||8.7%||-19.7%||-18.7%||13.0%||1.1%||52.5%||30.8%|
|Net income (Initial Est.)||30||400||880||900||1,300||1,000||1,000||1,050||1,300||2,000|
|Net income (Results)||-83||1,058||1,703||1,398||943||-293||966||1,261||2,029||2,784|
|Results vs. Initial Est.||-||164.5%||93.5%||55.3%||-27.5%||-129.3%||-3.4%||20.1%||56.1%||39.2%|
In July 2021, the company released its medium- (FY05/22–FY05/25) and long-term (FY05/22–FY05/31) management plans. Toward achievement of the 10-year long-term plan, the company plans to formulate three medium-term plans of four years, three years, and three years. In FY05/25, it targets revenue of JPY38.0bn, recurring profit of JPY4.6bn, net income attributable to owners of the parent of JPY3.1bn, and ROE of 10% or higher. In FY05/31, it targets revenue of JPY50.0bn, recurring profit of JPY6.0bn, net income attributable to owners of the parent of JPY4.0bn, and ROE of 10% or higher.
The company’s dividend policy is to decide on dividends based on a target dividend on equity (DOE) of 3%, while taking into account factors such as business environment, profit level, and dividend payout ratio. DOE was 1.8% in FY05/20 and the company forecasts it at 2.3% in FY05/22.
The long-term vision is for the group to fulfill the following roles: (1) contribute to reducing environmental impact, (2) contribute to the creation of a sustainable and resilient society, and (3) contribute to the resolution of issues for and revitalization of local communities. The basic policies of the long-term vision are based on ESG management and include the following four priorities.
Bolster measures to reduce environmental impact: Contribute to the formation of a resilient, recycling-oriented society by promoting the spread of measures to reduce environmental impact such as renewable energy initiatives.
Contribute to the creation of a sustainable and resilient society: Contribute to the creation of a safe and secure society through the development and maintenance of high-quality infrastructure in Japan and overseas, in addition to measures to improve and revitalize local environments.
Practice diversity management: Proactively develop a diverse range of personnel to create comfortable workplaces and rewarding jobs.
Strengthen governance to build optimal systems: Develop a governance system that emphasizes compliance and risk management, enhance management transparency, and strengthen relationships with stakeholders.
E-J Holdings views the three years from FY05/22 to FY05/25 as a period for developing and shoring up its foundation toward achievement of its long-term management plan. It will work to strengthen and thoroughly leverage existing businesses and address new needs. The company’s core competencies are (1) environmental projects, (2) disaster prevention and infrastructure maintenance, and (3) administrative support.
Environmental projects: Promotion of green infrastructure, carbon neutrality, and coexistence with nature
Disaster prevention and infrastructure maintenance: Promotion of national resilience, disaster prevention, and disaster mitigation
Administrative support: Promotion of measures to address overly concentrated urban environments, smart cities, and other issues
The medium-term plan targets six key areas: (1) natural disaster risk reduction, (2) infrastructure maintenance, (3) digital infrastructure solutions, (4) environment and energy, (5) urban and regional revitalization, and (6) public management.
Natural disaster risk reduction: National resilience, disaster prevention and mitigation, business continuity planning (BCP)
Infrastructure maintenance: Extension of the service life of infrastructure, development of more advanced inspection and diagnosis systems for infrastructure
Digital infrastructure solutions: Promotion of BIM/CIM*, use of robots and AI for surveying and inspection, IOT-based advanced disaster information systems
CIM stands for “Construction Information Modeling/Management,” which was proposed by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) in 2012. It is a version of building information modeling (BIM) as applied to the construction industry. Basically, CIM refers to an initiative to improve the efficiency and sophistication of the construction production system by sharing information among related parties throughout the project. This is achieved by drafting 3D models in the planning, surveying, and design stages and linking and adding to these models in the subsequent construction and maintenance stages. In 2018, the MLIT revised the concepts of BIM and CIM based on trends of international standardization, adopting the term “BIM/CIM” to cover all instances of 3D modeling of terrain and buildings.
Environment and energy: Green infrastructure utilization, recycling (waste treatment and utilization), renewable energy
Urban and regional revitalization: Smart cities, super cities, urban and regional revitalization and renewal
Public management: CM/PM* and other client support services, PPP/PFI*, infrastructure management
*Construction management (CM) is one of the construction production and management systems widely used in the US. It ensures the interests of the client are being promoted by having the client supervise a construction manager (CMR) in all or some project management tasks at each stage of design, ordering, and construction, including design review, process control, quality control, and cost control. Project management (PM) refers to the process of achieving project results for the client in the most efficient way possible.
*A public–private partnership (PPP) is a form of public–private collaboration in which private sector funding and expertise are used to develop infrastructure. In PPPs, the public and private sectors work as partners to promote the enhancement of public services. They are related to private finance initiatives (PFIs) in that they leverage private funds and expertise. In the case of PPPs, however, the private interests are involved from the planning stage of the enterprise, and in general take on a more involved role. PFIs are a method of constructing and managing public works based on private leadership, using private sector funds, management expertise, and technological capabilities.
Differences from the five key areas that the company had previously targeted include the division of “infrastructure management” into “infrastructure maintenance” and “public management” in consideration of market growth potential, and the change of “information and communications” to “digital infrastructure solutions.” In information and communications, the main focus had been on the installation of coastal disaster prevention radios and surveillance cameras. The company now plans to work on robotics and IOT-based advanced disaster information systems. In public management, clients placed construction management (CM) orders after the Great East Japan Earthquake, and E-J Holdings expects to book CM orders in the aftermath of future disasters. Moving forward, the company expects that public works projects will require public–private partnerships (PPPs), private finance initiatives (PFIs), and other collaborations involving the private sector, and it intends to develop these as new businesses. The company does not expect that the revenue generated through the six key areas will change significantly from the revenue created through the former five key areas.
The company targets overseas revenue of JPY1.0bn (2.6% of total revenue) in FY05/25. It plans to rebuild its overseas business base, including through M&A activity, mainly in Southeast Asia where the infrastructure development market is expanding in tandem with economic development.
The company plans to invest approximately JPY4.0bn (from FY05/22 to FY05/25) in the following areas:
Digital transformation (DX) to achieve business process reforms and improvements in production efficiency
Business continuity planning (BCP; including countermeasures against infectious diseases) and improvement of work environments to accommodate diversified working styles
R&D for the development of new technologies related to national resilience such as disaster prevention and mitigation and aging infrastructure technologies
Education and training for the recruitment of diverse personnel and the skill development of personnel
Investments for M&A are not included within this amount.
Currently, the most time-consuming part of data creation is done by humans. The company is planning to make significant changes in this area through digital transformation (DX). The biggest movement will be the application of BIM/CIM. Previously, 3D data was converted to 2D, 2D deliverables were created, and then the data was converted back to 3D during construction. Drafting designs using 3D computer-aided design (CAD) from the beginning makes it possible to obtain 3D data automatically. In addition to reducing design errors, this makes it possible to display the finished product in three dimensions and use virtual reality (VR) and augmented reality (AR) to present final designs in an easy-to-understand manner and illustrate landscape elements, such as the shadows created by nearby trees.
The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) in principle requires BIM/CIM to be used in detailed designs of large-scale projects such as bridges and tunnels for orders placed in FY2021. By FY2023, the ministry will require BIM/CIM for all detailed design and construction work except for small-scale projects. This will make it impossible for companies without BIM/CIM technology to receive orders. Currently, the company is taking steps to provide technical guidance by holding in-house training sessions. Eight-Japan Engineering Consultants Inc. in particular is feeling the need to respond to the change since it focuses on orders from the MLIT. Local government bodies are also beginning to adopt BIM/CIM, but are lagging behind the national government.
