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Daiki Axis

Daiki Axis 4245

ダイキアクシス
Daiki Axis Co., Ltd.
Recent Updates
2022-05-16
Q1 FY12/22 flash update
2022-04-25
Full-year FY12/21 report update
2022-03-28
Company initiatives in India
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
http://www.daiki-axis.com/
089-927-2222
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
Full Report
2022-05-16
Q1 FY12/22 flash update
2022-05-16
Full-year FY12/21 flash update
2022-02-15
Q3 FY12/21 flash update
2021-11-15
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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

Income statementFY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21FY12/22
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Revenue27,20230,75431,50732,36232,81133,56136,22435,74934,64837,82440,000
YoY9.1%13.1%2.4%2.7%1.4%2.3%7.9%-1.3%-3.1%9.2%5.8%
Gross profit4,8745,3385,8726,0296,2156,5586,8876,9697,3367,8618,558
YoY-9.5%10.0%2.7%3.1%5.5%5.0%1.2%5.3%7.1%8.9%
Gross profit margin17.9%17.4%18.6%18.6%18.9%19.5%19.0%19.5%21.2%20.8%21.4%
Operating profit3385298119469311,1449231,0011,0451,1201,150
YoY-56.5%53.3%16.7%-1.6%22.8%-19.3%8.4%4.4%7.1%2.7%
Operating profit margin1.2%1.7%2.6%2.9%2.8%3.4%2.5%2.8%3.0%3.0%2.9%
Recurring profit5656899411,0831,1361,3431,1011,1551,2111,3011,300
YoY16.5%21.9%36.6%15.1%5.0%18.2%-18.0%4.9%4.8%7.4%-0.1%
Recurring profit margin2.1%2.2%3.0%3.3%3.5%4.0%3.0%3.2%3.5%3.4%3.3%
Net income217403736333648744861783477611700
YoY-12.7%86.0%82.5%-54.8%94.8%14.8%15.7%-9.1%-39.0%28.0%14.6%
Net margin0.8%1.3%2.3%1.0%2.0%2.2%2.4%2.2%1.4%1.6%1.8%
Per-share data (split-adjusted; JPY)
Shares issued(year-end; '000) 253,102,2006,204,4006,204,40012,408,80012,408,80012,408,80012,408,80012,788,80013,648,100
EPS (JPY)60.120.059.827.553.661.771.865.239.647.151.3
EPS (fully diluted; JPY)--------39.446.6
Dividend per share (JPY)750.08.315.015.015.020.024.024.024.024.024.0
Book value per share (JPY)672768820950512569560595615666
Balance sheet (JPYmn)
Cash and cash equivalents2,5333,6403,2893,3673,4304,5176,0147,1667,8966,298
Total current assets11,80513,99813,77913,65614,51915,03418,76418,90617,44819,981
Tangible fixed assets3,1193,1573,7284,3314,1154,7276,3388,3638,0479,421
Investments and other assets7801,1821,1531,3081,3051,7801,3881,6061,5411,643
Intangible assets38048140411684865471,0337421,207
Total assets16,08518,81719,06419,41120,02421,62627,03729,90827,77932,252
Short-term debt-5,3535,5305,6755,9646,79910,74410,9239,6577,644
Total current liabilities11,60111,57111,36711,59912,30313,25918,86418,62515,87916,840
Long-term debt-1,7951,9061,7431,1368743509583,2105,305
Total fixed liabilities6602,0662,1412,0721,5311,5431,4552,0794,2656,572
Total liabilities12,26113,63713,50813,67113,83414,80220,31920,70420,14423,412
Shareholders' equity3,8245,1765,5515,7416,1906,8246,7187,1547,6308,837
Total net assets3,8245,1815,5565,7416,1906,8246,7189,2037,6348,840
Total liabilities and net assets16,08518,81719,06419,41120,02421,62627,03729,90827,77932,252
Total interest-bearing debt-7,1497,4367,4187,1007,67311,09311,88112,56712,549
Cash flow statement(JPYmn)
Cash flows from operating activities-2174397371,3696081,868-1052,4162,222521
Cash flows from investing activities-150-198-1,008-815105-122-1,402-2,846-1,047-1,506
Cash flows from financing activities426840-88-438-452-6353,0301,643-424-704
Financial ratios
ROA (RP-based)3.6%3.9%5.0%5.6%5.8%6.4%4.5%4.1%4.2%4.3%
ROE5.9%9.0%13.7%5.9%10.9%11.4%12.7%11.3%6.5%7.4%
Equity ratio23.8%27.5%29.1%29.6%30.9%31.6%24.8%23.9%27.5%27.4%
Total asset turnover175.3%176.2%166.3%168.2%166.4%161.2%148.9%125.6%120.1%126.0%
Net margin0.8%1.3%2.3%1.0%2.0%2.2%2.4%2.2%1.4%1.6%
