Daiki Axis 4245
ダイキアクシス
Recent Updates
2022-05-16
2022-04-25
2022-03-28
Get in touch
Matsuyama head office: 1-9-1 Misawa, Matsuyama, Ehime 791-8022
Tokyo head office: 2-15-4 Higashi Nihonbashi, Chuo-ku Tokyo 103-0004
Summary
Daiki Axis’s business centers on water treatment. The company manufactures and sells household and industrial wastewater treatment systems. In addition, the company sources and sells household equipment, most of which is used in wet areas (baths and kitchens). In 2018, the company commenced sales of electricity generated using renewable energy
ChemicalsHousehold Products
Key dates
2021-02-18
Coverage initiation
Executive summary
Business overview
Company overview: Daiki Axis Co., Ltd.’s business centers on water treatment. The company manufactures and sells household and industrial wastewater treatment systems. In addition, the company sources and sells household equipment, most of which is used in wet areas (baths and kitchens). In 2018, the company commenced sales of electricity generated using renewable energy. In FY12/21, revenue was JPY37.8bn, operating profit was JPY1.1bn, and OPM was 3.0%. The company has four business segments: the Environmental Equipment, Household Equipment, Renewable Energy, and Other businesses.
The customer bases for the Household Equipment and Environmental Equipment segments overlap, creating synergy. Shared Research understands that this synergy is one reason for the company’s industry-leading share in its mainstay product category (medium-sized and large wastewater treatment tanks—also known as “johkasou”).
Environmental Equipment: This segment posted FY12/21 revenue of JPY20.1bn, which constituted 53.2% of total revenue and 71.6% of total operating profit, while segment OPM was 8.4%. In this segment, the company mainly makes, sells, installs, and maintains wastewater treatment tanks and other wastewater treatment equipment. Wastewater treatment tanks, which are usually installed in areas without sewage systems, treat sewage and household wastewater. The tanks sterilize and disinfect the wastewater to environmental standards so it can be released into public waterways and rivers. The company has four factories in Japan that produce compact wastewater treatment tanks, medium-sized and large wastewater treatment tanks, and industrial wastewater treatment equipment.
Compact wastewater treatment tanks (priced at JPY150,000) are for household use. The company manufactures around 6,000 per year. These compact units account for approximately 10% of segment revenue. GPM on these tanks is at several percent because more than 10 companies make such tanks, and price competition is high. Medium-sized and large wastewater treatment tanks are installed mainly in condominiums and commercial facilities, while industrial wastewater treatment equipment is used in factories. Each year, the company produces about 600 of these tanks each year, which are manufactured to order and include installation. Prices per unit range from tens of millions to hundreds of millions of JPY (including installation), and these tanks account for around 60% of segment revenue. These made-to-order tanks require special expertise in supply and installation, with each unit modified to suit customer needs. GPM is around 20%.
The company also maintains medium-sized and larger equipment; maintenance services account for 30% of segment revenue. As annual maintenance is legally mandated, this is a recurring-revenue business. GPM is approximately 40%. The company receives orders via construction companies with whom it has long-term relationships. Maintenance ensures a stable source of earnings after equipment has been installed.
In this segment, the company also provides building maintenance services (cleaning and fire inspections of DIY stores) and wastewater treatment tank maintenance for DCM Co., Ltd. (unlisted). DCM is the company’s main customer in the Household Equipment segment. It was established on March 1, 2021 through a merger of DCM Kahma Co., Ltd., DCM Daiki Co., Ltd., DCM Homac Co. Ltd., DCM Sanwa Co., Ltd., and DCM Kuroganeya Co., Ltd. (all unlisted). The founder of DCM Daiki started Daiki Axis by splitting it off from its predecessor company. Currently, Daiki Axis and DCM Daiki have no capital relationships.
Household Equipment: This segment recorded revenue of JPY15.9bn in FY12/21, 42.0% of total revenue, and 15.7% of operating profit, while segment OPM was 2.3%. In this segment, the company primarily sources and sells household equipment used in wet areas (modular kitchens, toilets, and modular baths), as well handling construction housing equipment and exterior walls. The company has been involved in the sourcing and sales of household fixtures since establishment (1958).
In this segment, the company obtains around 70% of revenue from construction companies, less than 15% from DIY stores, and below 15% from work involving construction of other household fittings and exterior walls. DCM accounts for around 20% of segment revenue (including for construction). Segment GPM is around 10%. By location, more than 80% of revenue is from the Shikoku (where the company is headquartered), Kinki, and Chugoku regions. In the construction category, the company provides exterior wall and flooring materials for public facilities and installs equipment in customers’ stores. The company also handles some store renovation for DCM.
Renewable Energy: This segment logged FY12/21 revenue of JPY1.1bn, 3.0% of total revenue, and 7.6% of operating profit, while segment OPM was 15.7%. Within this segment, the company conducts business in the areas of biodiesel fuel, solar power generation, and small wind turbine generation. The company began refining and selling biodiesel fuel in FY12/05, collecting used cooking oil in Ehime Prefecture. Daiki Axis began solar power generation in FY12/18. As of FY12/21, solar power accounted for around 84.0% of segment revenue, with biodiesel accounting for 12.9%.
For electricity sales, the company uses the feed-in tariff system (FIT) and has 20-year sales agreements in place with seven electric utilities. The agreement with Shikoku Electric Power Company, Inc. (TSE1: 9507), for example, stipulates JPY21 per kWh (JPY18/kWh in some cases). Daiki Axis erects the solar panels that generate this electricity on the roofs of DIY stores operated by DCM Holdings Co., Ltd. (TSE1: 3050, which includes the aforementioned DCM). As the panels are on rooftops, the company need not invest in land development. The company expects this business to deliver OPM of around 50%. In FY12/19, the company also began selling electricity generated by small wind turbines (FIT: JPY55/kWh).
Earnings trends
In FY12/21, the company had revenue of JPY37.8bn (+9.2% YoY, 106.8% of full-year forecast), operating profit of JPY1.1bn (+7.1% YoY, 97.4%), recurring profit of JPY1.3bn (+7.4% YoY, 100.1%), and net income attributable to owners of the parent of JPY611mn (+28.0% YoY, 87.2%).