The company employs robotic process automation (RPA) to standardize simple tasks. The MLIT and other ministries are moving forward with the digitalization service delivery. E-J Holdings has been investing in equipment to cope with this trend. Eight-Japan Engineering Consultants is working to introduce a new core system to improve efficiency by reducing labor management, process management, and cost management work. The company is investing in digital transformation at the group level and at the level of each individual company. IT investment plans are made by the group. Current IT-related expenses are roughly JPY100mn per year. The company expects designing the new core system to cost about JPY200–300mn and take about two years. In order to improve the efficiency of work and digitalize service delivery, the company plans to use automated surveying equipment and increase the number of drones and other equipment. On the drone front, E-J Holdings has concluded a business alliance with Japan Infra Waymark Co., Ltd., which provides infrastructure inspection solutions using small drones that are equipped with an omni-directional obstacle avoidance function, enabling them to fly in narrow areas of bridges and other structures. The company expects to receive approximately JPY1.0bn in drone-related orders over three years. The depreciation period is five years for IT equipment and software and about seven years for drones.
E-J Holdings’ basic policy is to repay interest-bearing debt during the fiscal year if possible. However, since M&A and other factors can make this difficult, its policy is to consider syndicated loans and other measures while monitoring profitability.
E-J Holdings operates a civil engineering consultant business that provides integrated services ranging from conceptualization to construction supervision, mainly for public works projects. There are six major stages in the construction of bridges, roads, and other infrastructure: conceptualization, planning, surveying, design, construction, and maintenance and management. Civil engineering consultants are involved in all stages—from conceptualization to maintenance and management—while land surveyors and geotechnical investigators mainly take part in the surveying stage. As a general civil engineering consultant, E-J Holdings provides both civil engineering consulting and surveying services.
The company is characterized by its focus on environmental projects and disaster prevention and infrastructure maintenance, in addition to administrative support.
Environmental projects comprise environmental surveys and assessments. The company conducts preliminary surveys of the ecosystems surrounding proposed public works sites that are susceptible to environmental disruption. It also conducts environmental surveys after the completion of such projects. In its other environmental businesses, the company leverages top-level waste treatment technology to propose treatment plant designs, technologies for generating electricity with the heat produced by incineration facilities, and waste management solutions that minimize environmental impact. Group company Eight-Japan Engineering Consultants recorded waste management revenue of JPY1.9bn in FY05/21, the third-highest in Japan (source: Nikkei Construction, April 24, 2021).
Disaster prevention refers to measures taken in preparation for earthquakes and other natural disasters. Originally, Eight Consultants (now Eight-Japan Engineering Consultants, E-J Holdings’ core subsidiary) had offices in each prefecture, which it used to conduct sales and civil engineering consulting activities at the local level. It maintained the largest portion of these offices in the Chugoku and Shikoku regions. These offices were able to accurately identify environmental problems and local issues due to familiarity with their respective areas. The Chugoku and Shikoku regions are prone to natural disasters, especially flooding. By experiencing these firsthand, the company has developed expertise in emergency response and prompt dispatch of personnel. Specifically, the company has built up expertise regarding situational appraisals and damage estimates conducted before starting disaster assessment work. Each prefecture has a civil engineering association, a surveying and planning association, and a geotechnical consultants’ association, and these associations and governmental organizations have contractually agreed to preferentially discuss emergency response to natural disasters as they arise. This obligation causes the government to nominate civil engineering consultants with the ability to respond to disasters, such as E-J Holdings, when sponsoring emergency public works projects. A bidding system is in place for disaster prevention projects with low levels of urgency.
Infrastructure maintenance refers to the preservation and extension of the life of completed infrastructure. In this area, the company inspects and evaluates the degree of damage or deterioration of infrastructure and determines when it needs to be repaired or reinforced. The Japanese government has been promoting the removal of utility poles in favor of underground lines since they can block roads if blown over in a typhoon.
In the area of administrative support, with an increasing shortage of government manpower, there is a need for personnel to manage public works sites on behalf of the client to ensure that the work is proceeding according to design drawings. This task requires knowledge of design in civil engineering. Public–private partnerships (PPPs) and private finance initiatives (PFIs) are growing as a means of administrative support. In these arrangements, the private sector undertakes management of completed facilities rather than the government, which can reduce costs and improve profitability. E-J Holdings acts as an advisor to either the government-affiliated client or the private business in PFI projects.
Administrative support falls under one of two categories: stand-in work for governmental agencies ordering projects and on-site management (construction supervision). iDevelop Consultants Co., Ltd. in Fukuoka mainly engages in the former. In the past, the Ministry of Construction—the predecessor of the Ministry of Land, Infrastructure and Transport—commissioned one of its affiliated organizations to provide support services. The organization became an independent private company amid a movement toward privatization during the Democratic Party of Japan (DPJ) tenure from 2009 to 2012 aimed at relieving pressure on the private sector. At the same time, support services for government-affiliated clients were transferred to the private sector. In response, iDevelop Consultants took over outsourced government work in northern Kyushu. The company has taken over tasks managed by national and prefectural governments, including river management, and dispatches personnel to the Ministry of Land, Infrastructure, Transport and Tourism and other offices in northern Kyushu. E-J Holdings also dispatches some personnel from Eight-Japan Engineering Consultants.
Kindai-Sekkei Consultant, Inc. conducts most of E-J Holdings’ construction supervision work. It manages the construction of bridges and roads built by expressway companies such as East Nippon Expressway Company Limited., West Nippon Expressway Company Limited., and Central Nippon Expressway Company Limited. The company dispatches design engineers as on-site managers. With civil engineering professionals managing project sites, the company has built trust among its clients, which has led to business growth. In addition to construction management services, the company has recently increased profits by actively pursuing construction management (CM) projects.
The company’s administrative support orders received amount to about JPY3.1bn for Kindai-Sekkei Consultant, JPY100–200mn for Eight-Japan Engineering Consultants, and JPY1.0bn for iDevelop Consultants. As with civil engineering consultant work, orders for administrative support are awarded through a bidding process. Contracts with expressway companies are negotiated without bidding. Kindai-Sekkei Consultant tasks a group of employees to handle construction management projects. In most cases, it dispatches one on-site manager and a group of four to five employees. Administrative support contracts are typically for one year, and orders for the dispatch of one to two employees amount to JPY10–15mn. Meanwhile, some construction management contracts are for two years, and typically amount to JPY80–100mn with an average of five employees dispatched per project.
In its previous medium-term management plan, which ended at the conclusion of FY05/21, the company identified five key areas where it expected growth and worked to increase orders. These were environment and energy, natural disaster risk mitigation, urban and regional revitalization, infrastructure management, and information and communications. The government’s initial budget for public works has remained the same at JPY6.1tn from FY2018 onward. However, from FY2018 to FY2020, a separate “extraordinary special measures” budget of approximately JPY7tn was set aside for implementing emergency measures for disaster prevention, disaster mitigation, and national resilience. The company has expertise and technology in environmental projects, disaster prevention, and infrastructure management. It has selected as key areas the areas where public works budgets are increasing. The five key areas accounted for 35.6% of the company’s total revenue in FY05/13 and 57.7% in FY05/21.