By business segmentFY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21FY12/22
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
Orders13,67512,60114,84215,79116,87416,17515,89915,918
YoY----7.9%17.8%6.4%6.9%-4.1%-1.7%0.1%
Environmental Equipment11,05010,81311,44411,04212,79012,38512,71312,193
YoY----2.1%5.8%-3.5%15.8%-3.2%2.6%-4.1%
% of total80.8%85.8%77.1%69.9%75.8%76.6%80.0%76.6%
Household Equipment1,9851,1662,7752,9061,6752,0612,3332,532
YoY----41.3%138.0%4.7%-42.4%23.0%13.2%8.5%
% of total14.5%9.3%18.7%18.4%9.9%12.7%14.7%15.9%
Renewable Energy-----95107125106688
YoY------12.7%17.3%-15.2%543.7%
% of total0.0%0.0%0.0%0.6%0.6%0.8%0.7%4.3%
Other6406226221,7492,3021,602745503
YoY----2.8%0.1%181.1%31.6%-30.4%-53.5%-32.5%
% of total4.7%4.9%4.2%11.1%13.6%9.9%4.7%3.2%
Order backlog5,6105,0935,4786,5658,4687,1947,0007,390
YoY----9.2%7.6%19.8%29.0%-15.0%-2.7%5.6%
Environmental Equipment4,3234,3314,7344,3556,0944,5785,8905,299
YoY---0.2%9.3%-8.0%39.9%-24.9%28.7%-10.0%
% of total77.1%85.0%86.4%66.3%72.0%63.6%84.1%71.7%
Household Equipment1,2877257441,7501,0071,0541,0981,688
YoY----43.7%2.7%135.1%-42.5%4.7%4.2%53.7%
% of total22.9%14.2%13.6%26.7%11.9%14.7%15.7%22.8%
Renewable Energy------1711402
YoY-------400.0%57.1%3,511.8%
% of total----0.0%0.1%00
Other-38-4601,3661,553--
YoY------197.0%13.7%--
% of total-0.7%-7.0%16.1%21.6%--
Revenue27,20230,75431,50732,36232,81133,56136,22435,74934,64837,82440,000
YoY9.1%13.1%2.4%2.7%1.4%2.3%7.9%-1.3%-3.1%9.2%5.8%
Environmental Equipment12,99714,91315,26215,40715,91316,44618,51318,57017,39620,13019,800
YoY-14.7%2.3%1.0%3.3%3.3%12.6%0.3%-6.3%15.7%-1.6%
% of total47.8%48.5%48.4%47.6%48.5%49.0%51.1%51.9%50.2%53.2%49.5%
Household Equipment13,51315,17815,53316,30016,16615,58515,81214,64214,74315,87617,500
YoY-12.3%2.3%4.9%-0.8%-3.6%1.5%-7.4%0.7%7.7%10.2%
% of total49.7%49.4%49.3%50.4%49.3%46.4%43.7%41.0%42.6%42.0%43.8%
Renewable Energy-----1742876991,1971,1412,100
YoY------65.4%143.3%71.2%-4.6%84.0%
% of total0.0%0.0%0.0%0.0%0.0%0.5%0.8%2.0%3.5%3.0%5.3%
Other6916607126557321,3571,6121,8381,313677600
YoY--4.5%7.9%-8.0%11.6%85.5%18.8%14.0%-28.6%-48.4%-11.4%
% of total2.5%2.1%2.3%2.0%2.2%4.0%4.4%5.1%3.8%1.8%1.5%
Operating profit3385298119469311,1449231,0011,0451,1201,150
YoY-56.5%53.3%16.7%-1.6%22.8%-19.3%8.4%4.4%7.1%2.7%
Operating profit margin1.2%1.7%2.6%2.9%2.8%3.4%2.5%2.8%3.0%3.0%2.9%
Environmental Equipment6419561,1401,1361,1991,3571,3951,0681,2351,6881,541
YoY-49.1%19.2%-0.3%5.5%13.2%2.8%-23.4%15.6%36.7%-8.7%
Operating profit margin4.9%6.4%7.5%7.4%7.5%8.3%7.5%5.8%7.1%8.4%7.8%
% of total77.5%81.3%75.1%70.2%69.8%69.6%69.9%57.9%60.8%71.6%64.5%
Household Equipment314348466567497579569367313370558
YoY-10.8%34.0%21.6%-12.3%16.4%-1.7%-35.5%-14.6%18.2%50.6%
Operating profit margin2.3%2.3%3.0%3.5%3.1%3.7%3.6%2.5%2.1%2.3%3.2%
% of total38.0%29.6%30.7%35.0%28.9%29.7%28.5%19.9%15.4%15.7%23.4%
Renewable Energy------164-66256312179271
YoY--------21.7%-42.4%51.0%
Operating profit margin-------36.6%26.1%15.7%12.9%
% of total------8.4%-3.3%13.9%15.3%7.6%11.3%
Other-128-128-89-84221779815317212119
YoY-----699.6%-44.9%56.6%12.4%-29.8%-84.2%
Operating profit margin----3.0%13.1%6.1%8.3%13.1%17.8%3.2%
% of total-15.5%-10.9%-5.9%-5.2%1.3%9.1%4.9%8.3%8.5%5.1%0.8%
Eliminations121125136149146164128145176
Company-wide expenses-827-798-923-955-1,218-1,008-1,115-1,384-1,415
Source: Shared Research based on company data
Note 1: Figures may differ from company materials due to differences in rounding methods.
Note 2: Until FY12/16, the Other business segment was included in the biodiesel business (Renewable Energy segment).
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

