Daiseki 9793

ダイセキ

Recent Updates

2021-11-09

Cancellation of treasury stock

2021-10-20

1H FY02/22 report update

2021-10-01

1H FY02/22 flash update

Get in touch

1-86 Funamicho Minato-ku Nagoya-shiAichi, Japan 455-8505

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

052-611-6322

Summary

Environmental services company with strength in industrial waste disposal. Growing organically and through M&A. Strong balance sheet and cash flow generation.

Diversified Consumer Services

Key dates

2010-06-18

Coverage initiation

Full Report

2021-11-09

1H FY02/22 flash update

2021-10-01

Q1 FY02/22 flash update

2021-06-30

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Executive summary

Business overview

Daiseki is an environmental specialist company whose main focus is industrial waste recycling. The parent company’s main business is intermediate processing of liquid wastes (waste oil, wastewater, sludge) and their separation into reusable components (such as recycled heavy oil) that can then be resold. Subsidiaries include Daiseki Eco. Solution Co., Ltd. (TSE1: 1712), in which Daiseki holds a 54% stake, Daiseki MCR, and System Kikou. In FY02/21, Daiseki generated sales ofJPY30.9bn, Daiseki Eco. Solution, whose main businesses are soil decontamination and plasterboard recycling, had sales of JPY14.9bn; Daiseki MCR, whose main business is refining and selling lead recovered from used batteries, reported sales of JPY2.9bn; and System Kikou, which provides cleanup services for large oil tanks and also does industrial piping installation/maintenance, reported sales of JPY3.1bn. The parent company’s operating profit margin of 26.6% is high, an indication of its competitive strength as an environmental specialist company.

Just as Daiseki group companies have embraced ESG initiatives, so too has there been a steady increase in societal demand in Japan for environmental protection and growing environmental awareness among the many domestic manufacturers that comprise the bulk of Daiseki’s customer base. Japan’s environmental regulations are getting stricter over time, especially in the area of industrial waste treatment. As an environmental specialist company whose main focus is industrial waste recycling, Daiseki has the expertise needed to assure proper treatment of industrial waste and, as it has gained the trust of more and more client companies, has also steadily increased its share of the industrial waste treatment market.

In June 2018, Daiseki unveiled its long-term management vision. Dubbed Vision 2030, the plan reflects its philosophy of contributing to society by creating a better environment, and sets out specific targets that are aligned with the sustainable development goals set forth in the United Nation’s 2030 Agenda for Sustainable Development (adopted September 2015). Under Vision 2030, the company is targeting FY02/30 sales of JPY150.0bn (roughly a 3.0x increase over FY02/18), operating profit of JPY25.0bn (roughly a 2.8x increase over FY02/18), and an ROE of 15% (versus 9.9% in FY02/18).

Earnings trends

Sales and profit at Daiseki declined for the first time in two years in FY02/21, with the company reporting consolidated sales of JPY51.5bn (-4.7% YoY), operating profit of JPY10.2bn (-5.7% YoY), and net income of JPY6.5bn (-7.4% YoY). While earnings, mainly in 1H, were sharply impacted by the COVID-19 pandemic, the clear recovery from 2H resulted in only a moderate YoY decline in earnings for the full year. In Q4, operating profit turned higher YoY not only at the parent, but also at subsidiaries such as Daiseki Eco. Solution Co., Ltd.

Daiseki forecasts FY02/22 consolidated sales of JPY56.6bn (+9.8% YoY), operating profit of JPY12.6bn (+23.0% YoY), recurring profit JPY12.8bn (+22.5% yoY), net income of JPY8.2bn (+25.7% YoY), and EPS of JPY159.6 (based on the stock split completed on September 1). The company upgraded its previous forecast when it announced Q2 results. Although the initial sales forecast has been left unchanged, and there is no change in the management's expectation that it will achieve a record profit for the first time in two quarters due to an improvement in profit margins, amongst other factors, the company now anticipates hitting the targets set for FY02/23 in the medium-term plan one year ahead of schedule. Management’s annual dividend forecast for FY02/22 is JPY56.0 per share, unchanged from FY02/21. However, if the stock split implemented on September 1, 2021 is taken into account, the dividend will actually increase by JPY5.6 per share.

The company revised its medium-term business plan in April 2021. Despite expectations that the initial targets for FY02/23 (consolidated sales of JPY63.0bn, operating profit of JPY13.0bn, and ROE of 10.1%) would be pushed back one year to account for the effects from the COVID-19 pandemic, it appears the company expects sustained growth to drive earnings past those levels, with management now targeting FY02/24 consolidated sales of JPY66.5bn, operating profit of JPY13.5bn, and ROE of 10.1%. The company is expected to announce yet another update, which Shared Research believes will be major upward revisions, in April 2022.

Strengths and weaknesses

Shared Research sees Daiseki as having three main strengths. First, its many years of experience and reliable reputation as a listed company; second, management’s pragmatic focus on medium-term earnings growth; and third, the parent company’s focus on liquid waste processing. On the flip side, we also see three notable weaknesses. First, domestic industrial production holds back the company’s growth; second, the long lead time needed for the permitting of new plant construction and expansion of existing plants; and third, the limited number of attractive opportunities for mergers and acquisitions. (For more detailed discussion, see “Strengths and weaknesses” section later in this report.)