Of the JPY21.3bn (+16.6% YoY) in orders received in the five key areas in FY05/21, JPY2.6bn (+73.5% YoY) came from environment and energy, JPY8.5bn (+17.5% YoY) from natural disaster risk mitigation, JPY1.1bn (-7.4% YoY) from urban and regional revitalization, JPY8.6bn (+7.6% YoY) from infrastructure management, and JPY401mn from information and communications (+43.7% YoY). Infrastructure management includes client support services. Construction management services for East Nippon Expressway have been expanding since FY05/20.
|Orders received by key area||10,548||9,168||14,666||18,271||21,297|
|% of total||39.9%||35.7%||48.3%||51.5%||57.7%|
|Environment and energy||1,872||1,205||1,655||1,524||2,644|
|% of total||7.1%||4.7%||5.4%||4.3%||7.2%|
|Natural disaster risk mitigation||3,802||3,622||5,764||7,262||8,531|
|% of total||14.4%||14.1%||19.0%||20.5%||23.1%|
|Urban and regional revitalization||927||1,259||1,140||1,209||1,120|
|% of total||3.5%||4.9%||3.8%||3.4%||3.0%|
|% of total||14.1%||11.2%||19.2%||22.5%||23.3%|
|Information and communications||213||192||270||279||401|
|% of total||0.8%||0.7%||0.9%||0.8%||1.1%|
In FY05/21, 29.8% of revenue came from orders for the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), 33.1% for prefectural governments, 16.0% for municipal governments, and 21.1% for others (private sector and overseas clients). GPMs were 33.4% for the MLIT, 35.3% for prefectural governments, 31.5% for municipal governments, 30.9% for other clients, and 33.2% for the company as a whole. Although the company does not disclose the percentage of revenue that comes from civil engineering consulting versus surveying, prefectures and municipalities form a high percentage of surveying revenue. Expressway companies are the company’s main private sector clients, but gas and utility companies are present as well.
MLIT orders generate the largest amount of revenue per order, which results in a higher GPM. Orders received from prefectural governments and municipalities have higher GPMs because the company has bases closer to these clients, which shortens travel time to job sites and means it can reap the benefits of being more familiar with local conditions.
|% of total||25.8%||27.0%||29.8%|
|% of total||36.4%||33.2%||33.1%|
|% of total||19.1%||19.6%||16.0%|
|% of total||18.7%||20.2%||21.1%|
|% of total||23.5%||24.3%||29.9%|
|Gross profit margin||27.2%||29.4%||33.4%|
|% of total||42.0%||37.4%||35.3%|
|Gross profit margin||34.3%||36.7%||35.3%|
|% of total||19.5%||20.4%||15.1%|
|Gross profit margin||30.4%||34.0%||31.5%|
|% of total||15.0%||17.9%||19.7%|
|Gross profit margin||24.0%||28.9%||30.9%|
|Gross profit margin||29.8%||32.6%||33.2%|
|Orders received by client||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|% of total||28.6%||32.0%||32.3%||35.8%||38.9%|
|% of total||37.4%||33.9%||35.2%||31.2%||30.6%|
|% of total||19.1%||19.8%||19.7%||17.9%||15.3%|
|% of total||10.3%||13.2%||10.9%||14.6%||13.9%|
|% of total||4.5%||1.0%||1.9%||0.5%||1.4%|
|Orders received by region||FY05/13||FY05/14||FY05/15||FY05/16||FY05/17||FY05/18||FY05/19||FY05/20||FY05/21|
|Hokkaido and Tohoku||3,351||3,845||3,278||3,333||3,723||3,528||3,747||4,691||4,362|
|% of total||16.5%||15.8%||14.8%||14.7%||14.1%||13.7%||12.3%||13.2%||11.8%|
|% of total||16.7%||15.7%||19.5%||21.4%||20.7%||20.3%||19.6%||22.1%||20.1%|
|% of total||10.1%||8.4%||9.8%||8.0%||7.5%||7.5%||8.9%||9.2%||8.1%|
|% of total||12.5%||14.3%||12.5%||12.2%||13.5%||16.2%||17.0%||16.3%||17.3%|
|% of total||22.6%||23.5%||23.0%||23.5%||22.4%||24.1%||24.4%||21.7%||22.3%|
|% of total||17.8%||14.8%||13.6%||13.5%||11.9%||13.3%||12.0%||10.2%||10.5%|
|% of total||4.7%||5.2%||4.1%||4.2%||5.3%||3.7%||3.9%||6.8%||8.5%|
|% of total||3.0%||2.3%||2.7%||0.0%||4.5%||1.0%||1.9%||0.5%||1.4%|
Of the JPY36.9bn in orders received in FY05/21, JPY14.3bn (38.8% of total revenue) was for technical proposal services. Orders from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) involve a large number of technical proposal projects, but generating these proposals is costly, and the larger the project, the greater the number of consultations necessary to complete it. The MLIT demands high-quality work with more drawings than other clients, and this takes more time and money to deliver. Undertaking work for the MLIT promotes the company’s brand, but profit margins are not as high as for other clients.
However, E-J Holdings believes that the number of orders from local governments will not grow moving forward, while the number of orders from the MLIT will increase. Therefore, it assumes that if it does not receive orders from the MLIT and other central government agencies, there is a risk that the volume of work will decline in the future. The company thus aims to obtain high evaluations for its engineers by securing a track record of successful technical proposal services. Having highly evaluated engineers on its staff will lead to a higher appraisal of its technical abilities.
|Of which, technical proposal services||7,193||9,014||8,892||7,731||8,861||8,237||9,489||11,977||14,305|
|% of total||35.5%||37.1%||40.1%||34.0%||33.5%||32.0%||31.2%||33.7%||38.8%|
Eight-Japan Engineering Consultants established an office in Bangkok, Thailand in 2014, an office in Myanmar and a business alliance in Vietnam in 2018, and a local subsidiary in Thailand in 2020.
In FY05/21, overseas revenue was JPY287mn (-27.3% YoY; 0.8% of total revenue). The decline was due to the impact of COVID-19 and security issues in Africa. By region, Africa and Southeast Asia account for half of overseas revenue, with many official development assistance (ODA) projects. The company hopes to expand its business in Thailand, Vietnam, and Cambodia in the future. It plans to mainly focus on waste management and infrastructure maintenance overseas. It is working with universities in Thailand and Vietnam to increase awareness of its expertise and to sell non-ODA project work.
The company’s low overseas ratio is due in part to improvement in the Japanese market and the fact that the company uses overseas personnel to support operations in Japan. That said, industry competitors have been acquiring overseas companies and increasing their overseas ratios, and E-J Holdings is considering the acquisition of overseas companies as well.
E-J Holdings Inc. is a holding company that manages and controls the group. As of May 2021, there were 12 consolidated subsidiaries and six non-consolidated subsidiaries operating under it. Among the consolidated subsidiaries, Eight-Japan Engineering Consultants engages in civil engineering consulting, while the other consolidated subsidiaries focus on their own strengths. Although there is some competition among the subsidiaries, they essentially operate in separate fields. Clients avoid appointing more than one company from the same group in competitive bidding.