2022-03-28

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

CumulativeFY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1% of Est.FY Est.
Revenue9,59317,44425,68834,6489,87819,11827,57137,82411,02327.6%40,000
YoY-1.6%-2.3%-3.4%-3.1%3.0%9.6%7.3%9.2%11.6%5.8%
Gross profit2,0423,7935,4317,3362,0424,0085,8217,8612,147
YoY5.1%13.8%6.2%5.3%0.0%5.7%7.2%7.1%5.2%
Gross profit margin21.3%21.7%21.1%21.2%20.7%21.0%21.1%20.8%19.5%
SG&A expenses1,5403,1104,6006,2911,5923,2284,9006,7411,692
YoY4.6%9.9%5.5%5.4%3.4%3.8%6.5%7.2%6.3%
SG&A ratio16.0%17.8%17.9%18.2%16.1%16.9%17.8%17.8%15.3%
Operating profit5036838301,0454507819211,12045439.5%1,150
YoY6.8%35.5%9.9%4.4%-10.5%14.3%10.8%7.1%1.0%2.7%
Operating profit margin5.2%3.9%3.2%3.0%4.6%4.1%3.3%3.0%4.1%2.9%
Recurring profit5447579621,2114958651,0361,30153240.9%1,300
YoY5.8%31.5%12.3%4.8%-8.9%14.2%7.7%7.4%7.4%-0.1%
Recurring profit margin5.7%4.3%3.7%3.5%5.0%4.5%3.8%3.4%4.8%3.3%
Net income28128233647727744049561135250.3%700
YoY-7.1%31.4%-21.2%-39.0%-1.4%56.3%47.4%28.0%27.0%14.6%
Net margin2.9%1.6%1.3%1.4%2.8%2.3%1.8%1.6%3.2%1.8%
QuarterlyFY12/20FY12/21FY12/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1
Revenue9,5937,8518,2448,9609,8789,2398,45410,25311,023
YoY-1.6%-3.1%-5.7%-2.2%3.0%17.7%2.5%14.4%11.6%
Gross profit2,0421,7511,6381,9062,0421,9661,8132,0402,147
YoY5.1%26.0%-8.1%2.7%0.0%12.3%10.7%7.0%5.2%
Gross profit margin21.3%22.3%19.9%21.3%20.7%21.3%21.4%19.9%19.5%
SG&A expenses1,5401,5701,4901,6911,5921,6361,6731,8411,692
YoY4.6%15.8%-2.6%5.0%3.4%4.2%12.2%8.9%6.3%
SG&A ratio16.0%20.0%18.1%18.9%16.1%17.7%19.8%18.0%15.3%
Operating profit503180147215450331140199454
YoY6.8%439.3%-41.3%-12.4%-10.5%83.5%-5.1%-7.2%1.0%
Operating profit margin5.2%2.3%1.8%2.4%4.6%3.6%1.7%1.9%4.1%
Recurring profit544213205249495369171265532
YoY5.8%245.1%-27.2%-16.5%-8.9%73.3%-16.3%6.2%7.4%
Recurring profit margin5.7%2.7%2.5%2.8%5.0%4.0%2.0%2.6%4.8%
Net income28115414127716355116352
YoY-7.1%--74.5%-60.4%-1.4%17,734.3%1.2%-18.2%27.0%
Net margin2.9%0.0%0.7%1.6%2.8%1.8%0.6%1.1%3.2%
Source: Shared Research based on company data. The 1H company forecast is not disclosed.
Notes: Figures may differ from company materials due to differences in rounding methods.
Performance by segment
By segment (cumulative)FY12/20FY12/21FY12/22FY12/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1% of Est.FY Est.
Revenue9,59317,44425,68834,6489,87819,11827,57137,82411,02327.6%40,000
YoY-1.6%-2.3%-3.4%-3.1%3.0%9.6%7.3%9.2%11.6%5.8%
Environmental Equipment5,0428,65412,74317,3965,15910,13514,40320,1305,76829.1%19,800
YoY-11.0%-9.1%-8.6%-6.3%2.3%17.1%13.0%15.7%11.8%-1.6%
% of total52.6%49.6%49.6%50.2%52.2%53.0%52.2%53.2%52.3%49.5%
Household Equipment3,9857,38011,11014,7434,3638,20011,94015,8764,54125.9%17,500
YoY13.1%4.5%4.5%0.7%9.5%11.1%7.5%7.7%4.1%10.2%
% of total41.5%42.3%43.2%42.6%44.2%42.9%43.3%42.0%41.2%43.8%
Renewable Energy1654466911,1971964537191,14155726.5%2,100
YoY43.4%46.2%34.3%71.2%19.1%1.5%4.1%-4.6%184.2%84.0%
% of total1.7%2.6%2.7%3.5%2.0%2.4%2.6%3.0%5.1%5.3%
Other4019641,1441,31315833050967715626.0%600
YoY-9.5%-0.3%-23.8%-28.6%-60.6%-65.8%-55.5%-48.4%-1.3%-11.4%
% of total4.2%5.5%4.5%3.8%1.6%1.7%1.8%1.8%1.4%1.5%
Operating profit5036838301,0454507819211,12045439.5%1,150
YoY6.8%35.5%9.9%4.4%-10.5%14.3%10.8%7.1%1.0%2.7%
Operating profit margin5.2%3.9%3.2%3.0%4.6%4.1%3.3%3.0%4.1%2.9%
Environmental Equipment5015857981,2354978831,1481,68857637.4%1,541
YoY-10.0%19.4%15.0%15.6%-0.8%51.0%43.8%36.7%15.9%-8.7%
Operating profit margin9.9%6.8%6.3%7.1%9.6%8.7%8.0%8.4%10.0%7.8%
% of total69.9%51.7%52.3%60.8%67.6%64.8%62.9%71.6%78.6%64.5%
Household Equipment12326630031319729335437011721.0%558
YoY37.5%31.0%-7.3%-14.6%59.8%10.2%18.1%18.2%-40.6%50.6%
Operating profit margin3.1%3.6%2.7%2.1%4.5%3.6%3.0%2.3%2.6%3.2%
% of total17.2%23.5%19.7%15.4%26.8%21.5%19.4%15.7%16.0%23.4%
Renewable Energy3018328231213121221179186.6%271
YoY33.1%70.0%39.7%21.7%-56.7%-33.6%-21.8%-42.4%38.5%51.0%
Operating profit margin18.3%41.0%40.8%26.1%6.6%26.8%30.7%15.7%3.2%12.9%
% of total4.2%16.2%18.5%15.3%1.8%8.9%12.1%7.6%2.5%11.3%
Other6298145172286410312122115.8%19
YoY103.1%12.3%10.9%12.4%-55.1%-34.8%-29.1%-29.8%-21.5%-84.2%
Operating profit margin15.6%10.2%12.7%13.1%17.7%19.4%20.2%17.8%14.1%3.2%
% of total8.7%8.7%9.5%8.5%3.8%4.7%5.6%5.1%3.0%0.8%
Eliminations416998128387310514534176
Company-wide expenses-255-517-792-1,115-324-654-1,009-1,384-315-1,384
By segment (quarterly)FY12/20FY12/21FY12/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1
Revenue9,5937,8518,2448,9609,8789,2398,45410,25311,023
YoY-1.6%-3.1%-5.7%-2.2%3.0%17.7%2.5%14.4%11.6%
Environmental Equipment5,0423,6124,0894,6535,1594,9764,2685,7275,768
YoY-11.0%-6.1%-7.6%0.5%2.3%37.8%4.4%23.1%11.8%
% of total52.6%46.0%49.6%51.9%52.2%53.9%50.5%55.9%52.3%
Household Equipment3,9853,3943,7303,6334,3633,8373,7403,9354,541
YoY13.1%-4.1%4.4%-9.3%9.5%13.0%0.3%8.3%4.1%
% of total41.5%43.2%45.2%40.5%44.2%41.5%44.2%38.4%41.2%
Renewable Energy165281245506196257267422557
YoY43.4%47.9%17.0%173.6%19.1%-8.7%8.9%-16.6%184.2%
% of total1.7%3.6%3.0%5.6%2.0%2.8%3.2%4.1%5.1%
Other401564179169158172179169156
YoY-9.5%7.6%-66.4%-50.0%-60.6%-69.5%-0.3%-0.1%-1.3%
% of total4.2%7.2%2.2%1.9%1.6%1.9%2.1%1.6%1.4%
Operating profit503180147215450331140199454
YoY6.8%439.3%-41.3%-12.4%-10.5%83.5%-5.1%-7.2%1.0%
Operating profit margin5.2%2.3%1.8%2.4%4.6%3.6%1.7%1.9%4.1%
Environmental Equipment50184214437497386265540576
YoY-10.0%-4.4%16.8%-0.8%360.5%24.1%23.8%15.9%
Operating profit margin9.9%2.3%5.2%9.4%9.6%7.8%6.2%9.4%10.0%
% of total69.9%20.2%54.3%86.2%67.6%61.6%57.1%101.3%78.6%
Household Equipment1231433414197966116117
YoY37.5%25.8%-72.0%-68.8%59.8%-32.7%80.9%19.6%-40.6%
Operating profit margin3.1%4.2%0.9%0.4%4.5%2.5%1.6%0.4%2.6%
% of total17.2%34.4%8.6%2.7%26.8%15.3%13.2%3.0%16.0%
Renewable Energy3015399301310899-4118
YoY33.1%79.8%5.2%-45.4%-56.7%-29.0%-0.1%-38.5%
Operating profit margin18.3%54.3%40.5%5.9%6.6%42.2%37.2%-9.7%3.2%
% of total4.2%36.8%25.2%5.9%1.8%17.3%21.4%-7.7%2.5%
Other623647272836391822
YoY103.1%-37.0%8.1%21.2%-55.1%0.7%-17.2%-33.6%-21.5%
Operating profit margin15.6%6.3%26.1%15.9%17.7%20.9%21.7%10.6%14.1%
% of total8.7%8.6%11.9%5.3%3.8%5.7%8.3%3.3%3.0%
Eliminations412729313835314034
Company-wide expenses-255-262-275-323-324-330-355-374-315
Source: Shared Research based on company data. The 1H company forecast is not disclosed.
Note: Figures may differ from company materials due to differences in rounding methods.