Key financial data

Income statement		FY02/13	FY02/14	FY02/15	FY02/16	FY02/17	FY02/18	FY02/19	FY02/20	FY02/21	FY02/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales		36,013	42,100	45,738	50,809	44,232	49,185	51,313	54,088	51,530	56,600
	YoY	-1.4%	16.9%	8.6%	11.1%	-12.9%	11.2%	4.3%	5.4%	-4.7%	9.8%
Gross profit		10,275	12,298	12,908	13,088	12,367	14,484	15,189	17,124	16,324	19,000
	YoY	-2.2%	19.7%	5.0%	1.4%	-5.5%	17.1%	4.9%	12.7%	-4.7%	16.4%
	Gross profit margin	28.5%	29.2%	28.2%	25.8%	28.0%	29.4%	29.6%	31.7%	31.7%	33.6%
Operating profit		5,404	7,298	7,302	7,849	7,120	8,777	9,107	10,865	10,242	12,600
	YoY	-6.0%	35.0%	0.1%	7.5%	-9.3%	23.3%	3.8%	19.3%	-5.7%	23.0%
	Operating profit margin	15.0%	17.3%	16.0%	15.4%	16.1%	17.8%	17.7%	20.1%	19.9%	22.3%
Recurring profit		5,554	7,400	7,436	7,955	7,228	8,914	9,199	11,025	10,451	12,800
	YoY	-5.9%	33.2%	0.5%	7.0%	-9.1%	23.3%	3.2%	19.8%	-5.2%	22.5%
	Recurring profit margin	15.4%	17.6%	16.3%	15.7%	16.3%	18.1%	17.9%	20.4%	20.3%	22.6%
Net income		3,024	3,942	4,035	3,847	4,132	5,833	6,110	7,044	6,521	8,200
	YoY	-5.3%	30.4%	2.4%	-4.7%	7.4%	41.2%	4.7%	15.3%	-7.4%	25.7%
	Net margin	8.4%	9.4%	8.8%	7.6%	9.3%	11.9%	11.9%	13.0%	12.7%	14.5%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)		45,125	45,125	45,125	45,125	45,125	43,000	43,000	43,000	43,000	-
EPS		67.2	87.5	89.6	85.8	95.8	136.5	142.9	164.7	152.4	159.6
Dividend per share		21.0	22.0	24.0	28.0	29.0	40.0	46.0	56.0	56.0	56.0
Book value per share		1,076	1,144	1,214	1,261	1,319	1,427	1,521	1,637	1,729	-
Balance sheet
(JPYmn)
	Cash and cash equivalents	20,174	24,416	26,763	28,830	27,256	28,183	31,535	30,093	33,852
Total current assets		28,477	34,773	38,554	40,194	39,240	39,849	42,179	42,093	45,351
Tangible fixed assets		30,991	29,798	32,122	30,155	33,163	37,354	43,345	49,957	50,404
Investments and other assets		9,595	7,977	7,699	6,267	8,052	9,053	11,054	10,246	10,433
Intangible assets		1,967	1,690	1,422	1,021	938	850	786	722	637
Total assets		59,468	64,571	70,677	70,350	72,403	77,203	85,524	92,050	95,756
	Accounts payable	2,651	3,296	3,811	3,521	3,877	3,420	3,698	4,195	3,542
	Short-term debt	1,372	860	1,500	1,139	2,099	449	1,695	2,256	1,782
Total current liabilities		7,429	8,075	10,485	9,147	9,228	8,814	12,197	12,060	10,868
	Long-term debt	10	-	-	725	425	500	962	2,178	2,325
Total fixed liabilities		1,203	1,360	1,573	1,919	1,666	1,755	2,369	3,676	4,170
Total liabilities		8,632	9,435	12,058	11,067	10,895	10,570	14,567	15,737	15,039
Total net assets		50,835	55,136	58,618	59,283	61,508	66,633	70,957	76,313	80,717
Total interest-bearing debt		1,382	860	1,500	1,864	2,524	949	2,657	4,434	4,107
Cash flow statement
(JPYmn)
Cash flows from operating activities		5,041	6,093	5,241	7,509	5,813	9,938	9,580	9,633	9,784
Cash flows from investing activities		-6,019	933	-2,493	-2,829	-4,452	-6,237	-8,396	-11,964	981
Cash flows from financing activities		-577	-841	-484	-3,702	-1,934	-2,957	-347	-450	-3,049
Financial ratios
ROA (RP-based)		9.5%	11.9%	11.0%	11.3%	10.1%	11.9%	11.3%	12.4%	11.1%
ROE		6.4%	7.9%	7.6%	7.0%	7.4%	9.9%	9.7%	10.4%	9.1%
Equity ratio		81.5%	79.8%	77.3%	77.7%	77.9%	79.0%	76.0%	76.1%	77.3%

Source: Shared Research based on company data.
Note: The company conducted a 1:1.2 stock split effective September 1, 2021.

Recent updates

Daiseki Eco. Solution, a consolidated subsidiary of Daiseki, announced revisions to its 1H FY02/22 consolidated earnings forecast, full-year FY02/22 consolidated earnings forecast, and dividend forecast

2021-09-17

Daiseki Eco. Solution, a consolidated subsidiary of Daiseki, announced revisions to its 1H FY02/22 consolidated earnings forecast, full-year FY02/22 consolidated earnings forecast, and dividend forecast.

1H FY02/22

Sales: JPY9.1bn (initial forecast of JPY8.8bn)
Operating profit: JPY1.3bn (JPY768mn)
Recurring profit: JPY1.3bn (JPY791mn)
Net income attributable to owners of the parent: JPY797mn (JPY475mn)

Full-year FY02/22

Sales: JPY17.5bn (initial forecast of JPY16.0bn)
Operating profit: JPY2.1bn (JPY1.5bn)
Recurring profit: JPY2.1bn (JPY1.5bn)
Net income attributable to owners of the parent: JPY1.3bn (JPY890mn)
EPS: JPY76.05 (JPY52.95)

Reasons for the revisions

Concerning 1H, demand for the company's mainstay soil contamination research and cleanup business recovered, large-scale infrastructure development-related business in the Chukyo area contributed to drive results upward, and sales rose due to the completion of several projects for which orders were received in FY02/21. Additionally, the aforementioned projects proceeded more profitably than expected, resulting in a significant increase to profit.

Forecasts for full-year FY02/22 were revised upward because the company predicts that large-scale infrastructure development work will continue in the Chukyo area and that orders will be received for large projects in the Tokyo metropolitan area and Kansai region, leading to results in excess of initial forecasts.

Revision to dividend forecast

The company revised its year-end dividend forecast upward by JPY2 per share to JPY5 per share, on the basis of the upward revisions to its earnings forecast. Including the interim dividend of JPY3 per share, the annual dividend is forecast to be JPY8 per share.