E-J Holdings’ biggest role is to promote cooperation among group companies, coordinating the strengths of each to capture orders and produce a whole greater than the sum of its parts. Group companies can handle different parts of a project. For example, a subsidiary can conduct geotechnical investigations of an area, while Eight-Japan Engineering Consultants designs the structures to be built. When attempting to win bids, the company appeals to the fact that it uses engineers with specialized knowledge of each geographical area. The company utilizes the expertise of its group companies and bundles geotechnical investigation and civil engineering consultation as a set when bidding for projects. E-J Holdings also coordinates with the different industries involved and checks for compliance with the Labor Standards Act and other regulations.
|Eight-Japan Engineering Consultants|
|Recurring profit margin||1.1%||4.9%||9.6%||7.6%||6.0%||5.1%||6.4%||6.3%||9.4%||9.8%|
|Recurring profit margin||1.9%||6.8%||9.2%||6.5%||4.2%||6.7%||5.3%||7.4%||14.3%||16.4%|
Eight-Japan Engineering Consultants is E-J Holdings’ core operating company. It has three core competencies: environmental projects, disaster prevention and infrastructure maintenance, and administrative support.
Kindai-Sekkei Consultant specializes in (1) road and bridge design, (2) planning for the elimination of utility poles in urban areas and utility tunnel design, (3) project management at bridge and tunneling shield construction sites, and (4) construction management. It has the largest share (20–25%) of utility pole elimination work ordered by the Japanese government.
Japan Infrastructure Management provides a wide range of services, including client support, construction management, temporary staffing, and maintenance and management supervision of national infrastructure, in addition to civil engineering consulting services, such as measurement, survey, and design work. In construction management and temporary staffing, it provides services to a wide range of clients, including expressway companies, general contractors, and NHK affiliates.
E. Kyoritsu has introduced the latest technologies such as drones, 3D laser measurement, and 3D design (building information modeling [BIM] and construction information modeling/management [CIM]) technology, and is promoting new technological innovation. It has been awarded the first order for 3D design work from Shimane Prefecture due to its cutting-edge technological prowess.
Kyoritsu Kouei engages in land surveying, third-party compensation, and civil engineering consulting services, with a focus on the geotechnical investigation field. It is proactively adopting advanced technologies such as 3D surveying and 3D design, including disaster work and rockfall protection work utilizing drones.
Toshi Kaihatsu Sekkei mainly designs water and sewage systems, but in recent years, it has also been providing services related to infrastructure maintenance, such as deterioration diagnosis, seismic design, and life extension planning for aging facilities.
Hokkaido Kindai-Sekkei Consultant specializes in (1) road and bridge design, (2) planning for the elimination of utility poles in urban areas and the design of utility tunnels, and (3) client support services. It has the largest share of utility pole elimination work ordered by the Hokkaido Regional Development Bureau.
Ark Consultant primarily engages in general land surveying, civil engineering consulting, and third-party compensation consulting.
iDevelop Consultants specializes in assisting the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) and prefectural and municipal administrations with document preparation and surveys for road and river management and construction in each prefecture of Kyushu.
Futagami Architects & Associates mainly engages in the design and supervision of everything from medical and welfare facilities to condominiums and factories.
Daimic mainly engages in civil engineering consulting related to civil engineering design for bridges, roads, rivers, and utility tunnels in Tochigi Prefecture.
In FY05/21, E-J Holdings received 2,996 (-1.3% YoY) orders with an average value of JPY12.3mn (+5.4% YoY). The increase in value per order is due to the plentiful amount of work to be done, which has pushed bids up to more reasonable levels, and an increase in personnel expenses in clients’ project forecasts. The company believes that some of the increase is due to an increase in the number of orders, which has made it necessary for government clients to outsource work. Value per order ranges from JPY1mn or less for negotiated contracts to JPY200mn or more for large projects lasting two years. Technical proposal work demands higher value per order than other types of services. Projects tend to increase in size according to the size of the client; orders for prefectural governments are larger than those for municipal governments, and orders for the national government are larger than those for prefectural governments.
Civil engineering consulting commands higher value per order (about JPY15mn) than does surveying (about JPY4–5mn). Survey work is performed along with civil engineering consulting in some cases. In such cases, 20–30% of order value will be for surveying.
|Value per order||7.7||9.4||9.2||9.1||9.9||9.4||10.4||11.7||12.3|
|No. of orders received||2,615||2,582||2,397||2,490||2,670||2,732||2,926||3,036||2,996|
|Total orders received||20,251||24,317||22,165||22,731||26,430||25,705||30,378||35,491||36,902|
To take a concrete example, suppose there is a river in a certain area, and the local residents request that a bridge be built to improve convenience. In response, the prefectural government and others study how to build the bridge. They entrust the surveying and design work to a civil engineering consultant, and if the project is difficult and requires specialized skills, they bill for the drafting of a proposal. The prefectural government client orders construction based on the design delivered by the civil engineering consultant.
Most of the surveying and design work ordered by local government bodies are awarded through the price-competition method of bidding. Surveying including geotechnical investigation is required to build a bridge since they are designed based on a boring survey used to determine the strength of the foundation and whether it will safely support a heavy bridge.
If there are, for example, 50 companies that have submitted nomination requests, the client nominates five to 10 suitable companies from among them to enter the bidding process. This system is called nomination bidding. Nomination applications are submitted not on a project-by-project basis, but in general by type of work (civil engineering consulting, surveying, geotechnical investigation, compensation consulting, or civil engineering). Nominations are renewed every two years. After receiving a nomination, each contractor quotes a price for the order based on drawings, specifications, and construction schedule. Having nominees compete in this way ensures the client will pay the lowest price.
The personnel expenses that clients pay are fixed. The highest-ranked chief engineer costs about JPY100,000 per day while technicians cost about JPY20,000 per day. The client estimates personnel expenses based on a standard cost estimate table. Generally, companies do not have employees who earn JPY100,000 per day. Therefore, they determine which employees to designate as chief engineer with reference to the actual salaries they expect to pay them, and use these figures, along with what they expect competitors to bid, to decide on their bid offer. Costs other than personnel expenses tend to be the same across companies. Since it is hard to differentiate based on the quality of work itself, it is important that companies wishing to win bids have a solid understanding of the local area. This is because prior familiarity with the area leads to quicker and better understanding of its topography and the needs of the residents. In practice, it can mean that a field survey that normally requires three days can be completed in two days, which reduces costs.
Companies are able to bill for work that exceeds the original amount of a bid if the volume of work increases for some reason. If this falls under on-site work it is easy to clearly quantify. For example, in the case of boring, if an order is placed for 10 meters of digging, but it turns out the project actual requires 15 meters, the extra amount can simply be added to the order. Conversely, there are cases where less work is required than originally quoted, and in these cases the difference is subtracted from the order.
The Partial Revision to the Act on Promoting Quality Assurance in Public Works (Quality Assurance Act) was enacted in June 2019. It requires appropriate price estimates for public works to ensure quality even at the preliminary stage of construction, which comprises survey and design work. There was a period of excessive competition in the industry prior to the Great East Japan Earthquake, and companies that wanted to win work were contracting at below cost. However, this situation posed the risk of companies not being able to complete the work they had been entrusted and the risk of defective structures. The Quality Assurance Act was thus enacted to eliminate these risks. The need to deliver quality public works infrastructure to the people of Japan while developing the construction industry and maintaining engineering capabilities has driven annual increases in personnel expenses. This has led to an improvement in the E-J Holdings’ profitability. The company does not set a standard for GPM when determining bids, but it thinks that a GPM of about 30% is the minimum level that should be secured to ensure business continuity.
In the case of competitive nomination bidding, the only cost incurred prior to the bidding process is getting confirmation from the client. Proposal work meanwhile requires four to five engineers to visit the site and prepare a proposal in roughly one week, and costs about JPY1–2mn for large projects.