The company forecast for FY12/22 (out February 14, 2022) calls for revenue of JPY40.0bn (+5.8% YoY), operating profit of JPY1.2bn (+2.7% YoY), recurring profit of JPY1.3bn (-0.1% YoY), net income attributable to owners of the parent of JPY700mn (+14.6% YoY), and annual dividends per share of JPY24.00 (flat YoY). The company forecast assumes economic activity will remain lackluster in FY12/22 due to the ongoing impact of the COVID-19 pandemic.
On March 4, 2022, the company announced an updated five-year version (FY12/21 to FY12/25) of its medium-term management plan, “PROTECT X CHANGE.” It targets FY12/25 revenue of JPY45.0bn (+19.0% vs. FY12/21, CAGR 4.4%) and operating profit of JPY2.0bn (+78.7%, CAGR 15.6%). Segment revenue targets are Environmental Equipment JPY22.0bn (+9.3% vs. FY12/21), Household Equipment JPY19.0bn (+19.7%), Renewable Energy JPY2.5bn (+119.1%), and Other JPY1.5bn (+121.4%). In Environmental Equipment, it looks for Overseas revenue of JPY4.0bn (+168.6%).
Segment operating profit targets are Environmental Equipment JPY2.3bn (+36.3% vs. FY12/21), Household Equipment JPY700mn (+89.0%), Renewable Energy JPY700mn (+290.2%), and Other JPY150mn (+24.4%).
Qualitative aspirations revolve around strategies to boost future profitability. The company has set forth its aim to enhance ESG management, with a growth strategy focused on improving the global environment ("E" in ESG) as the centerpiece. This involves concentrating on tapping into overseas demand in place of the shrinking Japanese market.
In Japan, the company anticipates little growth from spot earnings, due to a decline in housing starts. Instead, Daiki Axis aims to focus on expanding its recurring-revenue businesses: maintenance of wastewater treatment systems and groundwater-to-drinking-water conversion business. Overseas, the company plans to expand business in Southeast Asia, India, and Africa, where sewage systems are insufficient. The company explains that its wastewater treatment tanks can be built at less cost than sewage systems. In addition, the company says its systems are unique to Japan, so it has no overseas competitors. The company believes developing countries represent a major business opportunity.
In line with the previous medium-term management plan, in 2020, the company issued green bonds (unsecured corporate bonds limited to qualified institutional investors), which can only go toward environmental fields and will be used to develop overseas business. The company has also put in place a sustainability finance plan for developing its renewable energy business. By raising its profile as a company engaged in environmental businesses, Daiki Axis believes it can build better relationships with customers and gain preferential funding access.
*ESG stands for “environmental, social, and governance.”
On February 22, 2021, the company announced a three-year (FY12/21 to FY12/23) medium-term management plan, “PROTECT X CHANGE,” but did not release numerical targets due to uncertainty about the COVID-19 pandemic.
Strengths and weaknesses
Strengths:
1) The company has long-term relationships in place with construction companies, including large general contractors. These relationships help the company increase orders for medium- and large-sized wastewater treatment tanks and industrial wastewater treatment facilities, as well as obtain profitable maintenance contracts (GPM of more than 40%).
2) The company has been quicker than competitors to embark on the overseas production of wastewater treatment tanks, a type of low-cost wastewater treatment system unique to Japan. As a result, the company has accumulated expertise in this area.
3) In the solar power generation business, the company can install solar panels on the roofs of stores operated by DCM Holdings.
Weaknesses:
1) In compact wastewater treatment tanks, the company has no way to expand sales except to compete on price.
2) The overseas business, which is driving growth, requires time-consuming personnel development. This time constraint limits growth.
3) In Japan, the company provides compact wastewater treatment tanks. This business, and the Household Equipment segment, are linked to housing starts.
Key financial data
Note 1: Figures may differ from company materials due to differences in rounding methods.
Note 2: Until FY12/16, the Other business segment was included in the biodiesel business (Renewable Energy segment).
Note 3: From FY12/21, DA Invent’s hydrothermal treatment business was transferred from the Environmental Equipment segment to the Renewable Energy segment.
Recent updates
Company initiatives in India
On March 24, 2022, Daiki Axis Co., Ltd. announced planned initiatives in India.
The company's Indian subsidiary Daiki Axis India PVT. Ltd. has been progressing initiatives relating to the government's Namami Gange Program to clean up the Ganges River as part of overseas expansion of the water infrastructure business. This is a key initiative in the company's process of promoting ESG management. The company announced that it has won the first order for a decentralized domestic wastewater processing system as part of the Namami Gange Program.
Namami Gange Program
The Indian government unveiled the Namami Gange Program (a national project with a budget of JPY4tn) in 2015 as the first step toward solving nationwide water problems. The central government allocates budgets for plans formulated by the nine states that comprise the catchment area of the Ganges.
As the first phase of the project, the Daiki Axis Group won an order to deliver johkasou (wastewater treatment tanks) worth approximately JPY75mn and a 10-year maintenance contract worth JPY40mn. The company is well positioned to do business in India. As well as working on the latest order, the company plans to continue making proposals to the Indian government directly and through its subsidiary and distributors to help solve the pressing water issues that the country faces.
Transfer of Japan's wastewater treatment tank technology to India
The Japan-India Annual Summit took place on March 19, 2022, at which a minister of the Ministry of Jal Shakti (Department of Water Resources, River Development, and Ganga Rejuvenation) and Japan's Environment Minister signed a memorandum of understanding regarding the transfer of Japanese wastewater treatment tank technology to India.
Trends and outlook
Quarterly trends and results
Notes: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Q1 FY12/22 results (out May 13, 2022)
Overview
*Net income attributable to owners of the parent
Revenue was up 11.6% YoY in Q1 FY12/22, driven by higher revenue in the Environmental Equipment, the Household Equipment, and Renewable Energy segments.
Gross profit, operating profit, and recurring profit all increased YoY.
Business by segment
Environmental Equipment segment
Revenue from wastewater treatment tanks and wastewater treatment systems was up YoY. In domestic revenue, the contribution from large projects (industrial wastewater treatment facilities at food factories and pharmaceutical and medical product plants) trended in line with the progress of construction work.
