JESCO Holdings,Inc. Q2 FY2025 earnings call

Mid-Term Plan Progress

• This period is the final year of the 3-year mid-term plan, with both revenue and operating profit growing steadily. The full-year target revenue of 18 billion yen and operating profit of 1.8 billion yen both exceed the original mid-term plan targets of 17 billion yen revenue and 1.2 billion yen operating profit.
• The company targets maintaining ROE above 10% and PBR above 1x to improve long-term corporate value, and maintains a stable 30 yen per share dividend over the 3-year period from 2023 August term, allocating capital to M&A and real estate investments.

Core Focus Areas and Growth Strategy

• Domestic EPC: Renewable Energy Related Equipment
  • Focuses on three areas: utility-scale solar, self-consumption solar PV, and grid-connected energy storage stations. Leverages 25 years of industry experience to provide end-to-end service from planning to maintenance, and conducts all design work at its Vietnamese subsidiary to address domestic labor shortages, maintain Japanese quality standards, and deliver cost competitiveness, leading to growing customer inquiries.
  • Has already secured 4 grid energy storage project orders, all scheduled for handover by end-August, with 11 additional in inquiries and 2-3 expected to be signed by end-August. Also sees growing demand for battery retrofits to existing solar farms to store excess generation. Targets full-year solar-related revenue above 4 billion yen, with cumulative installed capacity exceeding 500MW this term.
• Domestic EPC: Wireless Communication Infrastructure Related Equipment
  • Focuses on three stable, high-trust areas: disaster prevention communication/infrastructure, power plant monitoring/command systems, and mobile base stations, holding top regional market share with some carriers.
  • Leverages growing infrastructure investment under Japan's national resilience plan and 5G base station expansion to target full-year revenue above 5 billion yen, and plans to expand market share across additional regions of Japan.
• ASEAN EPC
  • Currently focuses on the design & estimation engineering division, which serves Japanese domestic clients and holds an electricity license to act as prime contractor for projects, including securing the design and construction supervision contract for the first phase of Long Thanh International Airport in Vietnam. Plans to expand the designer team from 250 to 300 people, with ongoing Japanese language and technical training to meet growing client demand.
  • Construction division has paused new project orders amid ongoing regulatory tightening, and maintains minimal headcount to prepare for a market rebound in 2-3 years.
• CRE (Real Estate) Business
  • Follows a value-add strategy: buys low-occupancy buildings near train stations, renovates to raise occupancy and rent, and sells at a profit. The team includes experienced real estate professionals, and the business is performing well amid rising land prices and falling vacancy in the Tokyo metropolitan area, with two newly acquired buildings already near full occupancy.

Sustainability and Talent Initiatives

• Opened a new BCP disaster prevention base in Gunma Prefecture, certified as a net-zero energy building, which will also serve as a showroom for ZEB projects. Is expanding forest holdings to achieve 100% carbon offset for its emissions, targets 100% renewable electricity use by 2050 (with an earlier target of 2030), and partners on biodiversity conservation projects.
• To address domestic construction labor shortages, has established a joint training program with Hanoi University of Water Resources to train Vietnamese engineers, with the first cohort already training in Japan and a second cohort scheduled to arrive in October 2024. Targets a 15% YoY increase in certified technical professionals this term.

1. Domestic EPC Business: 2Q cumulative revenue was 5.688 billion yen, a 538 million yen increase year-over-year (YoY); full-year expected revenue is 12.173 billion yen, accounting for 67.6% of total full-year expected revenue. 2Q operating profit saw a 53 million yen increase YoY; full-year expected operating profit is 1.013 billion yen. 2. ASEAN EPC Business: 2Q cumulative revenue increased 463 million yen YoY; full-year expected revenue is 1.477 billion yen, accounting for 8.2% of total full-year expected revenue. Operating loss decreased YoY due to prior period bad debt provision booking; full-year expected operating loss is 147 million yen. The design & estimation division is performing well, while the construction division faces continued headwinds from Vietnamese regulatory tightening. 3. Real Estate (CRE) Business: 2Q cumulative revenue increased 1.839 billion yen YoY driven by one sale of for-sale real estate in Q1 and full occupancy of holding buildings; full-year expected revenue is 4.349 billion yen, accounting for 24.2% of total full-year expected revenue. 2Q operating profit increased 299 million yen YoY; full-year expected operating profit is 1.053 billion yen. Total 2Q cumulative consolidated revenue is 8.687 billion yen, up 48.5% YoY; total 2Q cumulative consolidated operating profit is 598 million yen, up 568.0% YoY.

• Management maintains the full-year 2025 August term consolidated guidance unchanged from prior announcements: 18 billion yen total revenue, 1.8 billion yen operating profit, and 1.1 billion yen net income attributable to parent shareholders.
• Full-year segment guidance is maintained at: 12.173 billion yen revenue / 1.013 billion yen operating profit for Domestic EPC; 1.477 billion yen revenue / -147 million yen operating profit for ASEAN EPC; 4.349 billion yen revenue / 1.053 billion yen operating profit for CRE.
• Full-year consolidated order guidance is maintained at 18.348 billion yen, with full-year ending order backlog guidance of 9.48 billion yen.

• Regulatory tightening in Vietnam's construction sector continues to negatively impact the ASEAN EPC construction division, forcing the company to pause new general construction orders and hold minimal staffing while market conditions improve.
• Rising interest rates are a headwind for the CRE real estate business, though performance has remained strong to date.
• Persistent labor shortages in Japan's domestic construction industry increase pressure to secure qualified technical personnel.
• Competition from large major electric utility group companies is increasing for large-scale domestic projects, though JESCO believes its speed and cost competitiveness lets it win these bids.

Q: Does JESCO compete primarily with other domestic electrical subcontractors across all its business lines? / A: For renewable energy projects like energy storage, JESCO now collaborates with clients and partner firms from the early planning stage, rather than competing on price for subcontracted work, so direct competition is rare. When competing against large major electrical firms for large projects, JESCO's speed and cost competitiveness lets it win bids, and the company intentionally focuses on larger projects rather than small-scale contracts where small local firms are harder to compete against.

Q: How does competition look for other domestic business lines, including communications infrastructure, public facilities, and solar PV? / A: Conditions vary by segment: for mobile base stations, JESCO gets steady, consistent work from carriers where it holds high market share. Communications work is often tendered, with a mix of large and small firms bidding, so outcomes vary by bid. For solar PV, large projects compete with large firms, while small 1-2MW projects have a fragmented set of competitors, so competition varies heavily by project.

Q: What is the competitive landscape for ASEAN EPC operations? / A: For the design division, there are a handful of other Japan-focused design firms, but JESCO has long-term stable relationships with ~40 domestic Japanese clients, and clients rarely switch providers after establishing a working relationship, with growing new client inquiries that mean low competitive pressure. For construction, competition is with local Vietnamese firms and it is very intense, so JESCO has paused most non-connected construction projects (residential/mixed-use electrical, plumbing, HVAC work) and only accepts orders from pre-established connected partners. For the Hanoi-based subsidiary focused on Japanese clients, competition is limited and relies on personal relationships rather than price competition.