Daiki Axis Co.,Ltd. Q2 FY2025 earnings call

Overall Consolidated Performance

• Consolidated revenue for the second quarter is 23.495 billion yen, 3.9% increase year-over-year. Gross profit is 5.198 billion yen, 6.1% increase year-over-year, driven by pass-through of higher outsourcing costs to selling prices and contribution from high-margin large projects. Operating profit is 525 million yen, 5.2% decrease year-over-year, due to three investment factors.

1. Environment Equipment Related Business: Total segment revenue is 12.21 billion yen, 8.8% increase year-over-year, contributing 52% of total consolidated revenue. Segment operating profit is 940 million yen, 3.8% decrease year-over-year. Sub-segment performance: Septic tank/wastewater treatment system: +710 million yen revenue; maintenance business: +70 million yen revenue; groundwater drinking business: -2 million yen revenue; building comprehensive management: +278 million yen revenue; overseas business: -40 million yen total revenue. 2. Housing Equipment Related Business: Total segment revenue was flat year-over-year, contributing approximately 42% of total consolidated revenue. Operating profit increased 92 million yen year-over-year. After business segment restructuring, housing equipment sales/distribution had slight revenue decrease, while construction/equipment installation had slight revenue increase. 3. Renewable Energy Business: Total segment revenue decreased 87 million yen year-over-year, contributing approximately 6% of total consolidated revenue. Operating profit also decreased year-over-year, driven by a 130 million yen revenue decrease in solar power.

• The full-year 2025 December term consolidated guidance is maintained at 47.8 billion yen total revenue and 1.1 billion yen operating profit, targeting full-year revenue and profit growth driven by maintenance business expansion.
• Revenue growth is expected across all three core segments for the full year.
• While the Environment Equipment Related Business is projected to have a full-year operating profit decrease, the Housing Equipment Related and Renewable Energy segments are expected to deliver operating profit growth, leading to overall consolidated profit growth.
• For Environment Equipment Related Business, management expects revenue growth from expansion of large industrial wastewater treatment orders and overseas market development, and profit growth from expanded maintenance business, promotion of the recurring stock business model, and significant reduction of overseas unit losses.

• Domestic new housing start declines are reducing demand for the company's residential septic tanks.
• Rising raw material, personnel, and outsourcing costs pressure margins, and price pass-through to customers is still an ongoing effort.
• Project execution in emerging overseas markets faces delays due to local commercial customs and site conditions, which prevents near-term revenue recognition.
• Chinese economic outlook is uncertain, and frequent changes to local water treatment regulatory standards create operational uncertainty.
• In the home center retail product segment, weak consumer purchasing appetite and intensified competition from home appliance retailers' expanded renovation businesses pressure performance.
• Some renewable energy sites face output control under the FIT scheme, and wind power sites face occasional outage issues due to difficult winter repairs.

Q: What is the progress of overseas business deficit reduction and margin improvement, and what is the strategy for the Chinese business amid slowing economic growth? / A: India has strong market demand and large untapped potential due to incomplete water infrastructure. Upfront growth investments for organizational building and marketing are near-term cost drags, but management is focused on improving profitability through operational efficiency adjustments. Sri Lanka will see concentrated shipments in the second half, so sales and profit improvement is expected. Indonesia is building up its organizational capacity to handle industrial wastewater projects and expanding local septic tank sales, despite near-term cost increases. China has completed structural downsizing after its economic uncertainty and regulatory challenges, and now focuses on maintenance and repair sales for existing installed facilities, which has already reduced the deficit. Management is committed to hitting the medium-term plan targets.

Q: Did DCM Holdings' acquisition of Kao Daitu drive the building comprehensive management business revenue growth, and what is the future profit outlook for this segment? / A: It is correct that the acquisition contributed to revenue growth, as the company is progressively securing management contracts for newly added DCM group stores, which is reflected in current results. The business will continue expanding into public facility contracts, expanding its service area and scope of offerings. As a recurring stock business, it provides stable base revenue, and also creates opportunities for additional repair and replacement work, so management expects it to contribute growing profit going forward.

Q: What is the current progress of the medium-term management plan announced in March? / A: The first half financial results are aligned with plan targets, and management is focused on internal alignment of the plan across the whole organization. The CEO is conducting nationwide town hall meetings to communicate the plan to all employees across locations and group companies, and collecting employee suggestions via an open suggestion box, which provides useful input for strategic adjustments. All suggestions are reviewed and responded to directly by the CEO, and actionable items are being implemented progressively. Management remains committed to achieving the plan's financial and strategic targets for globalization over the three-year period.