Overseas revenue increased due to the delivery of wastewater treatment tanks and other equipment to JICA-supported projects in Iraq.
Revenue related to ESCO contracts (recurring revenue) and maintenance increased as the company captured new contracts.
Household Equipment segment
Revenue from sales of contact-free products (e.g., toilets with functions such as automatic opening/closing and automatic washing) to construction companies (general contractors, local builders, house builders) declined YoY.
However, overall revenue from construction companies and related companies increased YoY. Revenue was driven by an increase in the delivery of sanitary equipment for condominiums as the number of new housing starts recovered to pre-pandemic levels, in addition to orders for special commercial products, such as replacement of LED lighting for DCM Group home improvement centers and delivery of furniture to educational facilities.
Revenue from the sale of retail merchandise to home improvement centers declined.
Revenue from housing equipment work (exterior wall, agricultural greenhouse, store construction, and refrigeration/freezing work) increased YoY due to the completion of DCM Group home improvement centers. The completion of freezing, refrigeration, and air-conditioning equipment installations declined YoY. Freezing, refrigeration, and air-conditioning equipment has high margins, unlike the rest of the segment, which is primarily wholesaling. This is one of the reasons for the decline in segment profit. However, the decline is simply due to the timing of the completion of installations. Construction is currently underway on a large project that the company expects to complete in Q2.
In the e-commerce business (online orders for housing equipment installation), the company is developing nationwide housing equipment renovation services through its own e-commerce channels in addition to operating an e-commerce business in collaboration with DCM (a home improvement center business). It launched website in January 2022 and is stepping up its PR activities via Instagram.
Renewable Energy segment
Revenue from sales of power from PV power facilities increased thanks to the acquisition of Sanei Ecohome Inc. in October 2021.
In the small wind turbine business, the company recorded revenue from the Ministry of the Environment’s Low Carbon Technology Research and Development Program, in which it participates with other companies. In Q1, the company connected five small wind turbine sites using the feed-in tariff (FIT) system. Currently, 17 sites are in operation, and the company plans to have a total of 70 sites in operation by 2025.
Revenue was up YoY in the biodiesel fuel business as the number of contracts increased owing to continued efforts to strengthen sales of B5 light oil.
Revenue remained steady in the hydrothermal treatment business due to R&D efforts to establish new technologies.
Other business segment
The number of bottled water subscriptions declined in the household drinking water business, but the number of subscribers to water filtration unit rentals (what the company calls "water servers") increased.
See Financial statements and historical performance section for previous quarterly and full-year results.
Full-year FY12/22 company forecast (out February 14, 2022)
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Forecast overview
On February 14, 2022, the company announced its forecast for FY12/22.
*Net income attributable to owners of the parent
Forecasts by segment
Environmental Equipment
Revenue breakdown
The company expects domestic revenue to decline after strong sales of wastewater treatment systems in Japan in FY12/20, and overseas revenue to grow as production in India and Sri Lanka gets into full swing.
The company expects overseas revenue to grow, primarily due to a large project in Iraq (wastewater treatment equipment for Japanese company owned oil plant) and projects in India. The company said that its overseas production capacity is lacking in places, which it is currently supplying with exports from Indonesia. Orders in India are trending higher than it expected, and it plans to build a new plant in FY12/22.
Because the prospects for domestic wastewater treatment tanks are dull in a shrinking population, the company aims to boost market share and strengthen its industrial wastewater treatment business.
The company looks for revenue growth in its recurring-revenue (maintenance and groundwater-to-drinking-water conversion) businesses as it unrolls its growth strategy.
The company said many suppliers in the Environmental Equipment business are asking for raw material price rises, and it plans to pass these through to prices in large tanks and industrial waste. However, it is difficult to pass through cost increases in domestic wastewater treatment and small tanks because they are certified products and subject to stiff price competition.
Household Equipment
Revenue breakdown
In the Household Equipment business, the company expects revenue growth from the completion of construction works at DIY stores, which it did not book in FY12/21. It also expects growth in the E-commerce business, which got into full swing from January 2022.
Renewable Energy
Revenue breakdown
The company expects revenue and profit growth, with a contribution from business development at Sanei EcoHome, acquired in 2021. The company plans to have ten more facilities with small wind turbine generation equipment connected to the power grid, and a total of 22 in operation.
Capex forecast
In addition to the solar power, wind turbine, and groundwater-to-drinking-water conversion business, the company plans to spend capex on building local manufacturing sites in India and Sri Lanka.
Medium-term management plan (announced on March 4, 2022)
Announcement of new medium-term management plan, “PROTECT X CHANGE”
On March 4, 2022, the company announced an updated five-year version (FY12/21 to FY12/25) of its medium-term management plan, “PROTECT X CHANGE.”
On February 22, 2021, the company announced a three-year (FY12/21 to FY12/23) medium-term management plan, “PROTECT X CHANGE,” but did not release numerical targets due to uncertainty about the COVID-19 pandemic.
PROTECT X CHANGE
“PROTECT X CHANGE” is a corporate slogan designed to convey a company attitude: “Protect what deserves protection, change what deserves a change.” Daiki Axis defines itself as a company that focuses on water-related businesses and contributes to efforts to build a sustainable society and change the future of society by protecting various environments, including the global environment and living environments. Likewise, the company says its employees must adapt to social changes and be able to distinguish what needs to be maintained from what needs to be changed, with an aim of building a sustainable organization.
Overview
Quantitative goals
The company targets FY12/25 revenue of JPY45.0bn (+19.0% vs. FY12/21, CAGR 4.4%) and operating profit of JPY2.0bn (+78.6%, 15.6%). Segment revenue targets are Environmental Equipment JPY22.0bn (+9.3%, 2.2%), Household Equipment JPY19.0bn (+19.7%, 4.6%), Renewable Energy JPY2.5bn (+119.1%, 21.7%), and Other JPY1.5bn (+121.4%, 22.0%). It targets Overseas revenue of JPY4.0bn (+168.6%, 28.0%).