Trends and outlook

Monthly trends

Daiseki Co. monthly sales, year-on-year performance

	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Total
Act.	2,046	1,986	1,996	2,319	2,251	2,083	1,928	1,972	1,891	2,034	1,723	1,778	24,011
Act.	2,100	2,112	2,176	1,969	1,938	2,104	1,955	1,988	1,984	2,066	1,696	1,715	23,808
Act.	2,114	2,042	2,130	2,041	2,158	2,170	2,019	2,168	2,139	2,283	1,852	1,953	25,074
Act.	2,418	2,252	2,151	2,192	2,283	2,271	2,252	2,299	2,149	2,334	1,912	1,941	26,459
Act.	2,351	2,323	2,147	2,308	2,304	2,230	2,103	2,292	2,023	2,247	1,787	1,895	26,016
Act.	2,166	2,125	2,133	2,129	2,275	2,226	2,219	2,222	2,140	2,278	1,870	1,977	25,746
Act.	2,497	2,360	2,375	2,367	2,389	2,452	2,328	2,455	2,442	2,631	2,173	2,304	28,778
Act.	2,742	2,525	2,650	2,665	2,665	2,795	2,683	2,850	2,768	2,879	2,403	2,497	32,127
Act.	2,987	2,857	2,816	2,649	2,900	2,808	2,743	2,939	2,926	2,946	2,479	2,490	33,545
Act.	2,876	2,765	2,551	2,495	2,599	2,466	2,490	2,658	2,586	2,725	2,249	2,398	30,862
Act.	2,951	2,680	2,678	2,763	2,774	2,710
	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Total
Act.	12.7%	9.1%	10.2%	32.9%	21.9%	9.0%	6.1%	7.6%	-4.3%	2.4%	9.2%	3.9%	9.9%
Act.	2.6%	6.3%	9.0%	-15.1%	-13.9%	1.0%	1.4%	0.8%	4.9%	1.6%	-1.6%	-3.5%	-0.8%
Act.	0.7%	-3.3%	-2.1%	3.7%	11.4%	3.1%	3.3%	9.1%	7.8%	10.5%	9.2%	13.9%	5.3%
Act.	14.4%	10.3%	1.0%	7.4%	5.8%	4.7%	11.5%	6.0%	0.5%	2.2%	3.2%	-0.6%	5.5%
Act.	-2.8%	3.2%	-0.2%	5.3%	0.9%	-1.8%	-6.6%	-0.3%	-5.9%	-3.7%	-6.5%	-2.4%	-1.7%
Act.	-7.9%	-8.5%	-0.7%	-7.8%	-1.3%	-0.2%	5.5%	-3.1%	5.8%	1.4%	4.6%	4.3%	-1.0%
Act.	15.3%	11.1%	11.3%	11.2%	5.0%	10.2%	4.9%	10.5%	14.1%	15.5%	16.2%	16.5%	11.8%
Act.	9.8%	7.0%	11.6%	12.6%	11.6%	14.0%	15.2%	16.1%	13.3%	9.4%	10.6%	8.4%	11.6%
Act.	8.9%	13.1%	6.3%	-0.6%	8.8%	0.5%	2.2%	3.1%	5.7%	2.3%	3.2%	-0.3%	4.4%
Act.	-3.7%	-3.2%	-9.4%	-5.8%	-10.4%	-12.2%	-9.2%	-9.6%	-11.6%	-7.5%	-9.3%	-3.7%	-8.0%
Act.	2.6%	-3.1%	5.0%	10.7%	6.7%	9.9%

Source: Shared Research based on company data

Daiseki Co. monthly gross profit margin

	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Total
Act.	39.3%	36.8%	34.6%	32.1%	35.4%	34.2%	36.3%	37.7%	36.8%	36.2%	33.4%	28.7%	35.2%
Act.	38.7%	38.5%	35.9%	35.0%	33.7%	34.1%	35.7%	35.6%	35.3%	33.8%	32.3%	25.9%	34.8%
Act.	36.4%	37.1%	37.4%	36.6%	35.6%	36.5%	37.1%	36.8%	35.1%	35.9%	32.4%	29.6%	35.7%
Act.	38.2%	37.5%	36.9%	39.2%	37.6%	37.7%	36.2%	36.5%	37.9%	36.1%	33.2%	30.9%	36.7%
Act.	36.0%	36.5%	35.5%	35.5%	35.5%	34.4%	34.4%	36.4%	34.1%	35.2%	31.1%	31.7%	34.9%
Act.	37.3%	37.5%	36.8%	36.6%	37.6%	35.8%	36.8%	38.2%	37.2%	37.7%	33.5%	33.3%	36.6%
Act.	39.0%	39.3%	40.0%	38.6%	38.4%	37.1%	36.4%	39.6%	36.8%	39.0%	33.2%	31.4%	37.5%
Act.	39.7%	37.9%	38.8%	39.5%	38.4%	38.0%	38.8%	39.0%	37.7%	38.9%	33.5%	32.6%	37.9%
Act.	40.0%	36.6%	37.5%	39.2%	39.6%	40.7%	37.3%	40.8%	41.0%	39.2%	35.9%	35.1%	38.7%
Act.	41.9%	38.9%	38.5%	38.7%	41.0%	40.4%	37.8%	40.1%	39.8%	41.3%	38.3%	37.1%	39.0%
Act.	43.0%	41.1%	41.1%	42.7%	41.0%	41.1%

Source: Shared Research based on company data
Note: Includes gross profit on soil contamination cleanup sales to Daiseki Eco. Solution; GPM tends to decrease in months when sales are high.