Q1 FY12/22 results (out May 13, 2022)

Overview

  • Revenue: JPY11.0bn (+11.6% YoY; 27.6% of full-year target; In FY12/21, Q1 progress was 27.9% of full-year results)
  • Operating profit: JPY454mn (+1.1% YoY; 39.5%; 39.1%)
  • Recurring profit: JPY532mn (+7.6% YoY; 40.9%; 38.1%)
  • Net income*: JPY352mn (+27.2% YoY; 50.3%; 39.6%)
  • The full-year company forecast for FY12/22 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), and net income of JPY700mn (+14.6% YoY).
    *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: JPY5.8bn (+11.8% YoY; 29.1% of full-year target; In FY12/21, Q1 progress was 27.4% of full-year results)
  • Operating profit: JPY576mn (+15.9% YoY; 37.4%; 34.0%)
  • OPM: 10.0% (versus 9.6% in Q1 FY12/21)

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: JPY4.5bn (+4.1% YoY; 25.9% of full-year target; In FY12/21, Q1 progress was 29.3% of full-year results)
  • Operating profit: JPY117mn (-40.6% YoY; 21.0%; 47.3%)
  • OPM: 2.6% (versus 4.5% in Q1 FY12/21)

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: JPY557mn (+184.2% YoY; 26.5% of full-year forecast; In FY12/21, Q1 progress was 19.8% of full-year results)
  • Operating profit: JPY18mn (+38.5% YoY; 6.6%; 3.9%)
  • OPM: 3.2% (versus 6.6% in Q1 FY12/21)

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
  • Revenue: JPY156mn (-1.3% YoY; 26.0% of full-year target; In FY12/21, Q1 progress was 24.1% of full-year results)
  • Operating profit: JPY22mn (-21.5% YoY; 115.8%; 30.5%)
  • OPM: 14.1% (versus 17.7% in Q1 FY12/21)

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)

FY12/20FY12/21FY12/22
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.FY Est.YoY
Revenue17,44417,20434,64819,11818,70637,82440,0005.8%
Cost of revenue13,65113,66127,31215,11014,85429,96431,442
Gross profit3,7933,5437,3364,0083,8527,8618,5588.9%
Gross profit margin21.7%20.6%21.2%21.0%20.6%20.8%21.4%
SG&A expenses3,1103,1816,2913,2283,5136,7417,3809.5%
SG&A ratio17.8%18.5%18.2%16.9%18.8%17.8%18.5%
Operating profit6833621,0457813391,1201,1502.7%
Operating profit margin3.9%2.1%3.0%4.1%1.8%3.0%2.9%
Recurring profit7574541,2118654361,3011,300-0.1%
Recurring profit margin4.3%2.6%3.5%4.5%2.3%3.4%3.3%
Net income28219547744017061170014.6%
Net margin1.6%1.1%1.4%2.3%0.9%1.6%1.8%
Source: Shared Research based on company data. The 1H company forecast is not disclosed.
Note: Figures may differ from company materials due to differences in rounding methods.

FY12/20FY12/21FY12/22
(JPYmn)1H Act.2H Est.FY Est.1H Act.2H Act.FY Act.FY Est.YoY
Revenue17,44417,20434,64819,11818,70637,82440,0005.8%
Environmental Equipment8,6548,74217,39610,1359,99520,13019,800-1.6%
Clean water3284237514384518891,00012.5%
Johkasou/wastewater treatment8,3258,31916,6449,6969,54419,24018,800-2.3%
(Maintenance, overseas) 2,6152,1614,7762,6622,3785,0405,1502.2%
(Johkasou/wastewater treatment) Japan7,9107,73215,6429,1338,61817,75117,100-3.7%
(Johkasou/wastewater treatment) Overseas4155871,0025629271,4891,70014.2%
Household Equipment7,3807,36314,7438,2007,67515,87617,50010.2%
Construction industry5,2194,99810,2175,8035,97311,77612,2774.3%
Home improvement center (retail)8781,0611,9391,0189331,9512,0505.1%
E-commerce1239211100809.1%
Housing equipment and materials1,2791,3032,5821,3687672,1353,07343.9%
Renewable Energy4467511,1974536881,1412,10084.0%
Sales of power from PV power facilities3983957933915679581,66573.8%
Biodiesel fuel4664110598814721042.9%
Small wind turbines-112121490542.9%
Other9643481,313330347677600-11.4%
Household drinking water313348661329348677--
Civil engineering work631-631-----
Rent income19-19-----
Operating profit6833621,0457813391,1201,1502.7%
Environmental Equipment5856501,2358838051,6881,541-8.7%
Operating profit margin6.8%7.4%7.1%8.7%8.1%8.4%7.8%
Household Equipment266473132937737055850.6%
Operating profit margin3.6%0.6%2.1%3.6%1.0%2.3%3.2%
Renewable Energy1831293121215817927151.0%
Operating profit margin41.0%17.2%26.1%26.8%8.4%15.7%12.9%
Other9874172645712119-84.2%
Operating profit margin10.2%21.2%13.1%19.4%16.3%17.8%3.2%
Eliminations69591287372145176
Company-wide expenses-517-597-1,115-654-730-1,384-1,415
Source: Shared Research based on company data. The 1H company forecast is not disclosed.
Note: Figures may differ from company materials due to differences in rounding methods.