Segment operating targets are Environmental Equipment JPY2.3bn (+36.3% vs. FY12/21, CAGR 8.0%), Household Equipment JPY700mn (+89.0%, 17.2%), Renewable Energy JPY700mn (+290.2%, 40.5%), and Other JPY150mn (+24.4%, 5.6%).
Segment-specific qualitative goals
Environmental Equipment segment (three elements)
Establish the organizational infrastructure to achieve high productivity
Develop high-quality and environmentally friendly products and wastewater treatment tanks to overseas specs (such as next-generation compact combination (handle gray water as well as toilet water) septic tanks)
Expand overseas business (not just sales, but also focusing on steady quality improvement)
Household Equipment segment (three elements)
Establish a renovation business centered on e-commerce
Use M&A to expand marketing areas and products handled
Increase involvement in special projects (public facilities and eco-products) in areas outside the Chugoku/Shikoku region (such as the Kanto and Kansai areas)
Renewable Energy segment (three elements)
Create structures to drive the shift toward a carbon-free society
Cultivate high-value-added businesses and products in preparation for conclusion of FIT policies
Search for new businesses and products so the business development department can help address climate change
In addition, the company will pursue ESG management (discussed later).
Growth strategy
The strategy has eight focuses:
Step up overseas development: In the Environmental Equipment segment, manufacture wastewater treatment tanks locally in the growth markets of India and Southeast Asia.
Domestic Environmental Equipment business: With focus on development of high value-added industrial wastewater treatment systems, continue to improve existing products and develop quality, eco-friendly products.
Recurring-revenue business: In Japan, redouble initiatives in the maintenance and groundwater-to-drinking-water conversion (ESCO) businesses.
Product development: Reinforce technological and development capabilities in response to diverse water-related demands.
Transition from stability to growth: Move toward growth businesses in the Household Equipment segment.
Renewable energy: Promote the sale of solar-power electricity, as well as the biodiesel fuel and wind power generation businesses.
M&A promotion: Promote synergies with existing businesses and initiatives involving new technologies.
IT promotion: Leverage big data and artificial intelligence to streamline business operations, promote marketing, and develop new products.
Overseas development
The company plans to proactively develop overseas business for wastewater treatment tanks, where it believes potential demand to be large. Daiki Axis aims to cultivate demand, manufacture tanks locally, and work to increase sales volume. Specific steps are detailed below:
In January 2022, the company restructured its overseas organization, establishing an India business division, Asia/Africa business division, and overseas manufacturing division.
As of end-December 2021, the company had 23 distributors in India, and plans to expand its network so that it can more precisely serve regional demands. The individual state governments in India have considerable power, so the company aims to expand public-sector orders by collaborating with distributors that have strong ties with regional authorities and state governments.
In India, the company plans to build a new factory, which can manufacture wastewater treatment tanks of the cylindrical type (medium-sized and large tanks) in addition to the capsule type (compact tanks). Production capacity will be more than twice that of the first factory (200 units a year), starting at 350 units a year and ultimately 600.
In India, the company sets up and operates shops that sell drinking water (Water Kiosks). The company filters water to make it potable and provides the drinking water to nearby consumers, stores, and food stalls.
In Indonesia, in addition to sales of large wastewater treatment facilities to Japanese companies, it plans to focus on expanding sales of fiberglass reinforced panel (FRP) products to locally operated factories.
In Sri Lanka, the company established a subsidiary, Daiki Axis Environment (PVT) Ltd., in June 2021. As a local manufacturing site, it plans to launch an assembly plant around May 2022.
In Kenya, the company established a joint venture, Daiki-Usafi Ltd., in October 2019. It aims to expand its wastewater treatment business (sales, installation, and maintenance of water treatment tanks).
Simultaneously develop the wastewater treatment business, keeping costs low
The company is considering BOO* and BOT** businesses in India, Myanmar, Sri Lanka, Bangladesh, and Kenya. In both categories, the company installs wastewater treatment tanks, retaining ownership. Customers pay the company either at a fixed rate or based on the volume of treated water they use. The company promotes this business as a way to install wastewater treatment tanks while keeping initial costs low. Daiki Axis expects the market for wastewater treatment tanks to increase as more people recognize their effectiveness.
Domestic Environmental Equipment
As part of its growth strategy, in the domestic Environmental Equipment business, the company plans to focus on the development of high value-added industrial wastewater treatment systems and continue to improve existing products and develop quality, eco-friendly products. It has already made significant progress under the Ministry of the Environment's energy-saving septic tank conversion support program, and aims to maintain its efforts going forward.
In wastewater treatment facilities, the company aims to develop a new industrial wastewater treatment method involving an evaporation concentrator. It plans to build a system to evaporate and concentrate highly concentrated chemical and other wastewater unsuitable for raw treatment, which it hopes will lead to proposals to reduce waste treatment costs. It also plans to research wastewater treatment systems that use special materials such as humus to remove odors and reduce sludge volume.
In wastewater tanks, the company plans to continue strengthening its initiatives toward businesses involved in the project to promote installation of energy-saving septic tank systems* (the Ministry of the Environment subsidizes one-half of the replacement cost: applies to replacement of early-stage combination septic tanks with tanks for 60 or more people using the most advanced energy-saving technology).
In combination septic tanks for household use, the XH model is the mainstay product, but the company plans to roll out the latest version, the XJ, which is more cost-effective.
In facilities management, the company plans to get involved in integrated water treatment. It plans to roll out integrated maintenance management for store chains and offer solutions that offer clients cost savings and improve efficiency, and tap into underlying needs for parts such as pumps and blowers.
Recurring-revenue business
The company positions recurring-revenue business as a driver of future growth, alongside overseas business. The medium-term plan identifies two categories of recurring-revenue business for expansion in Japan: the maintenance and groundwater-to-drinking-water conversion businesses.
In the maintenance business, the company aims to increase bulk orders for wastewater treatment facilities and maintenance from large convenience store chains and large restaurant chains. To expand the biodiesel business, the company plans to target large convenience store chains, making use of the waste oil in the kitchens of individual convenience stores and central kitchens. The company has configured IT systems to handle administrative tasks surrounding statutory inspections, which are currently operating.