Daiseki Co. sales and GPM

Source: Shared Research based on company data

Quarterly trends and results

Cumulative		FY02/20				FY02/21				FY02/22		FY02/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Sales		13,557	26,892	41,173	54,088	13,451	25,873	38,704	51,530	14,038	29,041	51.3%	56,600
	YoY	9.3%	2.4%	5.8%	5.4%	-0.8%	-3.8%	-6.0%	-4.7%	4.4%	12.2%		9.8%
Gross profit		4,329	8,535	13,273	17,124	4,140	8,044	12,231	16,324	4,716	9,986	52.6%	19,000
	YoY	13.1%	10.6%	14.1%	12.7%	-4.4%	-5.8%	-7.9%	-4.7%	13.9%	24.1%		16.4%
	Gross profit margin	31.9%	31.7%	32.2%	31.7%	30.8%	31.1%	31.6%	31.7%	33.6%	34.4%		33.6%
SG&A expenses		1,561	3,063	4,668	6,259	1,577	3,053	4,549	6,082	1,592	3,157	49.3%	6,400
	YoY	5.1%	1.7%	2.3%	2.9%	1.0%	-0.3%	-2.5%	-2.8%	1.0%	3.4%		5.2%
	SG&A ratio	11.5%	11.4%	11.3%	11.6%	11.7%	11.8%	11.8%	11.8%	11.3%	10.9%		11.3%
Operating profit		2,767	5,471	8,605	10,865	2,562	4,990	7,681	10,242	3,123	6,829	54.2%	12,600
	YoY	18.1%	16.3%	21.8%	19.3%	-7.4%	-8.8%	-10.7%	-5.7%	21.9%	36.9%		23.0%
	Operating profit margin	20.4%	20.3%	20.9%	20.1%	19.0%	19.3%	19.8%	19.9%	22.2%	23.5%		22.3%
Recurring profit		2,812	5,554	8,726	11,025	2,682	5,140	7,848	10,451	3,146	6,904	53.9%	12,800
	YoY	19.4%	17.1%	21.9%	19.8%	-4.6%	-7.5%	-10.1%	-5.2%	17.3%	34.3%		22.5%
	Recurring profit margin	20.7%	20.7%	21.2%	20.4%	19.9%	19.9%	20.3%	20.3%	22.4%	23.8%		22.6%
Net income		1,811	3,564	5,591	7,044	1,497	3,134	4,879	6,521	2,003	4,318	52.7%	8,200
	YoY	14.4%	15.9%	19.2%	15.3%	-17.3%	-12.1%	-12.7%	-7.4%	33.8%	37.8%		25.7%
	Net margin	13.4%	13.3%	13.6%	13.0%	11.1%	12.1%	12.6%	12.7%	14.3%	14.9%		14.5%
Quarterly		FY02/20				FY02/21				FY02/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales		13,557	13,335	14,281	12,915	13,451	12,422	12,831	12,826	14,038	15,003
	YoY	9.3%	-3.7%	12.9%	4.0%	-0.8%	-6.8%	-10.2%	-0.7%	4.4%	20.8%
Gross profit		4,329	4,206	4,738	3,851	4,140	3,904	4,187	4,093	4,716	5,270
	YoY	13.1%	8.2%	21.1%	8.2%	-4.4%	-7.2%	-11.6%	6.3%	13.9%	35.0%
	Gross profit margin	31.9%	31.5%	33.2%	29.8%	30.8%	31.4%	32.6%	31.9%	33.6%	35.1%
SG&A expenses		1,561	1,502	1,605	1,591	1,577	1,476	1,496	1,533	1,592	1,565
	YoY	5.1%	-1.6%	3.6%	4.6%	1.0%	-1.7%	-6.8%	-3.6%	1.0%	6.0%
	SG&A ratio	11.5%	11.3%	11.2%	12.3%	11.7%	11.9%	11.7%	12.0%	11.3%	10.4%
Operating profit		2,767	2,704	3,134	2,260	2,562	2,428	2,691	2,561	3,123	3,706
	YoY	18.1%	14.5%	32.6%	10.8%	-7.4%	-10.2%	-14.1%	13.3%	21.9%	52.6%
	Operating profit margin	20.4%	20.3%	21.9%	17.5%	19.0%	19.5%	21.0%	20.0%	22.2%	24.7%
Recurring profit		2,812	2,742	3,172	2,299	2,682	2,458	2,708	2,603	3,146	3,758
	YoY	19.4%	14.9%	31.3%	12.7%	-4.6%	-10.4%	-14.6%	13.2%	17.3%	52.9%
	Recurring profit margin	20.7%	20.6%	22.2%	17.8%	19.9%	19.8%	21.1%	20.3%	22.4%	25.0%
Net income		1,811	1,753	2,027	1,453	1,497	1,637	1,745	1,642	2,003	2,315
	YoY	14.4%	17.6%	25.3%	2.5%	-17.3%	-6.6%	-13.9%	13.0%	33.8%	41.4%
	Net margin	13.4%	13.1%	14.2%	11.3%	11.1%	13.2%	13.6%	12.8%	14.3%	15.4%