Forecast overview

On February 14, 2022, the company announced its forecast for FY12/22.

  • Revenue: JPY40.0bn (+5.8% YoY)
  • Operating profit: JPY1.2bn (+2.7% YoY)
  • Recurring profit: JPY1.3bn (-0.1% YoY)
  • Net income*: JPY700mn (+14.6% YoY)
    *Net income attributable to owners of the parent

Forecasts by segment  

Environmental Equipment 
  • Revenue: JPY19.8bn (-1.6% YoY)
  • Operating profit: JPY1.5bn (-8.7% YoY)
  • OPM: 7.8% (8.4% in FY12/21) 
Revenue breakdown
  • Wastewater treatment tanks and wastewater treatment systems: JPY18.8bn (-2.3% YoY)
  • Domestic: JPY17.1bn (-3.7% YoY)
  • Overseas: JPY1.7bn (+14.2% YoY)
  • Maintenance (domestic and overseas combined): JPY5.2bn (+2.2% YoY)
  • Groundwater-to-drinking-water conversion business: JPY1.0bn (+12.5% YoY) 

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: JPY17.5bn (+10.2% YoY)
  • Operating profit: JPY558mn (+50.7% YoY)
  • OPM: 3.2% (2.3% in FY12/21) 
Revenue breakdown
  • Construction industry: JPY12.3bn (+4.2% YoY) 
  • Retail products for DIY stores: JPY2.1bn (+5.0% YoY)
  • E-commerce: JPY100mn (+753.5% YoY)
  • Housing equipment construction: JPY3.1bn (+43.9% YoY) 

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: JPY2.1bn (+84.0% YoY)
  • Operating profit: JPY271mn (+51.2% YoY)
  • OPM: 12.9% (15.7% in FY12/21) 
Revenue breakdown
  • Solar power electricity: JPY1.7bn (+73.8% YoY) 
  • Biodiesel fuel: JPY210mn (+42.2% YoY)
  • Small wind turbine generation: JPY90mn (+531.2% YoY)
  • Hydrothermal treatment business: JPY135mn (+540.3% YoY) 

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.

主な数値目標
FY12/21FY12/25Growth
(JPYmn)Act.TargetTotalCAGR
Revenue37,82445,00019.0%4.4%
Operating profit1,1192,00078.7%15.6%
Operating profit margin3.0%4.4%--
[Revenue by segment]
Environmental Equipment20,13022,0009.3%2.2%
Household Equipment15,87619,00019.7%4.6%
Renewable Energy1,1412,500119.1%21.7%
Other6771,500121.4%22.0%
[Operating profit by segment]
Environmental Equipment1,6882,30036.3%8.0%
Household Equipment37070089.0%17.2%
Renewable Energy179700290.2%40.5%
Other12115024.4%5.6%
[Revenue by region]
Overseas1,4004,000168.6%28.0%
Japan (SR est.; Total - Overseas)36,42441,00012.6%3.0%

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.

* Under a build-own-operate (BOO) agreement, the Daiki Axis group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities. After the contract ends, the company retains ownership of these facilities, which it can then dismantle or sell.

** With a build-operate-transfer (BOT) agreement, the group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities as under a BOO agreement. However, ownership rights transfer after the contract ends.

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.

Reference: Previous numeric targets
FY12/18FY12/21Growth
(JPYmn)Act.TargetTotalCAGR
Revenue36,22440,00010.4%3.4%
Operating profit9231,70084.2%22.6%
Operating profit margin2.5%4.3%--
Recurring profit1,1011,80063.5%17.8%
Recurring profit margin3.0%4.5%--
Net income attributable to owners of the parent8611,10027.7%8.5%
Net margin2.4%2.8%--
ROE12.7%13.2% or higher--
ROIC4.2%5.5% or higher--
Revenue by segment
Environmental Equipment18,51320,77012.2%3.9%
Household Equipment15,81216,2662.9%0.9%
Renewable Energy2871,040261.9%53.5%
Other1,6121,92319.3%6.1%
Revenue by region
Overseas1,1533,000160.2%37.5%
Japan (SR est.; Total - Overseas)35,07137,0005.5%1.8%
Source: Shared Research based on company data

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.

*Green bonds are issued to raise funds for green projects (domestic or overseas businesses designed to address global warming or other environmental problems) companies intend to pursue. Green projects come in many varieties. Key areas include renewable energy, energy conservation, sustainable waste treatment, soil use, and water management for addressing environmental problems, businesses targeting biodiversity preservation, construction of traffic systems with low environmental impact, and businesses that address climate change. In addition to raising funds like other corporate bonds, green bonds help companies publicize their fundraising efforts for businesses aimed at environmental improvements. This visibility can help issuers gain support from investors and society at large.

**Sustainability finance refers to financing projects that meet both Green Bond Principles and Social Bond Principles. The Green Bond Principles are guidelines for issuing green bonds to finance green projects. Similarly, the Social Bond Principles are guidelines related to the issuance of social bonds, which finance projects targeting positive social outcomes. Social projects are wide-ranging and might involve water and sewage systems, energy, education, medical welfare, housing supply, food security, and expanded access to government services.

***Shikoku Alliance Capital Co., Ltd. is a fund management company established and jointly funded by four regional banks on the island of Shikoku: Awa Bank (TSE1: 8388), Hyakujushi Bank (TSE1: 8386), Iyo Bank (TSE1: 8385), and Shikoku Bank (TSE1: 8387). In addition to the Shikoku Energy Fund, this fund management company operates the Shikoku Revitalization Fund (addresses customers’ business succession and growth needs) and the Shikoku Small and Medium-Sized Company Support Fund (mainly helps to reinvigorate small and medium-sized companies in Shikoku).

Issuance of green bonds

The company issued JPY3.0bn in green bonds with a payment date of February 28, 2020 and a 10-year maturity. On February 28, 2020, the company used all the cash it raised to refinance capital investments related to the sale of solar power electricity and the small wind turbine generation business. See the table below for details.

The company enlisted an outside assessment firm, DNV GL Business Assurance Japan K.K. (DNV GL)*, to judge whether these two businesses were suitable uses (whether the projects were eligible) for the cash raised via green bonds.