Product development
As part of its overseas development efforts, Daiki Axis plans to augment its technology and product development capabilities to respond to diverse water-related needs, which differ according to conditions in different countries. The company aims to offer new high-end household wastewater treatment tanks and commence full-fledged production of household wastewater treatment tanks designed for regions with regulations restricting phosphorous content.
Water pollution in China, Southeast Asian countries, and India contrasts with the sort of pollution found in Japan, due to lifestyle differences. For instance, in these countries, household wastewater typically contains more cooking oil. Also, bathtub use tends to be less frequent, so water consumption is around one-fourth Japan’s level.
In addition to meeting detailed requirements on water quality, the company is working to develop products that are cost-competitive. To this end, the company’s development department strives to reduce quantities of parts and materials. Simultaneously, the company is trying to make production technologies and processes themselves less costly and more efficient. For instance, the company has developed a wastewater treatment tank that uses contact bed filtration. This type of tank makes internal cleaning and inspection work more efficient. Daiki Axis has also developed wastewater treatment tanks using the “lateral flow method of removing impurities” to treat sewage. This method does not require the anaerobic filter media needed for conventional tanks.
Transition from stability to growth
In the Household Equipment segment, the company is changing its business model to focus on wholesaling household equipment to DCM DIY stores. The company plans to expand this business through the launch of an online shopping site, handling special products, and M&A.
In July 2020, DCM Holdings’ online shopping site (DCM Online) began accepting orders nationwide for construction related to household equipment. Daiki Axis intends to achieve revenue growth through this route. To date, business in the Household Equipment segment has centered on the Shikoku, Chugoku, and Kyushu regions. Through online shopping, the company hopes to expand its business nationwide. Specifically, the company aims to expand into the Kanto region, focusing on the Tokyo Metropolitan Area.
In January 2022, the company launched its e-commerce website, “deki×tanoo,” around the concept that anyone can do renovation tasks, whether DIYers or pros. The offering aims to solve problems, such as when a customer tried something during the DIY boom but ended in failure. The company will offer a choice of helping the person resolve the situation themselves or ask for help from a professional. Going forward, it has a strategy to expand sales using YouTube and social media, and plans promotions on specialized websites for employees of major corporate groups. Starting with deki×tanoo, the company plans to collaborate with DCM Holdings’ e-commerce website, DCM Online.
The company has started dealing in specialty products that are friendly to the global environment and living environment, to meet consumer needs in this area. Some eco-friendly products include medium- and large-sized wooden structures using metal bonding methods, wooden tanks, and dehumidifying radiant heating and cooling systems. Going forward, in civil engineering and electrical materials, the company is considering proposals for cement that sets in water and LED lighting in public facilities such as gymnasiums.
The company expects to run into certain issues (particularly the need to cultivate contractors) as it expands its service network throughout Japan. The company intends to improve profitability through centralized purchasing. To date, departments sourced materials independently. The company believes centralization will help it lower costs.
The company plans to expand the business by taking advantage of products and customer bases from the two companies it converted to subsidiaries in October 2019. These two companies are Fujiwara Reiki Co., Ltd. (unlisted) and Nihon Air Solutions Co., Ltd. (unlisted). Fujiwara Reiki designs, builds, and maintains air conditioning/ventilation and electrical equipment (for offices, schools, homes, and other buildings), as well as freezing and refrigeration equipment, frozen and refrigerated showcases, kitchen equipment, and refrigerated showcases for flowers (for use in distribution outlets and food product factories). Nihon Air Solutions handles the construction side of Fujiwara Reiki’s air conditioning/ventilation equipment business.
Renewable energy
In addition to Daiki Axis Sustainable Power, which restructured its renewable energy business, the company made Sanei EcoHome Inc., engaged in the development, design, and construction of solar power plants, a subsidiary. This enabled it to propose appropriate energy mixes based on its track record as a diverse clean energy business providers.
An issue in the renewable energy business is accurately grasping natural environmental conditions and energy available in a region, and using the various energy sources (energy mix) in a coordinated and efficient manner without waste to improve stability. The company plans to bring proposals to the market in a timely manner through optimal planning of end-to-end workflows from installation through operation in a comprehensive, one-stop offering.
The company plans to use its capabilities in solar power plant design, construction, sales, and maintenance to develop self-consumption solar power generation and collaborations with agricultural/welfare co-ops and farmers. In self-consumption, it will support moves to generate solar power for companies to use in their own facilities, and make proposals to reduce power bills and CO2 emissions and use the power in emergencies. In collaborations with co-ops and farmers, it plans to use degraded farmland for solar power farms, and envisions employing persons with disabilities in agricultural production. It also plans to develop technologies for low-voltage power generators.
In existing businesses, the company is operating a solar power sales business (FIT), small wind turbine generation business (FIT), recovery of waste cooking oil, and BDF refining and sales.
M&A promotion
The company intends to acquire companies that offer synergies with existing businesses or offer new technologies.
Since its establishment in 2005, the company has repeatedly acquired companies to expand its business of providing wastewater treatment systems using its wastewater treatment tanks. These acquisitions, which include overseas companies, were made within the Environmental Equipment segment. In 2019, the company also acquired companies to achieve synergies in the Household Equipment segment. The “History” section later in this report provides company names and other details.
Promotion of IT
The company aims to resolve issues along the value chain related to facility management and on-site issues overseas (accounting and HR). The company also expects to make sales activities more efficient. Through big data, the company aims to gain new perspectives for promoting growth. To attain these goals, the company plans to strengthen its IT-related sections and cultivate human resources specializing in data science and other areas.
(Reference) Quantitative targets in the previous medium-term management plan (announced on February 25, 2019)
In the previous medium-term plan, “Make FOUNDATION Plan (Promote ESG management),” targets for the final year of the plan, FY12/21, were revenue of JPY40.0bn (JPY36.2bn in FY12/18), operating profit of JPY1.7bn (JPY923mn), recurring profit of JPY1.8bn, ROE of 13.2% or more (12.7%), and ROIC of 5.5% or higher (4.2%). All revenue and profit targets amounted to record highs.
The plan called for overseas revenue to reach 2.6× its prior level over the course of the plan, compared with cumulative growth of 5.5% for domestic business. Thus, the plan clearly outlines the company’s intention to expand by advancing in overseas markets.