Source: Shared Research based on company data

By company				FY02/20				FY02/21				FY02/22		FY02/22
Cumulative (JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Total sales (consolidated)				13,557	26,892	41,173	54,088	13,451	25,873	38,704	51,530	14,038	29,041	51.3%	56,600
	YoY			9.3%	2.4%	5.8%	5.4%	-0.8%	-3.8%	-6.0%	-4.7%	4.4%	12.2%		9.8%
		Daiseki Co. (parent)		8,661	17,020	25,629	33,545	8,193	15,754	23,489	30,862	8,310	16,559	48.4%	34,180
			YoY	9.4%	6.1%	5.3%	4.4%	-5.4%	-7.4%	-8.3%	-8.0%	1.4%	5.1%		10.8%
			% of consolidated sales	63.9%	63.3%	62.2%	62.0%	60.9%	60.9%	60.7%	59.9%	59.2%	57.0%		60.4%
		Daiseki Eco. Solution		3,524	7,032	10,666	14,048	4,200	7,406	11,055	14,906	4,264	9,099	52.0%	17,500
			YoY	5.8%	-9.9%	-2.1%	-1.0%	19.2%	5.3%	3.6%	6.1%	1.5%	22.9%		17.4%
			% of consolidated sales	26.0%	26.1%	25.9%	26.0%	31.2%	28.6%	28.6%	28.9%	30.4%	31.3%		30.9%
		Hokuriku Daiseki		207	394	602	817	184	340	513	689	207	418	52.3%	800
			YoY	-8.4%	-8.4%	-6.1%	-3.7%	-11.1%	-13.7%	-14.8%	-15.7%	12.5%	22.9%		16.1%
			% of consolidated sales	1.5%	1.5%	1.5%	1.5%	1.4%	1.3%	1.3%	1.3%	1.5%	1.4%		1.4%
		Daiseki MCR		726	1,462	2,244	2,987	651	1,371	2,112	2,878	764	1,584	53.7%	2,950
			YoY	-2.0%	-3.8%	2.7%	4.9%	-10.3%	-6.2%	-5.9%	-3.6%	17.4%	15.5%		2.5%
			% of consolidated sales	5.4%	5.4%	5.5%	5.5%	4.8%	5.3%	5.5%	5.6%	5.4%	5.5%		5.2%
		System Kikou		689	1,450	2,831	3,723	538	1,547	2,298	3,143	707	1,799	47.1%	3,820
			YoY	69.7%	58.3%	85.4%	67.0%	-21.9%	6.7%	-18.8%	-15.6%	31.4%	16.3%		21.5%
			% of consolidated sales	5.1%	5.4%	6.9%	6.9%	4.0%	6.0%	5.9%	6.1%	5.0%	6.2%		6.7%
		Eliminations		-252	-467	-799	-1,035	-316	-546	-763	-950	-217	-419		-
Operating profit (consolidated)				2,767	5,471	8,605	10,865	2,562	4,990	7,681	10,242	3,123	6,829	54.2%	12,600
	YoY			18.1%	16.3%	21.8%	19.3%	-7.4%	-8.8%	-10.7%	-5.7%	21.9%	36.9%		23.0%
	Operating profit margin			20.4%	20.3%	20.9%	20.1%	19.0%	19.3%	19.8%	19.9%	22.2%	23.5%		22.3%
		Daiseki Co. (parent)		2,304	4,647	7,021	8,896	2,218	4,267	6,334	8,221	2,449	4,876	53.6%	9,090
			YoY	8.4%	8.3%	7.7%	7.3%	-3.7%	-8.2%	-9.8%	-7.6%	10.4%	14.3%		10.6%
			Operating profit margin	26.6%	27.3%	27.4%	26.5%	27.1%	27.1%	27.0%	26.6%	29.5%	29.4%		26.6%
		Daiseki Eco. Solution		324	641	1,010	1,237	329	458	789	1,206	482	1,293	61.6%	2,100
			YoY	18.7%	7.4%	38.7%	37.8%	1.4%	-28.6%	-21.9%	-2.5%	46.5%	182.3%		74.1%
			Operating profit margin	9.2%	9.1%	9.5%	8.8%	7.8%	6.2%	7.1%	8.1%	11.3%	14.2%		12.0%
		Hokuriku Daiseki		20	38	56	73	18	32	47	62	21	46	59.0%	78
			YoY	5.3%	0.0%	12.0%	7.4%	-10.0%	-15.8%	-16.1%	-15.1%	16.7%	43.8%		25.8%
			Operating profit margin	9.7%	9.6%	9.3%	8.9%	9.8%	9.4%	9.2%	9.0%	10.1%	11.0%		9.8%
		Daiseki MCR		28	11	119	188	22	56	163	283	152	314	110.6%	284
			YoY	366.7%	-	-	-	-21.4%	409.1%	37.0%	50.5%	590.9%	460.7%		0.4%
			Operating profit margin	3.9%	0.8%	5.3%	6.3%	3.4%	4.1%	7.7%	9.8%	19.9%	19.8%		9.6%
		System Kikou		106	165	447	531	-4	211	390	528	33	331	57.8%	573
			YoY	-	-	-	365.8%	-	27.9%	-12.8%	-0.6%	-	56.9%		8.5%
			Operating profit margin	15.4%	11.4%	15.8%	14.3%	-0.7%	13.6%	17.0%	16.8%	4.7%	18.4%		15.0%
		Eliminations		-16	-33	-48	-62	-21	-35	-44	-60	-17	-32		-
By company				FY02/20				FY02/21				FY02/22
Quarterly (JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Total sales (consolidated)				13,557	13,335	14,281	12,915	13,451	12,422	12,831	12,826	14,038	15,003
	YoY			9.3%	-3.7%	12.9%	4.0%	-0.8%	-6.8%	-10.2%	-0.7%	4.4%	20.8%
		Daiseki Co. (parent)		8,661	8,359	8,609	7,916	8,193	7,561	7,735	7,373	8,310	8,249
			YoY	9.4%	2.9%	3.7%	1.7%	-5.4%	-9.5%	-10.2%	-6.9%	1.4%	9.1%
			% of consolidated sales	63.9%	62.7%	60.3%	61.3%	60.9%	60.9%	60.3%	57.5%	59.2%	55.0%
		Daiseki Eco. Solution		3,524	3,508	3,634	3,382	4,200	3,206	3,649	3,851	4,264	4,835
			YoY	5.8%	-21.6%	17.7%	2.5%	19.2%	-8.6%	0.4%	13.9%	1.5%	50.8%
			% of consolidated sales	26.0%	26.3%	25.4%	26.2%	31.2%	25.8%	28.4%	30.0%	30.4%	32.2%
		Hokuriku Daiseki		207	187	208	215	184	156	173	176	207	211
			YoY	-8.4%	-8.3%	-1.4%	3.9%	-11.1%	-16.6%	-16.8%	-18.1%	12.5%	35.3%
			% of consolidated sales	1.5%	1.4%	1.5%	1.7%	1.4%	1.3%	1.3%	1.4%	1.5%	1.4%
		Daiseki MCR		726	736	782	743	651	720	741	766	764	820
			YoY	-2.0%	-5.4%	17.6%	11.9%	-10.3%	-2.2%	-5.2%	3.1%	17.4%	13.9%
			% of consolidated sales	5.4%	5.5%	5.5%	5.8%	4.8%	5.8%	5.8%	6.0%	5.4%	5.5%
		System Kikou		689	761	1,381	892	538	1,009	751	845	707	1,092
			YoY	69.7%	49.2%	126.0%	27.1%	-21.9%	32.6%	-45.6%	-5.3%	31.4%	8.2%
			% of consolidated sales	5.1%	5.7%	9.7%	6.9%	4.0%	8.1%	5.9%	6.6%	5.0%	7.3%
		Eliminations		-252	-215	-332	-236	-316	-230	-217	-187	-217	-202
Operating profit (consolidated)				2,767	2,704	3,134	2,260	2,562	2,428	2,691	2,561	3,123	3,706
	YoY			18.1%	14.5%	32.6%	10.8%	-7.4%	-10.2%	-14.1%	13.3%	21.9%	52.6%
	Operating profit margin			20.4%	20.3%	21.9%	17.5%	19.0%	19.5%	21.0%	20.0%	22.2%	24.7%
		Daiseki Co. (parent)		2,304	2,343	2,374	1,875	2,218	2,049	2,067	1,887	2,449	2,427
			YoY	8.4%	8.2%	6.5%	5.8%	-3.7%	-12.5%	-12.9%	0.6%	10.4%	18.4%
			Operating profit margin	26.6%	28.0%	27.6%	23.7%	27.1%	27.1%	26.7%	25.6%	29.5%	29.4%
		Daiseki Eco. Solution		324	317	368	227	329	129	331	417	482	811
			YoY	18.7%	-2.1%	181.3%	33.8%	1.4%	-59.3%	-10.1%	83.5%	46.5%	528.7%
			Operating profit margin	9.2%	9.0%	10.1%	6.7%	7.8%	4.0%	9.1%	10.8%	11.3%	16.8%
		Hokuriku Daiseki		20	18	18	17	18	14	15	15	21	25
			YoY	5.3%	-5.3%	50.0%	-5.6%	-10.0%	-22.2%	-16.7%	-11.8%	16.7%	78.6%
			Operating profit margin	9.7%	9.6%	8.7%	7.9%	9.8%	9.0%	8.7%	8.5%	10.1%	11.8%
		Daiseki MCR		28	-17	108	69	22	34	107	120	152	162
			YoY	366.7%	-	-	-	-21.4%	-	-0.9%	73.9%	590.9%	376.5%
			Operating profit margin	3.9%	-2.3%	13.8%	9.3%	3.4%	4.7%	14.4%	15.7%	19.9%	19.8%
		System Kikou		106	59	282	84	-4	215	179	138	33	298
			YoY	-	-	362.3%	-32.8%	-	264.4%	-36.5%	64.3%	-	38.6%
			Operating profit margin	15.4%	7.8%	20.4%	9.4%	-0.7%	21.3%	23.8%	16.3%	4.7%	27.3%
		Eliminations		-16	-17	-15	-14	-21	-14	-9	-16	-17	-15