Lead time from the receipt of an order to the booking of revenue is one year or less in most cases. However, some orders for expressway maintenance projects have lead times of two or three years.
The company’s main costs are personnel expenses and subcontracting costs. In surveying work, taking data on site requires expensive equipment, which results in a higher ratio of equipment costs. In design work, personnel expenses account for 42–43% of revenue, subcontracting costs for 37–38%, and other expenses including equipment costs for about 10%, with the remaining 10% being profit.
The GPM for the period from FY05/12 to FY05/20 was in the mid-20% to low-30% range. Before the Quality Assurance Act went into effect, low bids were common and GPM had fallen. However, GPM has improved in recent years thanks to the law coming into effect, which caused an increase in client cost estimates and an increase in the amount of work available, which in turn led to improved efficiency.
The SG&A expense ratio for FY05/12–FY05/20 ranged from 21% to 23%, with the exception of FY05/12. The company aims to keep it within 22% to 23%. Its plan calls for an SG&A expense ratio of around 21%.
Of the company’s 1,621 employees as of May 2021, 1,156 were engineers, including 1,007 in the civil engineering consulting business (969 civil engineering consultants and 38 compensation consultants), 149 were in the surveying business (39 surveyors and 110 geotechnical investigators). The remaining 465 were in administrative divisions.
Hiring is becoming more difficult as the number of students studying civil engineering declines. E-J Holdings hires fewer than 50 people every year. The company prefers students who are studying civil engineering, but it also hires many students studying architecture and environmental science. In recent years, it has become difficult for the company to hire the students it wants because many are interested in so-called “soft” fields such as planning and environmental science, and few want to work in so-called “hard” fields such as structural engineering, geology, and river science, which are more related to the company’s business. It takes four to five years to become a full-fledged engineer. Training used to consist of a two-week orientation on the company and its operations, but since FY05/18, it has instead sent students to actual work sites for two to three months of on-the-job training. However, this kind of training is currently suspended due to the COVID-19 pandemic. In FY05/22, Eight-Japan Engineering Consultants launched the “E-J Academy” as an in-house university (a system that aims to improve the skills of employees by creating an environment where they can study independently) and started systematic education mainly for young employees. The company plans to expand this program within the group in FY05/23.
R&D expenses, a part of SG&A expenses, are relatively low, coming in at JPY61mn in FY05/20. This is because the company is able to rent facilities from universities and research institutes, so it does not have to spend much on its own facilities. R&D expenses include computers and software for analysis. Many R&D personnel are also involved in work on other projects, and there are only a few employees dedicated solely to R&D.
|Salaries and allowances||1,753||1,724||1,767||1,851||1,918||1,932||2,120||2,173||2,320||2,451|
|Retirement benefit expenses||111||102||86||88||63||96||105||95||107||81|
|Statutory welfare expenses||337||395||435||463||473||483||540|
|Provision for share awards for directors||16||18||22|
|Provision for share awards for employees||8||10||9|
|Statutory welfare expenses||554||611||667|
|Travel and transportation expenses||174||174||179||189||207||200||224||237||207||131|
|Provision for doubtful accounts||15||1||0||4||0||0||2||0||0|
|Amortization of goodwill||170||98||98||98||98||98||102||5||97||125|
The company’s cash ratio for FY05/21 was 177.0%, which appears to be high, but is actually a result of the timing at which the company’s fiscal year ends (when cash and deposits are high). During FY05/21, the company’s cash and deposits fluctuated between JPY9.4bn at end-Q1, JPY10.5bn at end-Q2, JPY9.9bn at end-Q3, and JPY19.0bn at end-Q4. Revenue for work for national and local governments is often booked in March. Payments are made in April and May, and there is a lot of cash at the end of May, which is the end of the fiscal year. However, the company receives almost no payments until May of the following year. Therefore, cash and deposits decrease through Q3 (June–February) as the company has to make many expenditures including personnel, outsourcing, and other expenses. Short-term borrowings increase in Q2 (September–November) and Q3 (December–February). The company tends to record an operating loss from Q1 to Q3 because it incurs upfront expenses, and the revenue associated with these expenses is not recorded until March.
The main points to note about the company’s performance are as follows:
Revenue is concentrated in Q4 (March–May) because it is based on the completed contract method. Revenue tends to be low through Q3 (June–February), resulting in operating loss.
Trends in orders received and production through Q3 (June–February) significantly affect the attainment of full-year revenue targets.
The majority of orders received in Q4 (March–May) contribute to revenue in the following fiscal year.
The company is vigorously pursuing M&A activity and business alliances, taking into account the complementary nature of its business areas and the effectiveness of its specialized technologies. Each region has a different urban landscape, different challenges, and different infrastructural needs, and companies with strong local presences have the deepest understanding of these local conditions. It is important to collaborate with local schools and universities to share academic knowledge. Since local government bodies form maintenance committees that include university representatives, it is also necessary to work with universities to absorb information and devise countermeasures
The company recognizes that it has weak sales capabilities in the Hokuriku, Hokkaido, and Chubu regions, and it plans to strengthen these through M&As. It plans to build a system where it can receive and handle orders anywhere in Japan. The company is also targeting the acquisition of IT startups and agriculture-related companies to promote the use of IT.
In addition, the company believes that agriculture-related businesses will develop in new directions. Some municipalities have only agriculture or forestry as industries, and the company believes that it is not possible to revitalize these places without basing revitalization efforts on these industries. Therefore, the company needs to accumulate knowledge on how to coordinate agriculture to revitalize rural areas. As a stepping stone toward this goal, the company has established Enjoy Farm Co., Ltd. (unlisted; engages in events and public relations for regional revitalization, designated management of agriculture, forestry, fisheries, and livestock products), Strawberry Farm Co., Ltd. (unlisted; summer strawberry cultivation), and Nakawood Co., Ltd. (unlisted; utilization of local materials) as special purpose companies with the future growth of agricultural businesses in mind.
When bidding for projects, the company submits a list of achievements and clients evaluate its record. The criteria are whether the company has done a lot of similar work in the past and how much experience it has in the relevant prefecture. Under this system, a company without knowledge of each region will have difficulty accumulating a track record of projects. This means it is a priority for the company to increase its presence in areas where it is weak.
In FY05/19, E-J Holdings made Ark Consultant a group company in Okayama Prefecture, where the company is headquartered. Ark Consultant has a base in the north-central part of Okayama Prefecture, ensuring that this base’s operations will not overlap with the group’s existing base in the southern part of the prefecture. This move will facilitate mutual support and enhance the group’s sales capabilities in Okayama Prefecture. In FY05/20, E-J Holdings also added to the group iDevelop Consultants in Fukuoka Prefecture, which is strong in client support services; Futagami Architects & Associates in Hyogo Prefecture, which is strong in architecture and urban development; and Daimic in Tochigi Prefecture, which is strong in environmental assessment.
The Kyushu region, where iDevelop Consultants is located, accounts for a relatively low share of the group’s business. E-J Holdings expects the acquisition of iDevelop Consultants to increase Kyushu’s share of orders. The group previously had no offices in Tochigi Prefecture, where Daimic is located. Adding Daimic to the group should bolster its sales capabilities in the prefecture. Futagami Architects & Associates will add its strength in the field of local development to strengthen the group’s one-stop service capabilities. E-J Holdings believes that its holding company structure will allow each group company to expand within its own field as it cooperates with others rather than competing with them.
