Daiki Axis Co.,Ltd. Q2 FY2024 earnings call

• Company Mission & Strategic Direction

  • Reaffirmed corporate purpose: Bring Japan's proven public hygiene and water sanitation technology to developing markets globally, turning Japan's standard of safe water access into a global daily reality.
  • Shift from a portfolio model (independent domestic/overseas business units) to a synergy-focused global business model: Global expansion is the core growth priority, with Japan serving as the R&D hub for global product development.
  • Phased global product rollout: Wave 1 = export Japanese environmental equipment and public sanitation solutions; Wave 2 = export housing equipment comfort solutions once basic sanitation is established; Wave 3 = expand renewable energy and new pipeline projects.

• Core Business Operational Strategies

  • Japan Domestic Environmental Equipment: Prioritize expansion of high-margin, stable recurring maintenance (stock) business. Target 8.5 billion yen in maintenance sales by 2027, a ~15% growth from 2024, with productivity improvements via standardization to boost margins.
  • Global Environmental Equipment: Standardize and replicate the 5-step "India Model" (assess local challenges → build local partner relationships → secure local operations → participate in high-impact public projects → policy engagement and government collaboration) across new markets. India is poised for order growth following completion of regulatory certification, with ongoing expansion in Indonesia, Sri Lanka, Bangladesh, and testing of the model in the Middle East and Africa. Target 2.1 billion yen in global environmental sales and 0.18 billion yen net profit by 2027.
  • Housing Equipment Related Business: Shift from growth-focused to profit-focused management, targeting 21 billion yen sales (+5% from 2024) and 0.57 billion yen operating profit (+27% from 2024) by 2027. Improve margins via cost control, upstream process expansion, and shifting to solution-based selling, and leverage existing sales channels for cross-selling synergy with other group businesses.
  • Renewable Energy Related Business: Traditional large-scale solar expansion is no longer viable due to market saturation and output controls; pivot to prioritize high-growth green data centers and biodiesel fuel. Full-scale commercialization of biodiesel production in the Ibaraki prefecture plant (already supplying Tobu Railway and 7-Eleven delivery fleets) is targeted for the mid-term plan period.

• Financial Strategy

  • Three core priorities: Allocate cash to high-growth areas, maintain financial discipline, and deliver consistent shareholder returns.
  • Total 3-year growth investment allocation of 5 billion yen, with breakdown: 0.5-1 billion yen for global production capacity upgrades, 0.5-1 billion yen for digital transformation of sales infrastructure, up to 0.5 billion yen for human capital investment, up to 2 billion yen for M&A, and up to 2 billion yen for renewable energy investments (renewable energy investments operate on a self-funding cycle separate from the main allocation).
  • Maintain the current dividend policy and shareholder benefits, target EPS growth from 26 yen to 78 yen by 2027.

1. Environmental Equipment Related Business (Japan + Global): 2024 total sales accounted for ~47.6% of consolidated revenue (10/21 total sales ratio), with ~20/26 profit contribution ratio. Japan domestic environmental equipment reached 6 billion yen in 2024 maintenance sales, while global environmental equipment reached 0.6 billion yen in 2024 sales with a 0.16 billion yen net loss. 2. Housing Equipment Related Business: 2024 sales were 19.8 billion yen (42.3% of consolidated revenue, 10/21 total sales ratio), with 0.45 billion yen operating profit (5/26 profit contribution ratio). 3. Renewable Energy Related Business: 2024 sales accounted for ~4.8% of consolidated revenue (1/21 total sales ratio), with ~1/26 profit contribution ratio.

• New 2025-2027 mid-term guidance sets 2027 full-year targets of 53 billion yen in consolidated sales, 1.55 billion yen in ordinary profit, and 1.1 billion yen in net income attributable to parent shareholders, which would represent new all-time highs for both sales and profit. The target ROE for 2027 is 9.7%, near the double-digit threshold.
• Daiki Axis achieved the previous mid-term plan's 45 billion yen sales target one year ahead of schedule in 2024 (2024 actual consolidated sales hit a new all-time high of 46.8 billion yen, with operating profit of 1.04 billion yen, up 58.8% year-over-year), but missed the 2 billion yen operating profit target due to large unexpected external market shifts.

• Unfavorable external macro changes: Sharp yen depreciation from the 100 yen/USD level to the 150 yen/USD range and sharp raw material price increases squeezed margins in the prior mid-term period, leading to the operating profit target being missed.
• Global expansion uncertainty: The India Model's success has not yet been proven in other new markets, and regulatory and market development timelines can vary significantly across emerging markets.
• Renewable energy market headwinds: Rapid growth in solar capacity has led to output controls, and the end of the FIT subsidy program means traditional solar expansion is no longer viable, requiring a pivot to new, unproven business lines.

Q: What criteria does Daiki Axis use to select overseas expansion destinations? The company lists diverse markets across Asia, Middle East and Africa, so what drives the selection of specific countries? / A: Management prioritizes two core criteria. First, markets with low sewer infrastructure penetration and large populations have higher market potential for the company's septic tank products. Second, markets with severe water pollution and strong government demand for water infrastructure upgrades are preferred, as decentralized septic tanks are cheaper, faster to build, and easier to deploy than large centralized sewer systems, and these markets typically move faster on regulatory reform to support infrastructure upgrades. The company expands incrementally aligned with national development stages, leveraging the time gap in development across countries to roll out products sequentially.

Q: Why has Daiki Axis decided to continue the low-margin housing equipment business, given investor questions about its profitability and whether the business should be spun off or closed? / A: Management acknowledges the wholesale model of housing equipment has inherently low margins, but retains the business for its strategic synergy value across the entire group, rather than judging it on standalone profitability alone. The sales channels and relationships with general contractors, sub-contractors and homebuilders built through housing equipment can be leveraged to cross-sell environmental equipment and renewable energy products domestically. Globally, housing equipment will serve as the second-wave comfort solution offering after environmental equipment establishes basic sanitation, supporting the broader global expansion strategy and enabling higher-value integrated solutions.

Q: What is the accuracy of the 2027 numerical targets, and is there upside potential for the targets to be exceeded? / A: (The full response was not included in the available transcript, but the question confirms the market views the 2027 targets as moderately aggressive, aligned with the company's ambitious global shift.)