Source: Shared Research based on company data

1H FY02/22 results (out October 1, 2021)

Overview

1H results FY02/22 (March-August, 6 months)

The company reported results as follows.

Sales: JPY29.0bn (+12.2% YoY)
Operating profit: JPY6.8bn (+36.9% YoY)
Recurring profit JPY6.9bn (+34.3% YoY)
Net income attributable to owners of the parent: JPY4.3bn (+37.8% YoY)

Sales generated by Daiseki Co. (parent), which account for the largest proportion of consolidated sales (59.9% in before elimination of impact from intra-company transactions in FY02/21), fell short of the company’s projections due in part to the COVID-19 pandemic and curtailment of automobile production resulting from semiconductor shortages. However, Daiseki Co. was able to compensate for impact from this shortfall thanks to price revisions, improved profitability stemming from cost reductions, and higher crude oil prices. Consequently, it booked record-high profit in 1H and drove overall consolidated performance. In addition, core subsidiaries including Daiseki Eco. Solutions, Daiseki MCR, and System Kikou also achieved higher sales than the previous year, resulting in record high sales and profits at all levels on a consolidated basis. In accordance with its existing projections, the company plans to pay an interim dividend of JPY28.0 per share.

Q2 FY02/22 (June-August, three months)

Q2 results (June-August, three months) are as follows.

Sales: JPY15.0bn (+20.8% YoY)
Operating profit: JPY3.7bn (+52.6% YoY)
Recurring profit: JPY3.8bn (+52.9% YoY)
Net income attributable to owners of the parent: JPY2.3bn (+41.4% YoY)

The most notable aspect of financial results for Q2 FY02/22 was additional growth in profitability. The OPM in Q2 amounted to 24.7%, up 5.2pp compared to Q2 FY02/21 (June–August 2020), when it was 19.5%. Quarterly OPM reached its highest level ever in Q2, rising 2.5pp above its level in Q1 (March–May 2021), which was 22.2%. The company's sales in Q2 are typically lower than in Q1 due to the summer holidays, but in FY02/22, Q2 sales were about JPY1.0bn higher than in Q1. On a quarterly basis, sales increased YoY for the second consecutive quarter, operating profit increased YoY for the third consecutive quarter, and the operating profit margin exceeded 20% for the fourth consecutive quarter.

Daiseki Co. (parent)

Daiseki Co. Trend of Results (JPYmn)

Daiseki Co. (parent)		FY02/20				FY02/21				FY02/22		FY02/22
Quarterly (JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	FY Est.
Sales		8,661	8,359	8,609	7,916	8,193	7,561	7,735	7,373	8,310	8,249	48.4%	34,180
	YoY	9.4%	2.9%	3.7%	1.7%	-5.4%	-9.5%	-10.2%	-6.9%	1.4%	9.1%		10.8%
Gross profit		3,303	3,331	3,425	2,924	3,266	3,032	3,041	2,880	3,475	3,436	51.6%	13,390
	YoY	7.3%	5.9%	7.0%	6.6%	-1.1%	-9.0%	-11.2%	-1.5%	6.4%	13.3%		9.6%
	Gross profit margin	38.1%	39.8%	39.8%	36.9%	39.9%	40.1%	39.3%	39.1%	41.8%	41.7%		39.2%
Operating profit		2,304	2,343	2,374	1,875	2,218	2,049	2,067	1,887	2,449	2,427	53.6%	9,090
	YoY	8.4%	8.2%	6.5%	5.8%	-3.7%	-12.5%	-12.9%	0.6%	10.4%	18.4%		10.6%
	Operating profit margin	26.6%	28.0%	27.6%	23.7%	27.1%	27.1%	26.7%	25.6%	29.5%	29.4%		26.6%
Recurring profit		2,351	2,374	2,422	1,916	2,271	2,086	2,115	1,912	2,501	2,475	54.3%	9,170
	YoY	8.1%	8.4%	5.6%	7.5%	-3.4%	-12.1%	-12.7%	-0.2%	10.1%	18.6%		9.4%
	Recurring profit margin	27.1%	28.4%	28.1%	24.2%	27.7%	27.6%	27.3%	25.9%	30.1%	30.0%		26.8%
Net income		1,633	1,633	1,664	1,318	1,342	1,446	1,474	1,309	1,736	1,713	54.6%	6,320
	YoY	4.7%	7.9%	4.5%	0.2%	-17.8%	-11.5%	-11.4%	-0.7%	29.4%	18.5%		13.4%
	Net margin	18.9%	19.5%	19.3%	16.6%	16.4%	19.1%	19.1%	17.8%	20.9%	20.8%		18.5%