Each group company contracts with private insurance providers for compensation insurance. These contracts cover compensation insurance for the civil engineering consultant business, compensation for bodily injury, and compensation for harm caused by the work. In case of mistakes or noncompliance in the completed work, the company receives a claim for damages from the client and applies to the insurance company for payment to the client. This will push up premiums for the following year and beyond. Most compensation cases can be covered by insurance.
The company’s only business is civil engineering consulting, but it discloses two types of services within this field: civil engineering consulting services, which involve everything from planning to construction supervision, and surveying services, which involve land surveying and geotechnical investigation, which are part of civil engineering consulting services.
|Civil engineering consulting||14,296||16,047||18,415||19,237||19,111||20,024||22,171||22,548||26,077||30,171|
|% of total||84.5%||83.4%||83.1%||84.6%||85.1%||87.1%||85.9%||86.2%||85.8%||87.9%|
|% of total||15.5%||16.6%||16.9%||15.4%||14.9%||12.9%||14.1%||13.8%||14.2%||12.1%|
|Civil engineering consulting||6,745||8,663||10,335|
|% of total||86.5%||87.3%||90.6%|
|Gross profit margin||29.9%||33.2%||34.3%|
|% of total||13.5%||12.7%||9.3%|
|Gross profit margin||29.2%||29.2%||25.6%|
|Civil engineering consulting||14,532||16,389||18,997||18,949||18,973||20,920||22,134||23,306||27,285||30,343|
|% of total||83.3%||84.1%||82.9%||84.5%||85.7%||87.1%||85.7%||85.8%||86.6%||87.6%|
|% of total||16.7%||15.9%||17.1%||15.5%||14.3%||12.9%||14.2%||14.2%||13.4%||12.4%|
|Civil engineering consulting||6,550||7,490||9,483||8,920||9,617||12,775||12,590||16,096||22,207||24,589|
|% of total||82.3%||83.5%||85.2%||84.5%||89.0%||89.6%||89.0%||87.7%||91.0%||89.8%|
|% of total||17.7%||16.4%||14.8%||15.4%||11.0%||10.4%||11.0%||12.3%||9.0%||10.2%|
|Civil engineering consulting||14,992||16,988||20,407||18,675||19,808||23,181||21,986||26,054||31,240||32,125|
|% of total||82.3%||83.9%||83.9%||84.3%||87.1%||87.7%||85.5%||85.8%||88.0%||87.1%|
|% of total||17.7%||16.1%||16.1%||11.2%||12.9%||12.3%||14.5%||14.2%||12.0%||12.9%|
FY05/21 revenue per employee by business was JPY31.2mn for civil engineering consulting and JPY28.0mn for surveying. Gross profit per employee was JPY10.7mn for civil engineering consulting and JPY7.2mn for surveying. Revenue and gross profit per employee tend to be low for compensation consulting (a part of civil engineering consulting) and for land surveying (a part of surveying) because revenue per order is low. However, the company believes that having compensation consulting and surveying services will allow it to take on a wider range of projects, and larger projects, which should improve its efficiency in terms of consolidated results.
|Number of employees|
|Civil engineering consulting||733||793||832||929||1,007|
|Civil engineering consulting||698||758||794||896||969|
|Revenue per employee|
|Civil engineering consulting||27.9||29.1||27.8||29.6||31.2|
|Gross profit per employee|
|Civil engineering consulting||8.3||9.8||10.7|
A civil engineering consultant is a company that has specialized skills in civil engineering and construction and makes technical proposals to national government agencies (such as the Ministry of Land, Infrastructure, Transport and Tourism), local government bodies, and private companies. Civil engineering consultants also handle the necessary plans, proposals, surveys, and designs for projects on behalf of ordering organizations. “Specialized skills” refers to the knowledge and technologies necessary for planning the development and maintenance of infrastructure such as roads, ports, airports, agricultural facilities, and river-related structures, and formulating disaster prevention plans. The term also applies to environmental conservation technologies. Civil engineering consultant companies employ engineers who possess these skills and have the necessary qualifications and achievements to make proposals. The main qualifications are professional engineer, registered civil engineering consulting manager (RCCM), surveyor, geotechnical investigator, civil engineering construction managing engineer, environmental measurement specialist, compensation management specialist, and architect.
In Japan, during the prewar period, industrial infrastructure and the infrastructure supporting daily life was often developed directly by the government. After World War II, demand for infrastructure increased due to reconstruction and the volume of projects expanded rapidly, prompting the private sector to begin to utilize its technological capabilities for a series of tasks, excluding planning. In 1959, the Ministry of Construction issued a notice titled “Contract Method for Outsourcing Design Work for Civil Engineering Projects,” which clarified the principle of separation of design and construction, stipulating that civil engineering consultants should be responsible for design, and general contractors should be responsible for construction.
The reason for this principle is that if design and construction are carried out by the same entity, the contractor may draft a design that is more convenient for its own interests. The principle of separating design and construction was introduced to eliminate this possibility of disadvantage to the ordering organization. The principle has been the basis for the establishment and development of civil engineering consultants who provide services such as surveying, planning, and design.
In 2005, the Act on Promoting Quality Assurance in Public Works was enacted to create an environment for the implementation of the design-build method, based on the belief that in some public works projects, it is more efficient to use the design-build method to properly reflect the expertise of contractors and manufacturers. In 2009, the Design-Build and Construction Order System with Detailed Design was established as the standard for public works project ordering. According to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s State of Regional Development Bureau Construction Contracts (Excluding Ports and Airports), the number of projects using the design-build method has been limited to about one per year in recent years. The design-build method has been used only in times of large-scale disasters when restoration work must be done quickly; the Great East Japan Earthquake in 2011 led to five such projects in 2012.
When implementing public works projects, there are times when private land must be acquired or buildings relocated. In such cases, the national or local government client provides appropriate compensation for losses to the landowners, tenants, and other parties concerned. Companies and individuals who are contracted by national or local governments to provide services related to such compensation are called compensation consultants. This is an important aspect of the design process, and if it does not proceed smoothly, construction will stall and/or the cost of construction will swell. General civil engineering consulting services usually include compensation consulting. Civil engineering consulting companies such as NJS Co., Ltd. and OYO Corporation that specialize in certain fields do not provide compensation consulting services. E-J Holdings believes that it is important for general civil engineering consultants to provide compensation consulting services because it is difficult to estimate the overall cost of a project without knowing how much compensation is likely to run. General civil engineering consultants tend to be more likely to be awarded large projects.
According to the Construction Business Act, anyone wishing to participate in bidding for public works projects must undergo a management assessment every fiscal year. Companies are scored based on the annual average amount of completed work by type of construction, the amount of shareholders’ equity, the number of staff, an analysis of the management situation, and the number of engineers. The client adds the score of this objective management assessment to their subjective “technical assessment” to get an overall score. It then ranks companies based on their scores and produces a list of the companies that meet certain criteria. Each client builds such a list every two years. The client determines which companies are allowed to bid for what size of projects based on the management capabilities of each. Companies that qualify under these conditions can submit bids for individual projects. Bidding eligibility conditions include ranking in a certain position versus other companies, the extent of regional presence the company has, and whether it has the minimum track record required.
There are three types of contract methods for public works: (1) the price competition method, (2) the negotiated contract method (including the proposal method), and (3) the comprehensive evaluation bidding method.
In this method, participants submit bids, and the contract is awarded to the party that offers the lowest price. However, if the quote is lower than the predetermined benchmark price, the client will select a successful bidder after investigating whether or not the contract can be properly executed at that bid price.