For eligible projects, each year the company is required to publicly report on the status of fund allocation and quantify the environmental benefit. The company is required to report on the state of progress for projects under development. After construction is complete, the company must conduct impact reporting each year from the start of operations until the green bonds mature.

To fulfill these reporting requirements, each month the company discloses project generation capacities (kW), annual outputs (kWh), and environmental improvement effects (amount of CO2 reduction, expressed in kilograms) on its website. CO2 reduction quantities (kg-CO2) are calculated by multiplying the amount of energy generated (kWh) by the CO2 emission factor (amount of CO2 emissions [kg-CO2] per unit of energy generated [kWh]). The emission factor, also called emission reduction intensity, is expressed as the amount of CO2 emissions reduced per unit of energy generated when compared to conventional energy generation methods. The figure is less than 1 (0.462 in FY12/20).

Overview of Daiki Axis’s green bond framework
Green project categoryRenewable energy
Amount raisedJPY3.0bn
Redemption period10 years, entire amount subject to refinancing
Project 01Solar power generation business
EventSolar panels are mounted on the roofs of the DCM group’s existing DIY stores, so no new land development is required.
Output, scaleA total of 133 site candidates (maximum)
50kW to 900kw/site, total of 23,750kW (maximum)
Location of facilitiesA total of 133 site candidates (maximum)
53 sites in the Chugoku region, 32 sites in the Shikoku region, 19 sites in the Kansai region, 29 sites in other regions
Project 02Small wind turbine generation business
EventHorizontal axis small wind turbine generation, the type of wind power generation the Daiki Axis group is pursuing
Output, scaleTotal of around 24 site candidates (maximum)
Two 10kW-class turbines per location: Total of around 240kW (maximum)
Location of facilitiesA total of 24 site candidates (maximum)
Throughout Japan, including Kagoshima and Hokkaido
Contribution to the SDGs7. Affordable and clean energy
13. Climate action
Source: Shared Research based on company data

*DNV GL, established in 1864, is a third-party evaluation institution headquartered in Oslo, Norway. DNV has extensive experience in providing second-party opinions (SPOs) concerning green bonds, both domestically and abroad. The organization undertakes global activities, serving as a registered party designated by the Ministry of the Environment to support the issuance of green bonds (external review department) and a verifier accredited by the Climate Bond Initiative (an international NGO that promotes large-scale investment toward a low-carbon economy).

Implementing sustainability finance

The company’s sustainability finance comprises the issuance of sustainability share acquisition rights (third-party allocation of series two share acquisition rights) and the establishment of a viable-period term loan as a backup loan for this financing. DNV GL assessed the appropriateness of this financing alongside its evaluation of the green bond issue.

The amount raised was JPY2.2bn. This cash will be used to further long-term strategies associated with the overseas business as described in the medium-term plan. Specifically, the cash is to be used in three areas: building and operating factories to produce wastewater treatment tanks, the wastewater treatment business, and the clean water business. 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.

Uses of funds raised through sustainability finance (Overview)
Project 01Build and operate factories to produce wastewater treatment tanks
Amount of fundingJPY1,074mn
CountriesMyanmar, Sri Lanka, Bangladesh, Kenya, India, etc.
Business overviewFunding the acquisition of factory buildings, equipment, and land to increase production and commence new production of wastewater treatment tanks
Project 02Installation and operation of wastewater treatment systems (BOO and BOT**)
Amount of fundingJPY265mn
CountriesIndia, Bangladesh, Kenya, Sri Lanka, Myanmar
Business overviewProvision of wastewater treatment systems as BOO and BOT businesses (whether BOO or BOT undetermined at this stage)
Project 03Provision of clean water via Water Kiosks
Amount of fundingJPY42mn
CountriesIndia
Business overviewConstruction and operation of sales facilities to provide clean water produced using reverse osmosis membranes
Project 04Solar power generation business development, operation, and facility sales
Amount of fundingJPY800mn
CountriesJapan
Business overviewExpansion of renewable energy business to reduce the burden on the environment through the use of green energy and stabilize earnings
Source: Shared Research based on company data

** Under a build-own-operate (BOO) agreement, the Daiki Axis group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities. After the contract ends, the company retains ownership of these facilities, which it can then dismantle or sell. With a build-operate-transfer (BOT) agreement, the group raises funds for and builds infrastructure-related facilities, and then continues to maintain and operate these facilities as under a BOO agreement. However, ownership rights transfer after the contract ends.

Social: Work style reforms, social support, diversity

Workstyle reforms include shortening overlong working hours and reforming HR systems. In FY12/16, the company introduced “no-overtime days” to encourage employees in leisure pursuits.

As social support, the company works with local communities to dispose of used cooking oil and helps people with disabilities to play an active role in society. In the biodiesel business, the company works with local communities to collect used cooking oil. It helps people with disabilities to play an active role in society. In addition, the company holds lectures on biomass to raise awareness regarding environmental improvement efforts.

In the diversity category, the company promotes the active participation of women and aims to welcome people from diverse cultures and with different perspectives.

In 2015, Daiki Axis received Kurumin certification*, which enables the company to publicly promote itself as a “company that supports child-rearing.” The company also interviews people on child-rearing leave.

To support employees, the company has set up an external consultation desk and put internal personnel in charge of promoting mental health.

In March 2019, the company appointed a female board member (outside director and member of the Audit Committee).

*Kurumin certification is given by Japan’s Minister of Health, Labour and Welfare to “companies that support child-rearing.” This designation is based on the Act on Advancement of Measures to Support Raising Next-Generation Children (specific-duration legislation through March 31, 2015). To earn Kurumin certification, companies must formulate a general employer action plan, meet certain designated targets and satisfy certain standards. Companies with Kurumin certification may use the associated logo (nicknamed “Kurumin”) on their products and advertising to publicize their efforts to support child-rearing. For assets (buildings and fixtures acquired, built, or expanded during the relevant period [first day of the action plan’s period to the final day of the fiscal year including the date when the period of designation ends]) contributing to support for the next generation, companies may increase their depreciation deductions by up to 32% above ordinary depreciation limits. During the period of the plan, from 2011 to 2015, the company met its goals of at least one male employee taking childcare leave and 75% or more of eligible female employees taking this leave. The company also met its goals for encouraging employees to take four or more days per year of annual paid leave and providing young people (non-employees) with internships and other work-experience opportunities.