Source: Shared Research based on company data

Daiseki (parent)

In 1H FY02/22 (March–August), Daiseki Co. (parent) generated JPY16.6bn in sales (+5.1% YoY), JPY4.9bn in operating profit (+14.3% YoY), and an OPM of 29.4% (27.1% in 1H FY02/21). Sales were sluggish in some categories due to states of emergency declared in response to the COVID-19 pandemic, but 1H profit reached a record high thanks to price revisions, cost reductions, and higher recycled fuel oil prices.

Sales in 1H fell short of the company's target of JPY17.2bn, but operating profit exceeded the company’s forecast (JPY4.6bn) and reached a record high, primarily due to improved profitability stemming from price revisions. The company's recycling technology is attracting attention once again as factors such as tighter environmental regulations generate demand for more stringent liquid waste treatment among operators of general businesses. The company believes that price revisions consequently generated greater upward impact on profitability than it had expected. Also contributing to the increase in profitability was growth in the price of the company’s recycled fuel oil, which was due to a rise in crude oil prices. Generally speaking, changes in the price of the company’s recycled fuel oil lag behind changes in crude oil prices by three to four months. Accordingly, the company believes that upward impact on profitability stemming indirectly from crude oil price shifts was larger in Q2 (June–August) than it was in Q1 (March–May).

Index of industrial production and Daiseki parent sales

Source: Shared Research based on company data

Sales by location

Sales by location			FY02/20				FY02/21				FY02/22		FY02/22
Quarterly (JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	FY Est.
Daiseki Co. (parent)			8,661	8,359	8,609	7,916	8,193	7,561	7,735	7,373	8,310	8,249	48.4%	34,180
	YoY		9.4%	2.9%	3.7%	1.7%	-5.4%	-9.5%	-10.2%	-6.9%	1.4%	9.1%		10.8%
	Nagoya		2,383	2,336	2,434	2,323	2,302	2,069	2,130	2,139	2,287	2,356	47.5%	9,766
		YoY	3.5%	-1.9%	2.2%	4.5%	-3.4%	-11.4%	-12.5%	-7.9%	-0.7%	13.9%		13.0%
		% of total	27.5%	27.9%	28.3%	29.3%	28.1%	27.4%	27.5%	29.0%	27.5%	28.6%		28.6%
	Hokuriku		1,075	1,104	1,058	963	1,105	1,026	991	921	1,124	1,092	51.5%	4,299
		YoY	12.0%	12.0%	5.0%	8.2%	2.8%	-7.1%	-6.3%	-4.4%	1.7%	6.4%		6.3%
		% of total	12.4%	13.2%	12.3%	12.2%	13.5%	13.6%	12.8%	12.5%	13.5%	13.2%		12.6%
	Kansai		1,473	1,427	1,366	1,101	1,353	1,245	1,199	1,065	1,312	1,189	45.5%	5,500
		YoY	9.3%	-1.8%	-5.3%	-15.4%	-8.1%	-12.8%	-12.2%	-3.3%	-3.0%	-4.5%		13.1%
		% of total	17.0%	17.1%	15.9%	13.9%	16.5%	16.5%	15.5%	14.4%	15.8%	14.4%		16.1%
	Kyushu		1,550	1,429	1,576	1,634	1,603	1,474	1,415	1,441	1,639	1,618	51.7%	6,298
		YoY	7.6%	3.9%	16.1%	17.3%	3.4%	3.1%	-10.2%	-11.8%	2.2%	9.8%		6.2%
		% of total	17.9%	17.1%	18.3%	20.6%	19.6%	19.5%	18.3%	19.5%	19.7%	19.6%		18.4%
	Kanto		1,791	1,729	1,802	1,583	1,549	1,491	1,726	1,561	1,687	1,720	48.0%	7,098
		YoY	8.5%	4.3%	-1.4%	-6.3%	-13.5%	-13.8%	-4.2%	-1.4%	8.9%	15.4%		12.2%
		% of total	20.7%	20.7%	20.9%	20.0%	18.9%	19.7%	22.3%	21.2%	20.3%	20.9%		20.8%
	Chiba		386	331	368	308	277	253	272	243	259	272	43.6%	1,219
		YoY	79.5%	21.7%	30.5%	9.6%	-28.2%	-23.6%	-26.1%	-21.1%	-6.5%	7.5%		16.7%
		% of total	4.5%	4.0%	4.3%	3.9%	3.4%	3.3%	3.5%	3.3%	3.1%	3.3%		3.6%

Source: Shared Research based on company data

Industrial production index and Daiseki Co. (parent) sales (excluding sales to DES)

Source: Shared Research based on Ministry of Economy, Trade and Industry data

Crude Oil CIF price trends

Shared Research based on Ministry of Economy, Trade and Industry data

Daiseki Eco. Solution (DES)