In this method, the national or local government client selects a contractor and concludes a contract with that company. In Japan, national and local governments must in principle use bidding in awarding contracts, and negotiated contracts are only permitted by law in certain cases. When using the negotiated contract method, it is common to obtain quotations from at least two companies.
The proposal method is a method in which the client asks participants to submit technical proposals on policies, ideas, and implementation of a project, and after conducting hearings, examines the contents of the proposals to select the party to award the contract. The proposal method is based on competition through technical proposals rather than price competition.
In this method, the successful bidder is selected based on a comprehensive evaluation of the bid price in addition to technical factors such as construction period, function, and safety.
The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) provides a detailed summary of each contract method and the method for selecting successful bidders in its Guidelines for Measures to Plan Proper Tendering and Contracting for Public Works.
The price competition method is applied when the calculation standard (definition and calculation method for each cost item of the order, such as the subcontracting cost and construction cost) is clear, the specifications (work implementation method and contents) are specified in advance, and the same results can be guaranteed regardless of who performs the work.
The negotiated contract method is applied when the project has a lot of room for technical ingenuity or requires specialized skills, and the cost standard is unclear and the specifications cannot be specified in advance. In these cases, the best results can be expected by implementing the project based on submitted technical proposals.
The comprehensive evaluation bidding method is applied when the cost standards are clear and the specifications can be determined, but technologies presented by the bidder are expected to result in a considerable difference in quality with relatively little difference in price.
According to MLIT materials on the construction contracts awarded by the ministry in FY2019, on a contract value basis, 9.3% of contract value was awarded by the price competition method, 22.2% by the proposal method, 1.4% by the special order negotiated contract method, and 67.0% by the comprehensive evaluation bidding method. In terms of the number of contracts, the price competition method accounted for 3.0%, the proposal method for 21.4%, the special order negotiated contract for 7.4%, and the comprehensive evaluation bidding method for 68.2%. In terms of contract value, for the period from 2015 to 2019, CAGRs were -0.7% for the price competition method, 4.6% for the proposal method, 25.2% for the special order negotiated contract method, and 7.9% for the comprehensive evaluation bidding method. Overall contract value rose at a CAGR of 6.4% during the period. While the percentage of contract value accounted for by the special order negotiated contract method has fluctuated from year to year, the company noted substantial growth in the percentage generated through the comprehensive evaluation bidding method.
|JPYmn||Price competition method||Proposal method||Special order negotiated contract||Comprehensive evaluation bidding method||Total|
According to the Japan Civil Engineering Consultants Association’s FY2019 Report on Actual Conditions of Bidding and Contracting Methods in Prefectures and Government-Designated Cities (FY2018 Survey of Work Ordered), 84.2% of orders were placed using the price competition method, 5.1% using the comprehensive evaluation bidding method, 0.3% using the proposal method, and 10.3% using the special order negotiated contract method. Most of the contracts are based on the price competition method.
According to the Ministry of Finance’s Japan’s Fiscal Data, the initial budget for public works expenditure in FY2020 was JPY6.1tn, the same amount as in FY2019. After the supplementary budget, the figure was JPY9.3tn (+9.4% YoY). The initial budget for public works was flat from FY2018 to FY2020, but a separate budget of about JPY7tn was set aside for “extraordinary special measures” for disaster prevention, disaster mitigation, and national resilience. Since FY2019, the government has been promoting a greater focus on disaster prevention and mitigation and national resilience by establishing new individual subsidy programs for river canal excavation (for flood prevention), the removal of utility poles and replacement with utility tunnels, and measures targeting aging infrastructure. In FY2020, the budget for measures to deal with aging infrastructure expanded by a dramatic 41% YoY. In December 2020, the government put forth the Five-Year Acceleration Measures for Disaster Prevention, Mitigation, and National Resilience, which details plans to spend JPY15tn over the five years from FY2021 to FY2025.
|Initial and supplementary budgets||8.5||9.9||12.5||10.5||14.2||11.2||10.5||14.9||12.2||11.5|
|Initial and supplementary budgets||11.3||10.0||8.3||8.9||8.0||7.8||7.4||7.3||8.8||6.4|
|Initial and supplementary budgets||7.8||7.0||6.3||6.4||6.5||7.5||7.0||7.6||8.5||9.3|
According to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s Survey of Construction-Related Businesses, the market for civil engineering consultants in Japan was worth JPY623bn on a contract value basis in FY2019 for the 50 largest companies. In recent years, there has been an increase in demand for infrastructure development and work related to the National Resilience Plan, and Shared Research understands that the market is expanding. The market is dominated by domestic demand, with less than 10% of the contract value coming from overseas. The size of the civil engineering consulting market is affected by public works projects from government agencies and local government bodies in Japan, and by official development assistance (ODA) budgets for overseas projects.
While the overall market for Japan (public works), Japan (private sector), and overseas projects grew at a CAGR of 3.7% from FY2009 to FY2019, E-J Holdings’ revenue grew at a CAGR of 6.2% during the same period. Similarly, from FY2014 to FY2019, the overall market grew at a CAGR of 4.9%, while E-J Holdings’ revenue grew at a CAGR of 6.0%. The reasons the company’s growth outpaced that of the market are the rising incidence of disasters, the growing need for disaster prevention, and the increased demand for client support and construction supervision services stemming from aging infrastructure and a decrease in the number of municipal employees. Around JPY2.0bn of the company’s revenue (5.8% of FY05/21 revenue) is generated from newly acquired companies.
|Japan (public works)||334,690||270,726||332,359||370,121||415,233||391,009||379,559||418,201||428,529||450,573||491,857|
|Japan (private sector)||48,979||47,805||43,378||45,341||54,735||58,825||63,094||67,622||74,300||80,997||87,865|
Much of the roads, tunnels, and other infrastructure in Japan were constructed during the Japanese economic miracle years of the mid-1950s to the early 1970s. Therefore, the percentage of infrastructure that is over 50 years old will increase at an accelerating rate over the decade spanning from 2023 to 2033.
|%||Mar. 2018||March 2023||March 2033|
|River management facility (sluice gates)||32||42||62|
To cope with the aging infrastructure, with regard to public works-related expenditures, the government expanded the budget associated with measures for dealing with aging infrastructure to an initial budget of JPY690.1bn (+41.3% YoY) and a supplementary budget of JPY128.3bn (3.0x the supplementary budget of FY2019) in FY2020, and an initial budget of JPY835.6bn (+21.1% YoY) in FY2021. On the other hand, the number of municipal employees is declining year by year, down 10.1% from 750,329 in FY2005 to 673,841 in FY2018. Moreover, the number of municipal employees in civil engineering departments decreased by 13.7% from 105,187 to 90,788 over the same period, faster than the decrease in the number of municipal employees as a whole. Furthermore, about a quarter of municipalities have no engineers on staff. For this reason, demand is growing for client support services that supplement administrative staff shortages and general technical supervision services provided by private sector companies. “General technical supervision services” refers to contracting with the same company for general engineering supervision services that provide all-encompassing project oversite, as well as multiple associated design services, to make consultation between the client and provider easier and to improve the consistency of work.
The Japanese government is promoting the transition from utility poles to utility tunnels to prevent roads from being cut off by collapsing utility poles in the event of large-scale disasters such as earthquakes, tornadoes, or typhoons, to ensure the safety and comfort of pedestrians by widening the width of sidewalks, and to create more aesthetically pleasing landscapes. However, there are approximately 36mn utility poles in Japan, and the number is increasing by 70,000 every year. Major cities in Europe and Asia such as London, Paris, and Hong Kong have completely eliminated utility poles. Japan lags behind, with only 8% of the 23 wards of Tokyo and 6% in Osaka using utility tunnels over poles in 2017.