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

SDGs and Daiki Axis initiatives 
SDG 6. Clean water and sanitation
[Daiki Axis initiatives]
Build bases for manufacturing wastewater treatment tanks in countries with large populations: China, India, and Indonesia
Sign distribution agreements with local companies in Asian countries (Vietnam, Myanmar, and Sri Lanka) and in Africa (Kenya)
[Business segments] Mainly the Environmental Equipment segment
SDGs 7. Affordable and clean energy and 13. Climate action
[Daiki Axis initiatives]
Work to reduce CO2 through renewable energy businesses, mainly solar and compact wind power generation
[Business segments] Mainly the Renewable Energy segment
SDG 12. Responsible consumption and production
[Daiki Axis initiatives]
Focus on using energy-saving products in each business
Promote initiatives to ensure 100% renewable energy generation through the company’s business activities
[Business segments] Companywide
SDGs 5. Gender equality and 8. Decent work and economic growth
[Daiki Axis initiatives]
Workstyle reform and promotion of diversity
・Appoint a female board member
・Obtain Kurumin certification (certification system by the Ministry of Health, Labour and Welfare) for promotion of active female participation
[Business segments] Companywide
Source: Shared Research based on company data

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.

Percentage of company revenue from the DCM group
Cons. (JPYmn)FY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
Revenue27,20230,75431,50732,36232,81133,56136,22435,74934,64837,824
Revenue from DCM group3,5374,7584,1944,5846,0034,6544,9344,1144,1144,740
% of total13.0%15.5%13.3%14.2%18.3%13.9%13.6%11.5%11.9%12.5%
Revenue by segment
Environmental Equipment12,99714,91315,26215,40715,91316,44618,51318,57017,39620,130
Revenue from DCM group7698027959281,0341,1231,2701,4091,5911,925
% of total5.9%5.4%5.2%6.0%6.5%6.8%6.9%7.6%9.1%9.6%
Household Equipment13,51315,17815,53316,30016,16615,58515,81214,64214,74315,876
Revenue from DCM group2,7683,9563,3993,6564,9693,5313,6182,6523,0132,810
% of total20.5%26.1%21.9%22.4%30.7%22.7%22.9%18.1%20.4%17.7%
Source: Shared Research based on company data

Environmental Equipment segment (in FY12/21, 53.2% of total revenue, 71.6% of operating profit)

Performance in the Environmental Equipment segment
FY12/12FY12/13FY12/14FY12/15FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Act.
Orders--11,05010,81311,44411,04212,79012,38512,71312,193
YoY----2.1%5.8%-3.5%15.8%-3.2%2.6%-4.1%
Order backlog--4,3234,3314,7344,3556,0944,5785,8905,299
YoY---0.2%9.3%-8.0%39.9%-24.9%28.7%-10.0%
Revenue12,99714,91315,26215,40715,91316,44618,51318,57017,39620,130
YoY-14.7%2.3%1.0%3.3%3.3%12.6%0.3%-6.3%15.7%
Clean water440461542663538584723864751889
YoY--17.6%22.3%-18.9%8.6%23.8%19.5%-13.1%18.3%
% of total3.4%3.1%3.6%4.3%3.4%3.6%3.9%4.7%4.3%4.4%
Johkasou, wastewater treatment systems12,55614,45214,71814,74215,37415,86117,78917,70516,64419,240
YoY-15.1%1.8%0.2%4.3%3.2%12.2%-0.5%-6.0%15.6%
% of total96.6%96.9%96.4%95.7%96.6%96.4%96.1%95.3%95.7%95.6%
Water purification systems1649191491720
YoY210.0%-62.5%702.5%-88.3%15.7%
% of total0.1%0.3%0.1%0.8%0.1%0.1%
Domestic small Johkasou (5–50 people)1,6711,6281,7221,6711,4441,449
YoY-2.6%5.7%-2.9%-13.6%0.4%
% of total10.5%9.9%9.3%9.0%8.3%7.2%
Wastewater treatment systems9,6759,99911,58910,95610,14212,722
YoY3.3%15.9%-5.5%-7.4%25.4%
% of total60.8%60.8%62.6%59.0%58.3%63.2%
Johkasou, wastewater treatment systems14,71814,74215,37415,86117,78917,70516,64419,240
Domestic revenue-14,10414,15914,14014,57914,49416,63616,55215,64217,751
YoY--0.4%-0.1%3.1%-0.6%14.8%-0.5%-5.5%13.5%
% of total0.0%94.6%92.8%91.8%91.6%88.1%89.9%89.1%89.9%88.2%
Overseas revenue-3485596027951,3661,1531,1531,0021,489
YoY--60.6%7.7%32.1%71.8%-15.6%0.0%-13.1%48.6%
% of total0.0%2.3%3.7%3.9%5.0%8.3%6.2%6.2%5.8%7.4%
Maintenance (incl. overseas)-3,4923,6063,7764,0164,1824,4604,9224,7765,040
YoY--3.3%4.7%6.4%4.1%6.6%10.4%-3.0%5.5%
% of total0.0%23.4%23.6%24.5%25.2%25.4%24.1%26.5%27.5%25.0%
Operating profit6419561,1401,1361,1991,3571,3951,0681,2351,688
YoY-49.1%19.2%-0.3%5.5%13.2%2.8%-23.4%15.6%36.7%
Operating profit margin4.9%6.4%7.5%7.4%7.5%8.3%7.5%5.8%7.1%8.4%
Source: Shared Research based on company data
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.

Access to sewage treatment systems (population comparison)
Centralized treatment systemDecentralized treatment systemOther
Wastewater79.7%Johkasou9.3%No access8.3%
Rural community sewerage2.6%(Vault toilet)
Community plant0.2%
Note: “Rural community sewerage” refers to wastewater treatment systems used in agricultural regions. With these systems, wastewater from individual homes in agricultural communities is moved by sewer pipes to sewage processing plants. Treated water is released into nearby rivers. “Community plants” are small-scale wastewater treatment facilities constructed in accordance with “general waste treatment plans” stipulated by cities, towns, and villages in accordance with the Waste Management and Public Cleansing Act.
Source: Shared Research based on data from the Ministry of the Environment
Structure of wastewater treatment tanks

Wastewater treatment tanks accumulate wastewater internally and filter out (separate) solids. The tanks mainly use bacteria to break down organic matter that causes environmental pollution. The top layer of purified water is released from the tanks into waterways. Environmental standards are stipulated by the Purification Tank Act. Whereas less expensive personal computers and smartphones that offer lower functionality are available, such decreases in functionality are not permitted for treatment tanks. The tanks also must be regularly maintained and inspected, as with automobile engines.