While the plan targeted a 5% increase in revenue in the Japanese market, it also called for higher profitability through expansion in recurring-revenue businesses such as maintenance and the clean water business (groundwater-to-drinking-water conversion) and the Renewable Energy segment. At the same time, the plan called for the use of IT to increase business efficiency (higher productivity).
Shared Research estimated that OPM at the end of the medium-term plan would amount to 4.3% (up from 2.5% in FY12/18), and the recurring profit margin 4.5% (3.0%). All revenue, profit, and profitability figures were projected to reach their highest levels since the company’s listing in FY12/13.
ESG management in the medium-term management plan
Overview
The company carries a slogan aimed at building a firm management base, contributing to building a sustainable environment and society through its business and cooperation with local communities, and improving the quality of life. The company explains that promotion of ESG management is indispensable to the achievement these goals.
Environmental / Social
The company recognizes that protecting the global environment is a common challenge associated with the achievement of sustainable social development, and is working to reduce its environmental impact. In addition, the company hopes to contribute to building a sustainable society by improving workstyles through collaboration with customers, local communities, and administrative authorities. Specific steps are as follows:
Contribution as a company in the water-related business: Through its products and services, the company aims to convert dirty water into clean water and improve the water environment on a global scale. Wastewater treatment tanks, Japan’s unique water-treatment system, can process household sewage on the spot. Those tanks are effective in areas overseas, not just in domestic areas where public sewage systems have not been established.
Contribution through drinking water (overseas): The company aims to offer safe drinking water in developing countries where access to clean water is difficult.
Contribution as a producer of biodiesel fuel: The company collects used cooking oil from households, restaurants, convenience stores, and other establishments, and refines the oil into a clean alternative to light oil. The company has obtained the government’s Eco Mark certification for this business, and provides the fuel for use in civil service, convenience store delivery trucks, and other capacities. The company hopes this business will contribute to efforts aimed at achieving carbon neutrality.
Contribution through clean energy produced with solar and wind power generation: They company has installed rooftop solar panels at DIY stores operated by DCM group companies. This means the company has theoretically reduced negative impact on the environment while generating clean energy by saving forests where trees would have been cleared to construct solar panels. The company also plans to use these facilities as lifeline equipment in cases of disaster. The company hopes these efforts will help Japan achieve its goal of net zero emissions by 2050 (equating the amount of greenhouse gas emissions with the amount absorbed by forests by 2050).
Contribution as a supplier of housing equipment: The company aims to expand the lineup of environment-friendly products, such as energy-saving products and those using timber from forest thinning.
Awareness-raising campaigns for environmental improvement: The company plans to offer lectures on clean energy for young students through visits to schools.
Workstyle reform and diversity: By accepting diverse cultures and ways of thinking, the company aims to realize workstyles in line with the “new normal” post-COVID era, recruit human resources from overseas, and appoint female executive board members.
Governance
In this category, the company aims to promote efficient and swift business operations; put in place and improve the internal control system; ensure transparency by separating managerial and executive functions; install outside directors and establish the Audit Committee; and disseminate information through company briefings and the disclosure of non-financial information.
(Reference) Details of the ESG management in the previous medium-term management plan
Environmental
Daiki Axis considers environmental improvement to be its main business. The medium-term plan outlines initiatives for overseas development of the water treatment business (water-related infrastructure business) and expansion of the Renewable Energy segment. To raise cash for these core businesses, the company adopted an approach that differs from typical bond issuance or borrowing. Instead, it issued green bonds* and engaged in sustainability finance** during 2020.
The point of green bonds is to emphasize that cash is being used for projects that have a positive environmental effect (green projects). The aim is to raise social awareness of the company’s business and gain support among investors.
Prior to issuing these bonds, in June 2019 a subsidiary, Sylphid Inc. (now Daiki Axis Sustainable Power Co., Ltd.), raised capital through a third-party allotment of shares. The Shikoku Energy Investment Limited Partnership (Shikoku Energy Fund), established by Shikoku Alliance Capital Co., Ltd.*** (unlisted) provided Sylphid with JPY2.0bn in exchange for non-voting stock. This fund invests in renewable energy projects, such as solar and wind power, and in businesses developing such projects.
Sylphid used the funds it raised to obtain solar power generation assets from Daiki Axis. In the interest of operating efficiency, the Daiki Axis group has made Sylphid centrally responsible for wind and solar power generation management.
Issuance of green bonds
The company issued JPY3.0bn in green bonds with a payment date of February 28, 2020 and a 10-year maturity. On February 28, 2020, the company used all the cash it raised to refinance capital investments related to the sale of solar power electricity and the small wind turbine generation business. See the table below for details.
The company enlisted an outside assessment firm, DNV GL Business Assurance Japan K.K. (DNV GL)*, to judge whether these two businesses were suitable uses (whether the projects were eligible) for the cash raised via green bonds.
For eligible projects, each year the company is required to publicly report on the status of fund allocation and quantify the environmental benefit. The company is required to report on the state of progress for projects under development. After construction is complete, the company must conduct impact reporting each year from the start of operations until the green bonds mature.
To fulfill these reporting requirements, each month the company discloses project generation capacities (kW), annual outputs (kWh), and environmental improvement effects (amount of CO2 reduction, expressed in kilograms) on its website. CO2 reduction quantities (kg-CO2) are calculated by multiplying the amount of energy generated (kWh) by the CO2 emission factor (amount of CO2 emissions [kg-CO2] per unit of energy generated [kWh]). The emission factor, also called emission reduction intensity, is expressed as the amount of CO2 emissions reduced per unit of energy generated when compared to conventional energy generation methods. The figure is less than 1 (0.462 in FY12/20).
Implementing sustainability finance
The company’s sustainability finance comprises the issuance of sustainability share acquisition rights (third-party allocation of series two share acquisition rights) and the establishment of a viable-period term loan as a backup loan for this financing. DNV GL assessed the appropriateness of this financing alongside its evaluation of the green bond issue.
