Daiki Axis Co.,Ltd. Q4 FY2026 earnings call

• Corporate Mission & Purpose

  • Mission: "Protect the environment. Change the future."
  • Purpose: Solve global environmental challenges through technology and innovation to support people's quality of life worldwide.
  • Core strategic opportunity: Developing emerging economies face the same water sanitation challenges Japan faced 50-60 years ago, creating major demand for Japan's proven mature water treatment technology.

• Domestic Environmental Equipment Strategy

  • Prioritize expansion of stock-based recurring maintenance business, which delivers stable long-term revenue and profit compared to one-time new construction sales.
  • Maintenance contract volumes grow 150 to 200 new contracts annually, driven by legal requirements for regular septic tank inspection.
  • Plan to build out a centralized customer database to enable proactive preventive maintenance sales, targeting customers that do not currently hold active maintenance contracts.
  • Approximately 60% of customers currently hold active maintenance contracts; 40% handle maintenance in-house, but still require periodic repair and replacement services that Daiki Axis will target.

• Global Environmental Equipment Strategy

  • Focus on emerging Asian markets including India, Indonesia, and Sri Lanka, with 5 manufacturing facilities, 9 sales locations, and 31 local partner agencies currently in operation.
  • Standardized 5-step "India Model" for market entry: (1) Assess local water pollution and infrastructure challenges; (2) Build partnerships with strong local players; (3) Establish independent local operations and hire local talent; (4) Participate in high-impact government projects to build brand recognition; (5) Collaborate with government to develop industry regulations and policy. This model will be replicated for expansion into other new markets.
  • Japan will remain the global R&D hub to advance water treatment technology that is then transferred to emerging market operations; domestic business will generate the cash flow needed to fund global expansion.

• Housing Equipment Related Strategy

  • Shift from revenue growth focus to profit-focused management, targeting 6% sales growth and 27% operating profit growth versus 2024 levels by 2027.
  • Drive profit improvements via cost standardization, expansion of upstream value chain coverage (including full end-to-end design and construction for wooden structures), and shift from selling products to selling end-to-end problem-solving solutions.

• Renewable Energy Related Strategy

  • Prioritize high-growth green data center and biodiesel fuel segments.
  • Developing solar-powered green data centers that use clean on-site power to reduce environmental impact, leveraging existing solar project development and operation expertise.
  • Scaled up biodiesel production in the Kanto region, with current supply to Tobu Railway buses and 7-Eleven delivery trucks, after establishing supply to four Shikoku region airports.

• Financial Strategy

  • Total planned growth investment of 5 billion yen over the 3-year mid-term period, with priority allocation to global expansion and stock business development.
  • Maintain financial discipline, keeping current 25.7% equity capital ratio stable and only approving investments that do not reduce ROIC.
  • Prioritize stable dividends, maintaining the current annual 24 yen per share dividend for the mid-term period, with continued implementation of the existing shareholder premium program.

For the 2024 December fiscal year, Daiki Axis reported total consolidated sales of 46.8 billion yen, a new all-time high, with operating profit of 1.048 billion yen, representing a 58.8% year-over-year increase. The firm's four business segments have the following revenue contribution breakdown:

1. Environmental Equipment Related Business: Accounts for approximately 50% of total consolidated revenue. This segment covers water treatment services including septic tanks, industrial wastewater treatment systems, and related R&D, manufacturing, sales, and maintenance across domestic and global markets.
2. Housing Equipment Related Business: Accounts for approximately 40% of total consolidated revenue. This segment includes wholesale of kitchen, bathroom, and toilet plumbing materials, plus construction services for exterior walls, air conditioning, and wooden structures.
3. Renewable Energy Related Business: Remaining 10% of revenue (combined with other business segments). This segment covers solar power generation, wind power, and biodiesel fuel production and sales.
4. Other Businesses: Includes home drinking water services and venture capital investments.

• For the 2027 fiscal year (end of the 2025-2027 mid-term plan), Daiki Axis targets: 53.0 billion yen in total sales, 1.55 billion yen in ordinary profit, 1.1 billion yen in net profit attributable to parent shareholders, ROE of 9.7%, and ROIC above 6%.
• Targets EPS growth from 26.6 yen (2024 actual) to 78.7 yen by 2027.
• Aims to achieve break-even profitability for its Indian operations during the 2025 December fiscal year.
• Targets 70 wind power project grid connections by the end of 2025.
• Management maintains guidance of balanced growth between domestic stable cash flow generation and global expansion, with no downward revisions to mid-term targets in the call.

• Global market entry requires long-term investment in infrastructure, partnership building, and regulatory development, with delayed profitability possible for new market expansions.
• Domestic construction market growth is stagnant, creating pressure on housing equipment segment profit margins that requires proactive cost management.
• Renewable energy segment performance is exposed to changes in external market and regulatory conditions.
• Current high dividend payout ratio (90.6% in 2024) reflects the firm's focus on stable dividends during the growth investment phase, which could limit near-term retained earnings available for expansion.

Q: Does focusing on overseas expansion mean neglecting domestic Japanese market growth? / A: Daiki Axis does not plan to neglect the domestic market. Japan will serve as the global R&D hub for advanced water treatment technology that will later be deployed globally. Domestic business will act as the stable cash flow and capital source to fund overseas expansion, so the firm will specifically strengthen domestic maintenance operations to ensure continued stable domestic earnings. This structure maintains a balanced growth profile between domestic and global operations.

Q: Should the company exit lower-margin housing equipment and renewable energy businesses to focus exclusively on global environmental equipment expansion? / A: Daiki Axis will keep these businesses because they generate significant synergies for the core environmental equipment segment. The existing housing equipment sales network of general contractors and home builders can be used for cross-selling water treatment and renewable energy products, both domestically and in partnership with local firms overseas. The firm prioritizes group-level synergies and long-term growth over short-term margin-focused divestments.

Q: When will Indian operations turn profitable? / A: In 2024, Indian sales grew on strong government project demand, but up-front human resource investment pressured profitability. For 2025, the firm is continuing growth investment in sales staff training and trade show participation, while improving manufacturing efficiency and process streamlining. Management is working toward achieving break-even profitability in India during the 2025 fiscal year.