Daiseki Eco. Solution		FY02/20				FY02/21				FY02/22		FY02/22
Quarterly (JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	FY Est.
Sales		3,524	3,508	3,634	3,382	4,200	3,206	3,649	3,851	4,264	4,835	52.0%	17,500
	YoY	5.8%	-21.6%	17.7%	2.5%	19.2%	-8.6%	0.4%	13.9%	1.5%	50.8%		17.4%
Gross profit		708	671	749	578	704	465	691	794	876	1,204	52.3%	3,975
	YoY	13.6%	-1.7%	46.4%	5.6%	-0.5%	-30.7%	-7.7%	37.3%	24.4%	158.9%		49.8%
	Gross profit margin	20.1%	19.1%	20.6%	17.1%	16.8%	14.5%	18.9%	20.6%	20.5%	24.9%		22.7%
Operating profit		324	317	368	227	329	129	331	417	482	811	61.6%	2,100
	YoY	18.7%	-2.1%	181.3%	33.8%	1.4%	-59.3%	-10.1%	83.5%	46.5%	528.7%		74.1%
	Operating profit margin	9.2%	9.0%	10.1%	6.7%	7.8%	4.0%	9.1%	10.8%	11.3%	16.8%		12.0%
Recurring profit		349	328	389	230	351	124	330	436	483	816	61.7%	2,105
	YoY	32.7%	0.3%	159.3%	40.2%	0.6%	-62.2%	-15.2%	89.6%	37.6%	558.1%		69.6%
	Recurring profit margin	9.9%	9.4%	10.7%	6.8%	8.4%	3.9%	9.0%	11.3%	11.3%	16.9%		12.0%
Net income		212	188	222	56	203	55	185	246	287	510	62.4%	1,278
	YoY	29.3%	-4.1%	188.3%	-55.9%	-4.2%	-70.7%	-16.7%	339.3%	41.4%	827.3%		85.5%
	Net margin	6.0%	5.4%	6.1%	1.7%	4.8%	1.7%	5.1%	6.4%	6.7%	10.5%		7.3%

Daiseki Eco. Solution (TSE1: 1712)

Daiseki Eco. Solution’s main businesses include research and restoration of contaminated soil. In 1H, its sales amounted to JPY9.1bn (+22.9% YoY), while its operating profit came to JPY1.3bn (up about 180% YoY), and its OPM 14.2% (6.2% in 1H FY02/21). Conditions surrounding the profitability of general soil pollution treatment projects continued to be tough, but overall profitability improved thanks to growth in the company’s acquisition of highly lucrative consulting projects.

Sales exceeded the company’s projections (JPY8.8bn) by 3.6%, but 1H operating profit surpassed the company’s expectations (JPY768mn) by a much wider margin of 68.3% and reached its highest level in five years, dating back to 1H FY02/17 (March–August 2016), when the company booked JPY1.4bn in operating profit. However, the OPM in 1H FY02/22 (14.2%) was higher than the OPM in 1H FY02/17 (12.9%) and exceeded the company’s initial forecast (8.7%) by 5.5pp.

The primary driver of improvement in OPM was the company’s shift to consulting sales, which has been a point of focus since FY02/21. Profitability associated with general soil pollution treatment projects continued to be rough due primarily to intensified price competition. However, the company’s focus on highly lucrative consulting sales enabled it to acquire a larger proportion of projects with comparatively high profit margins. In addition, the majority of the company’s acquired projects involved direct orders, and this factor also had an upward impact on OPM.

Sales by division			FY02/20				FY02/21				FY02/22		FY02/22
Quarterly (JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	FY Est.
Daiseki Eco. Solution			3,524	3,508	3,634	3,382	4,200	3,206	3,649	3,851	4,264	4,835	52.0%	17,500
	YoY		5.8%	-21.6%	17.8%	2.5%	19.2%	-8.6%	0.4%	13.9%	1.5%	50.8%		17.4%
	Nagoya		856	930	1,028	862	1,180	603	722	778	535	888	46.7%	3,048
		YoY	7.0%	32.1%	43.8%	6.7%	37.9%	-35.2%	-29.8%	-9.7%	-54.7%	47.3%		-7.2%
		% of total	24.3%	26.5%	28.3%	25.5%	28.1%	18.8%	19.8%	20.2%	12.5%	18.4%		17.4%
	Tokyo		1,296	1,016	1,016	1,233	1,446	1,356	1,508	1,451	1,748	1,394	59.6%	5,272
		YoY	35.4%	-61.9%	-18.3%	11.2%	11.6%	33.5%	48.4%	17.7%	20.9%	2.8%		-8.5%
		% of total	36.8%	29.0%	28.0%	36.5%	34.4%	42.3%	41.3%	37.7%	41.0%	28.8%		30.1%
	Kansai		585	769	647	448	718	514	635	602	739	923	55.4%	3,002
		YoY	-40.1%	41.9%	29.1%	-28.3%	22.7%	-33.2%	-1.9%	34.4%	2.9%	79.6%		21.6%
		% of total	16.6%	21.9%	17.8%	13.2%	17.1%	16.0%	17.4%	15.6%	17.3%	19.1%		17.2%
	Gifu		-	7	36	37	53	123	106	229	464	851	65.2%	2,017
		YoY	-	-	-	-	-	1,657.1%	194.4%	518.9%	775.5%	591.9%		294.7%
		% of total	-	0.2%	1.0%	1.1%	1.3%	3.8%	2.9%	5.9%	10.9%	17.6%		11.5%
	Tohoku		20	9	8	2	11	22	129	20	-	-	-	-
		YoY	-62.3%	-71.9%	-46.7%	-94.4%	-45.0%	144.4%	1,512.5%	900.0%	-	-		-
		% of total	0.6%	0.3%	0.2%	0.1%	0.3%	0.7%	3.5%	0.5%	-	-		-
	Other		297	300	412	337	318	199	212	274	237	241	49.1%	974
		YoY	96.7%	97.4%	71.7%	-2.3%	7.1%	-33.7%	-48.5%	-18.7%	-25.5%	21.1%		-2.9%
		% of total	8.4%	8.6%	11.3%	10.0%	7.6%	6.2%	5.8%	7.1%	5.6%	5.0%		5.6%
	Green Arrows Central		353	343	337	344	346	278	295	366	375	373	53.6%	1,396
		YoY	39.5%	38.9%	36.4%	35.4%	-2.0%	-19.0%	-12.5%	6.4%	8.4%	34.2%		8.6%
		% of total	10.0%	9.8%	9.3%	10.2%	8.2%	8.7%	8.1%	9.5%	8.8%	7.7%		8.0%