The amount raised was JPY2.2bn. This cash will be used to further long-term strategies associated with the overseas business as described in the medium-term plan. Specifically, the cash is to be used in three areas: building and operating factories to produce wastewater treatment tanks, the wastewater treatment business, and the clean water business. On October 1, 2021, the company amended the use of funds to include the renewable energy business. Details are provided in the table below. The exercise price for the share acquisition rights is between a maximum of JPY875 and a minimum of JPY805 (minimum reduced to JPY725 on December 17, 2021). The exercise period is three years.
The backup loan provides a borrowing facility (JPY2.2bn) to prevent project delays in the event the share acquisition rights fail to generate funds. The loan has a three-year viability period, the same length as the exercise period. If an unpaid balance remains on this loan and the company receives funds through the exercise of share acquisition rights, these funds will be used to repay the remaining unpaid balance.
Social: Work style reforms, social support, diversity
Workstyle reforms include shortening overlong working hours and reforming HR systems. In FY12/16, the company introduced “no-overtime days” to encourage employees in leisure pursuits.
As social support, the company works with local communities to dispose of used cooking oil and helps people with disabilities to play an active role in society. In the biodiesel business, the company works with local communities to collect used cooking oil. It helps people with disabilities to play an active role in society. In addition, the company holds lectures on biomass to raise awareness regarding environmental improvement efforts.
In the diversity category, the company promotes the active participation of women and aims to welcome people from diverse cultures and with different perspectives.
In 2015, Daiki Axis received Kurumin certification*, which enables the company to publicly promote itself as a “company that supports child-rearing.” The company also interviews people on child-rearing leave.
To support employees, the company has set up an external consultation desk and put internal personnel in charge of promoting mental health.
In March 2019, the company appointed a female board member (outside director and member of the Audit Committee).
Governance: Management structure reform, risk management, dissemination of information
As part of management structure reform, the company introduced an executive officer system in FY12/19 (on March 26) to separate managerial and executive functions more clearly. For risk management, Daiki Axis transitioned to the form of a company with an Audit Committee in FY12/19 (March 26). In FY12/20, the company increased the number of outside directors from two to five, and by a further two to seven at the annual shareholders' meeting for FY12/21 in March 2022. The company takes a proactive approach to disseminating information, holding company briefings and providing ESG reports.
(Reference) Six materiality themes under the UN SDGs and the company’s ESG management
Business
Business overview
Company overview
Daiki Axis’s business centers on water treatment. The company manufactures and sells household and industrial wastewater treatment systems. In addition, the company sources and sells household equipment, most of which are used in wet areas (baths and kitchens). The company is also engaged in the sale of electricity produced from renewable sources. Multiple business models exist within the corporate group: manufacturing, construction, wholesaling, electric power, and retailing.
In FY12/21, revenue was JPY37.8bn, operating profit was JPY1.1bn, and OPM was 3.0%. The company has four business segments.
The Environmental Equipment segment posted FY12/21 revenue of JPY20.1bn, which constituted 53.2% of total revenue and 71.6% of total operating profit. In this segment, the company manufactures wastewater treatment tanks, installs and maintains wastewater treatment systems, and engages in a groundwater-to-drinking-water conversion business.
The Household Equipment segment recorded revenue of JPY15.9bn in FY12/21, which comprised 42.0% of total revenue and 15.7% operating profit. In this segment, the company primarily sources and sells household equipment and performs interior and exterior construction on condominiums and store buildings.
The Renewable Energy segment logged FY12/21 revenue of JPY1.1bn, which constituted 3.0% of total revenue and 7.6% of operating profit. In this segment, the company sells electricity generated by solar and wind power and refines biodiesel fuel.
The Other business segment posted FY12/21 revenue of JPY677mn, which were 1.8% of total revenue and 5.1% of operating profit. In this business, the company sells drinking water to homes on a subscription basis.
Relationship between the company and DCM Daiki Co., Ltd.
In 2005, Daiki Axis was established as a wholly owned subsidiary of Daiki Co., Ltd. (now DCM Daiki Co., Ltd.: unlisted). The company took over Daiki’s manufacturing division (the Environmental Equipment segment and the biodiesel fuel business) and wholesaling division (the Household Equipment segment). The company and DCM Daiki have no capital relationship. However, they do have a transactional relationship, as outlined below. The percentage of Daiki Axis revenue from the DCM group was 13.4% in FY12/20.
The company leases its headquarters and some other branches from DCM Daiki.
The company sells household products through DIY stores operated throughout Japan by DCM Holdings Co., Ltd. (TSE1: 3050) group companies DCM Daiki, DCM Kahma Co., Ltd. (unlisted), and DCM Homac Co., Ltd. (unlisted), and others.
The company manages some facility maintenance for companies in the DCM group. For instance, the company maintains wastewater treatment tanks and cleans stores.
The company has agreements in place with DCM group stores to lease roof space, used in the solar power generation business.
Environmental Equipment segment (in FY12/21, 53.2% of total revenue, 71.6% of operating profit)
Business overview
In the clean water business (groundwater-to-drinking-water conversion business), the company converts customers’ groundwater to drinking water, building systems that provide an alternative to waterworks.
The company builds intermediate water supply systems, which reuse treated household and industrial wastewater. The recycled water is used in ways that do not involve direct human contact, such as in toilets, for watering greenery, and in factories.
In Japan, the company manufactures, sells, and installs compact wastewater treatment tanks—mainly wastewater treatment equipment for detached homes.
In the category of wastewater treatment systems, the company manufactures, sells, and installs medium-sized and large wastewater treatment tanks and industrial wastewater treatment equipment.
Regarding maintenance, compact wastewater treatment tanks are outside the scope of the company’s maintenance services. The company only maintains medium- and large-sized wastewater treatment tanks, as well as industrial wastewater treatment equipment.
About wastewater treatment tanks (johkasou)
Wastewater treatment systems that complement sewage systems
Wastewater treatment tanks internally purify household water (sewage and household wastewater emitted from kitchens, baths, clothes washing, and sinks). These tanks are mainly installed in locations without access to public sewage systems. As of March 31, 2020, 79.7% of the Japanese population (101.1mn people) had access to public sewage systems. Conversely, 9.3% (11.7mn) of the population uses wastewater treatment tanks.