The company categorizes wastewater treatment tanks by capacity: compact (5–50 people), medium (51–500 people), and large (501 or more people). Equipment for handling industrial wastewater, which contains different substances from household wastewater, is outside the scope of the Purification Tank Act and categorized as 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.

Wastewater treatment tanks
Johkasoud for individual homes
Johkasou for condominium
Johkaso system for industrial wastewater
Source: Shared Research based on company data
Process for purifying wastewater in tanks

Compact wastewater treatment tanks are typically divided into four compartments. The tanks process wastewater in four stages and emit purified water.

In the first compartment, solids are separated out of sewage, and liquid sewage is broken down by anaerobic bacteria (bacteria that breed and multiply without oxygen).

In the second compartment, substances removed by the first compartment are again broken down using anaerobic bacteria.

In the third compartment, substances not broken down in the first and second compartments are broken down using aerobic bacteria (which breeds and multiplies in the presence of oxygen). Ammonia is oxidized. Suspended matter is precipitated, and the water that rises is sent to the disinfection compartment.

In the final disinfection compartment, treated water is disinfected with chlorine and released.

Wastewater treatment tank structure
Source: Shared Research based on data from the Ministry of the Environment

Compact wastewater treatment tanks have the following main components:

The outer layer is typically plastic, usually a synthetic resin such as fiberglass reinforced plastic (FRP) or polypropylene (PP). Tank exteriors differ in terms of ease of processing, strength, durability, and weight. Some tanks are made of concrete. Concrete may be used to provide better design flexibility in cases where location makes tank shape a factor, or for large facilities where plastic tanks are too small.

Bacteria are applied to structures called “contact media.” Contact media are designed for broad contact between bacteria and wastewater, promoting efficient decomposition. Blowers are affixed to wastewater treatment tanks to oxygenate aerobic bacteria and keep them healthy.

Filtration devices are used to eliminate supernatant substances. Sand may be used for filtration. Alternatively, wastewater may pass through carrier materials loaded with bacteria (filtering materials). Different manufacturers have developed wastewater treatment tanks employing a variety of treatment methods.

Functional standards

The Purification Tank Act sets water quality standards for the water released by wastewater treatment tanks. Biochemical oxygen demand (BOD) is one measure used to determine water quality. BOD indicates the amount of oxygen bacteria in wastewater treatment tanks need to break down pollutants. BOD of 20 means that 20mg of oxygen is needed to break down pollutants in one liter of water. The smaller the number, the less pollutant the water contains. The standards stipulate a BOD removal rate, indicating the percentage BOD must be reduced during wastewater treatment.

The BOD standard under the Purification Tank Act stipulates a removal rate of 90% or more for compact wastewater treatment tanks, and BOD of 20 for released water. For medium-sized tanks, the corresponding figures are ≥70% and ≤60; for large tanks, ≥85% and ≤30. Local governments may set ordinances with stricter standards than under the Purification Tank Act.

In addition to BOD, performance tables show chemical oxygen demand (COD), total nitrogen (T-N), total phosphorous (T-P), and suspended solids (SS).

Performance table (Daiki Axis wastewater treatment tanks)
(Released March 2019)
Model: XFEffluent standards
(Home, for 5–10 people)(Limit: mg/l)
BOD10
COD20
T-N10
T-P1
SS10
Source: Shared Research based on company data
Differentiating factor on wastewater treatment tanks: cost effectiveness outweighs functionality alone

More than 10 companies in Japan manufacture wastewater treatment tanks. The company says this business has a low barrier to entry. Construction materials can help reduce the cost of manufacturing compact wastewater treatment tanks. In addition to performance, technology development focuses on such factors as shapes that are easy to install, strength, lightness of tank weight that reduces transportation costs, and energy-saving blowers.

Another differentiating factor is the simplicity of a tank’s internal structure, which facilitates post-installation cleaning (waste collection) and maintenance. Some end-users are satisfied with any wastewater treatment tank that meets environmental standards, making tanks a price-sensitive commodity item. This tendency is particularly evident with compact wastewater treatment tanks for households.

Barriers to entry and survival strategies in the business of wastewater treatment tanks

To create barriers to entry and ensure its survival in the category of compact wastewater treatment tanks, the company situates manufacturing facilities close to demand areas (lowering transportation costs) and maintains sales offices throughout Japan to allow consistent interaction with customers (construction companies).

In the categories of medium- and large-sized wastewater treatment tanks and industrial wastewater treatment equipment, the company supplies products that treat wastewater to various levels of water quality. These product categories also require construction and management capabilities. Daiki Axis has relationships in place with the construction companies that order such products, and the company employs personnel to maintain these relationships. These relationships serve as a barrier to entry for other companies.

Peripheral businesses: waste treatment (cleaning) and maintenance

Waste matter that has been separated out from wastewater and retained within wastewater treatment tanks must be removed periodically. Cleaning companies that collect this waste material must hold waste treatment qualifications. Cleaning is typically performed by local authorities or industrial waste treatment companies that have been subcontracted to handle the task. Vacuum trucks go site to site (door to door), collecting waste matter and transporting it to waste treatment facilities.

To maintain functionality, the Purification Tank Act stipulates that wastewater treatment tanks must be managed, including regular cleaning, maintenance, and inspection. For household compact wastewater treatment tanks, often the homeowner is the manager. However, maintenance may be outsourced to licensed operators. Legally mandated cleaning and maintenance of wastewater treatment tanks is a recurring-revenue business with steady demand.

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.

Breakdown of revenue in the Environmental Equipment segment
End users% of Environmental Equipment segment revenue
FY12/16FY12/17FY12/18FY12/19FY12/20FY12/21
Clean water (ground water treatment)Hospitals, welfare facilities, food processing plants, gyms, other3.4%3.6%3.9%4.7%4.2%4.4%
Water purification systemsParks, other0.1%0.3%0.1%0.8%0.1%0.1%
WastewaterSmall JohkasouIndividual homes, other10.5%9.9%9.3%9.0%8.3%7.2%
Wastewater treatment systemCondominiums, rural districts, food processing plants, electrical and plating plants, other60.8%60.8%62.6%59.0%58.3%63.2%
MaintenanceAll above excl. individual homes25.2%25.4%24.1%26.5%29.1%