In December 2016, the Act on Promotion of Utility Pole Removal was enacted in Japan, which stipulates basic principles, the responsibilities of the government, and the formulation of a plan for transitioning away from utility poles. In April 2018, a plan was adopted detailing comprehensive, systematic, and rapid measures for the elimination of utility poles. The plan targeted burying about 2,400km of utility lines in the three years from 2018 to 2020. Of this target, 1,400km was set as the first official plan based on the Act on Promotion of Utility Pole Removal. Roads covered by the plan include emergency transportation roads, roads requiring barrier-free access such as those around train stations, and roads around World Heritage sites. 1,000km of the 2,400km was added as emergency transportation roads in urban areas where there is a high risk of utility poles collapsing due to flying debris. The Cabinet approved the addition in the Three-Year Emergency Response Plan for Disaster Prevention, Disaster Mitigation, and Building National Resilience.
In 2021, the government formulated the Plan to Promote the Elimination of Utility Poles for the period from FY2021 to FY2025. Three points in the plan related to the goal of starting to eliminate utility poles on approximately 4,000km of roads are as follows.
Avoid increasing the number of new utility poles (reduce the number of poles on emergency transport roads in particular): Given the current situation where the number of utility poles is increasing by 70,000 every year, related parties are to work together to study and analyze the factors behind the increase in new utility poles, and formulate measures by the end of FY2021 to reduce the increase
Promote thorough cost reduction: Work to reduce costs by approximately 20% on average by FY2025
Further speed up the project: Work to halve the current estimate of seven years until completion of the conversion to utility tunnels (rounding up to a four-year project period target) by speeding up the project through innovation in ordering and other measures
The designs required to convert from utility poles to utility tunnels are not difficult to produce, but the conversion requires coordination as electricity, gas, and water are to be laid under the road in the same tunnels. The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) and local government bodies are in charge of the project, but it is important for them to coordinate with power and gas companies and gain their understanding in an efficient manner.
According to E-J Holdings’ estimates, the market for civil engineering consultants for the elimination of utility poles is around JPY2.0–3.0bn. The company occupies 20–25% of the market with revenue of about JPY500mn.
According to Infrastructure Development Institute–Japan, the total value of orders received by Japanese companies for overseas consulting services in FY2019 was JPY143.4bn (+14.1% YoY). By region, Asia accounted for the most orders at JPY104.5bn (+16.0% YoY), followed by Africa at JPY19.5bn (-4.1% YoY). The growth in orders in Asia drove growth in overall order value.
Based on revenue, the top 10 civil engineering consultant companies in 2020 (according to the Japanese trade magazine Nikkei Construction) are shown in the table below. According to E-J Holdings, the real competitors in the bidding process are industry revenue leader Nippon Koei Co., Ltd. (TSE1: 1954), third-ranked CTI Engineering Co., Ltd. (TSE1: 9621), fourth-ranked Oriental Consultants Co., Ltd. (a consolidated subsidiary of Oriental Consultants Holdings [JASDAQ: 2498], which is strong in terms of structural design), and Chodai Co., Ltd. (TSE1: 9624). Pacific Consultants Co., Ltd. (unlisted), which has the longest history in civil engineering consulting in Japan, is also a competitor.
Kokusai Kogyo Co., Ltd. (unlisted) is a competitor mainly in the field of land surveying. OYO Corporation (TSE1: 9755) is a competitor in infrastructure maintenance and disaster prevention.
|1||Nippon Koei||53,627||3.4%||TSE1: 1954|
|2||Pacific Consultants||49,099||9.0%||Unlisted; major shareholder of Ohba (TSE1: 9765)|
|3||CTI Engineering||42,316||7.6%||TSE1: 9621|
|4||Oriental Consultants||24,442||3.0%||Core, consolidated subsidiary of Oriental Consultants Holdings (JASDAQ: 2498)|
|5||JR East Consultants||22,273||2.7%||Consolidated subsidiary of East Japan Railway (TSE1: 9020)|
|7||Nihon Suido Consultants||20,427||9.4%||Unlisted|
|8||Oriental Consultants Global||20,308||-11.6%||Core, consolidated subsidiary of Oriental Consultants Holdings (JASDAQ: 2498)|
|9||Eight-Japan Engineering Consultants||19,903||12.4%||Core, consolidated subsidiary of E-J Holdings (TSE1: 2153)|
|5||JR East Consultants||163||51|
|7||Nihon Suido Consultants||488||90|
|8||Oriental Consultants Global||124||16|
|9||Eight-Japan Engineering Consultants||521||205|
A professional engineer is a national qualification that certifies that a person has technical expertise in science and technology, mastery of professional application of such expertise, and a wealth of practical experience. In the case of technical proposal work, clients require that contractors be qualified as professional engineers or hold another similar certification. E-J Holdings group’s revenue per professional engineer (revenue / number of professional engineers) was JPY53.6mn in FY05/21. Meanwhile, revenue per engineer was JPY68.5mn at Nippon Koei (FY06/20), JPY71.9mn at Oriental Consultants Holdings (FY09/20), and JPY43.8mn at CTI Engineering (FY12/20).
Japan’s civil engineering consulting industry had its genesis in the post-World War II period of reconstruction. Nippon Koei was established in 1946, right after the war came to an end. Ohba Co., Ltd. (TSE1: 9765) was established a year later in 1947 (its predecessor, Ohba Civil Engineering and Architectural Office, was involved in land surveying and design work before World War II). CTI Engineering Co., Ltd. was established in 1963, evolving from an organization that carried out the mechanization of runways during wartime and switched its focus to dam projects after the war. In the 1950s, a number of companies were established. These include Eight Consultants Co., Ltd. (E-J Holdings’ predecessor; founded 1955), NJS Co., Ltd. (TSE1: 2325; founded 1951), Oriental Consultants Co., Ltd. (founded 1957; a core company of Oriental Consultants Holdings Co., Ltd. [JASDAQ: 2498], and OYO Corporation (TSE1: 9755; founded 1957). IDEA Consultants, Inc. (TSE1: 9768; formerly Metocean Environment Inc.) was established in 1968, growing out of an enterprise founded in 1953. In the 1960s, Nippon Engineering Consultants Co., Ltd. (a subsidiary of DN Holdings, Co., Ltd. [TSE2: 7377]; founded 1963) and Chodai Co., Ltd. (TSE1: 9624; founded 1968) were established, both of which excel in bridge engineering.
Although there are differences in the history of these companies, they can be broadly divided into two groups: those that have grown in size and become integrated, multi-faceted companies through mergers and other means, and those that have specialized in a limited field or fields. E-J Holdings, Nippon Koei, and Oriental Consultants Holdings belong to the former, while NJS, OYO, and Chodai belong to the latter.
One unlisted company with a large presence in the Japanese civil engineering consulting market is Pacific Consultants Co., Ltd. It was founded as a US company called Pacific Consultants Incorporated. Its parent, Pacific Consultants Group Co., Ltd. is also one of Ohba’s major shareholders (as of end-November 2020, it owned 3.5% of the company’s outstanding shares, excluding treasury stock).
|Leader in general civil engineering consulting. Strong overseas. Group includes UK architectural design firm. Has power engineering division, including equipment.|
|Operating profit margin||4.6%||6.4%||-46.6%||5.4%|