Sometimes wastewater treatment tanks are necessary even where sewage systems are available. Large-scale condominiums and commercial facilities that produce substantial quantities of wastewater may need to treat that water before releasing it into sewage systems. The company installs large wastewater treatment tanks for that purpose.
Source: Shared Research based on data from the Ministry of the Environment
Structure of wastewater treatment tanks
Wastewater treatment tanks accumulate wastewater internally and filter out (separate) solids. The tanks mainly use bacteria to break down organic matter that causes environmental pollution. The top layer of purified water is released from the tanks into waterways. Environmental standards are stipulated by the Purification Tank Act. Whereas less expensive personal computers and smartphones that offer lower functionality are available, such decreases in functionality are not permitted for treatment tanks. The tanks also must be regularly maintained and inspected, as with automobile engines.
The company categorizes wastewater treatment tanks by capacity: compact (5–50 people), medium (51–500 people), and large (501 or more people). Equipment for handling industrial wastewater, which contains different substances from household wastewater, is outside the scope of the Purification Tank Act and categorized as wastewater treatment equipment. Compact wastewater treatment tanks are used mainly for detached homes. Medium- and large-sized wastewater treatment tanks are mostly used in condominiums and commercial facilities.
Process for purifying wastewater in tanks
Compact wastewater treatment tanks are typically divided into four compartments. The tanks process wastewater in four stages and emit purified water.
In the first compartment, solids are separated out of sewage, and liquid sewage is broken down by anaerobic bacteria (bacteria that breed and multiply without oxygen).
In the second compartment, substances removed by the first compartment are again broken down using anaerobic bacteria.
In the third compartment, substances not broken down in the first and second compartments are broken down using aerobic bacteria (which breeds and multiplies in the presence of oxygen). Ammonia is oxidized. Suspended matter is precipitated, and the water that rises is sent to the disinfection compartment.
In the final disinfection compartment, treated water is disinfected with chlorine and released.
Compact wastewater treatment tanks have the following main components:
The outer layer is typically plastic, usually a synthetic resin such as fiberglass reinforced plastic (FRP) or polypropylene (PP). Tank exteriors differ in terms of ease of processing, strength, durability, and weight. Some tanks are made of concrete. Concrete may be used to provide better design flexibility in cases where location makes tank shape a factor, or for large facilities where plastic tanks are too small.
Bacteria are applied to structures called “contact media.” Contact media are designed for broad contact between bacteria and wastewater, promoting efficient decomposition. Blowers are affixed to wastewater treatment tanks to oxygenate aerobic bacteria and keep them healthy.
Filtration devices are used to eliminate supernatant substances. Sand may be used for filtration. Alternatively, wastewater may pass through carrier materials loaded with bacteria (filtering materials). Different manufacturers have developed wastewater treatment tanks employing a variety of treatment methods.
Functional standards
The Purification Tank Act sets water quality standards for the water released by wastewater treatment tanks. Biochemical oxygen demand (BOD) is one measure used to determine water quality. BOD indicates the amount of oxygen bacteria in wastewater treatment tanks need to break down pollutants. BOD of 20 means that 20mg of oxygen is needed to break down pollutants in one liter of water. The smaller the number, the less pollutant the water contains. The standards stipulate a BOD removal rate, indicating the percentage BOD must be reduced during wastewater treatment.
The BOD standard under the Purification Tank Act stipulates a removal rate of 90% or more for compact wastewater treatment tanks, and BOD of 20 for released water. For medium-sized tanks, the corresponding figures are ≥70% and ≤60; for large tanks, ≥85% and ≤30. Local governments may set ordinances with stricter standards than under the Purification Tank Act.
In addition to BOD, performance tables show chemical oxygen demand (COD), total nitrogen (T-N), total phosphorous (T-P), and suspended solids (SS).
Differentiating factor on wastewater treatment tanks: cost effectiveness outweighs functionality alone
More than 10 companies in Japan manufacture wastewater treatment tanks. The company says this business has a low barrier to entry. Construction materials can help reduce the cost of manufacturing compact wastewater treatment tanks. In addition to performance, technology development focuses on such factors as shapes that are easy to install, strength, lightness of tank weight that reduces transportation costs, and energy-saving blowers.
Another differentiating factor is the simplicity of a tank’s internal structure, which facilitates post-installation cleaning (waste collection) and maintenance. Some end-users are satisfied with any wastewater treatment tank that meets environmental standards, making tanks a price-sensitive commodity item. This tendency is particularly evident with compact wastewater treatment tanks for households.
Barriers to entry and survival strategies in the business of wastewater treatment tanks
To create barriers to entry and ensure its survival in the category of compact wastewater treatment tanks, the company situates manufacturing facilities close to demand areas (lowering transportation costs) and maintains sales offices throughout Japan to allow consistent interaction with customers (construction companies).
In the categories of medium- and large-sized wastewater treatment tanks and industrial wastewater treatment equipment, the company supplies products that treat wastewater to various levels of water quality. These product categories also require construction and management capabilities. Daiki Axis has relationships in place with the construction companies that order such products, and the company employs personnel to maintain these relationships. These relationships serve as a barrier to entry for other companies.
Peripheral businesses: waste treatment (cleaning) and maintenance
Waste matter that has been separated out from wastewater and retained within wastewater treatment tanks must be removed periodically. Cleaning companies that collect this waste material must hold waste treatment qualifications. Cleaning is typically performed by local authorities or industrial waste treatment companies that have been subcontracted to handle the task. Vacuum trucks go site to site (door to door), collecting waste matter and transporting it to waste treatment facilities.
To maintain functionality, the Purification Tank Act stipulates that wastewater treatment tanks must be managed, including regular cleaning, maintenance, and inspection. For household compact wastewater treatment tanks, often the homeowner is the manager. However, maintenance may be outsourced to licensed operators. Legally mandated cleaning and maintenance of wastewater treatment tanks is a recurring-revenue business with steady demand.
Business model for the wastewater treatment business
In FY12/21, wastewater treatment business (intermediate water supply, sewage, and maintenance) accounted for 95.6% of revenue in the Environmental Equipment segment, with overseas business making up around 7% of this amount. The groundwater-to-drinking-water conversion business provided 4.4% of revenue.