5074.T

• Corporate Vision

  • The firm aims to become a leading company in the decarbonization space.

• Consolidated Financial Performance

  • For the 2026 June fiscal year second quarter, the firm reported total gross profit of 5.792 billion yen (+22.4% YoY, 64.4% of full-year plan), operating profit of 3.272 billion yen (+35.8% YoY, 90.9% of full-year plan), ordinary profit of 2.584 billion yen (+975.6% YoY, 143.6% of full-year plan), and net income attributable to parent shareholders of 1.318 billion yen (+120.8% YoY). ROE was 2.9% and ROIC was 1.5%.
  • The large increase in ordinary profit is primarily driven by a reduction in derivative valuation losses that were large in the prior year period. The lower achievement rate for net income versus ordinary profit comes from transitory factors related to Imari Green Power and higher corporate income tax due to increased profit.
  • Operating cash flow was negative, which stems from timing gaps between customer payments and supplier payments for large energy storage EPC projects, which the firm has addressed through increased borrowing.

• Energy Storage EPC Updates

  • The firm received 2 new high-voltage grid-connected energy storage station orders from Tokyo Century in Tokushima Prefecture, plus an order for FIP conversion + energy storage co-location from a joint venture of Kyocera and Tokyo Century, and another from Fuyo General Lease.
  • The firm continues to receive strong inquiry volume for energy storage EPC projects, and is working to convert inquiries into orders to hit medium-term management plan targets.

• Factory and Commercial Site EPC Updates

  • In the second quarter, the firm completed 3 cogeneration system projects, 2 fuel conversion projects (including LNG satellite facilities), 4 utility facility projects, and 4 solar power system projects.

• On-Site PPA Updates

  • As of the second quarter earnings release date, approximately 5.5 MW of on-site PPA capacity (across 4 offtakers) has started operations. An additional 28.3 MW across 7 offtakers is scheduled to start operations in the future.

• Renewable Energy Capacity Updates

  • The firm has started FIP conversion + energy storage co-location for the first batch of 4 solar power plants (total 8.1 MW capacity) in the Kyushu region, in line with the medium-term management plan to roll this out across its Kyushu solar portfolio.

• Circular Biomass Fuel Business Updates

  • Construction of the EFB pellet biomass fuel manufacturing plant (annual production target of 10,000 tons) at PTEC, the firm's Indonesian subsidiary in Northern Sumatra, is progressing on schedule. Operations are scheduled to start in June 2026, with a public opening expected within the 2026 June fiscal year.

• Tokyo Century Capital and Business Alliance: First Year Progress

  • Alliance activity to date has secured 1 large-scale development-type grid-connected energy storage project and 2 contract-based high-voltage energy storage projects, plus 1 FIP conversion + energy storage co-location project.
  • The firm launched a joint operation management business for solar power plants with A&Tm, a Tokyo Century group company focused on operational data analysis and diagnostics.
  • The firms have exchanged project leads for contract EPC, and held cross-corporate discussions on public relations/IR and ESG initiatives.

• Sustainability Updates

  • The firm earned a B- score for climate change in CDP2025.
  • It has endorsed the 100% Male Parental Leave declaration.
  • It donated to the regional children support network initiative, and held a year-end networking event to strengthen cooperation with partner companies and manufacturers.

• Human Resources Strategy

  • The firm continues to implement reforms across recruitment, training, evaluation, and work practices.

• Management maintains the full-year earnings and dividend guidance originally announced at the start of the fiscal year, with no upward or downward revisions, despite ordinary profit and net income already exceeding 100% of the full-year plan at the half-year mark.
• The four core reasons for maintaining guidance are:
  • Solar power generation has inherent seasonality: the first and second quarters have higher solar irradiation, while the second half has lower irradiation and fixed full-year costs, so performance will not match the first half's growth pace.
  • Unspent SG&A expenses are expected to be recorded in the second half.
  • For contract-based renewable energy EPC (including large FIP conversion + energy storage co-location projects), first half progress was faster than planned, and some revenue originally scheduled for the second half was brought forward to the first half.
  • Uncertainty remains around construction progress for engineering projects and foreign exchange impacts that need to be accounted for.

1. Engineering Business (Overall: year-over-year revenue and profit growth)

• Energy-saving EPC (contract-based): Revenue was approximately 4% lower than the prior year period (flat overall performance), but profit increased due to progress on higher gross margin projects.
• Renewable energy EPC (contract-based): Increased revenue and profit year-over-year driven by a rise in energy storage projects. It recorded 254 million yen in reductions from an unprofitable biomass EPC project, but solid gross margins were secured from energy storage projects.
• Renewable energy EPC (development-based): No revenue was recorded as there were no applicable projects. Gross margin was negative due to upfront investment for new grid-connected energy storage station development.
• Total order intake for the Engineering business reached 34.207 billion yen, an 828.1% increase year-over-year and roughly double the order intake level at the end of the first quarter. Total outstanding order volume reached 44.528 billion yen, a 328.7% increase year-over-year, with nearly all outstanding orders from energy storage projects.

2. Energy Supply Business (Overall: year-over-year revenue and profit growth)

• Renewable energy power generation: Increased revenue and profit year-over-year, driven by the start of operations at the Saga Imari Biomass Power Plant, consolidation of Miyako, and growth in on-site PPA capacity. Biomass power generation has lower gross margins than solar power generation, so sales growth has outpaced gross profit growth. Total renewable energy power generation capacity reached 403.4 MW as of the end of the second quarter.
• O&M (Operations and Maintenance): Decreased revenue and profit year-over-year due to lower maintenance volume after a large project reached contract expiration.
• Electricity retail supply: Increased revenue and profit year-over-year driven by expanded supply volume.
• Biomass fuel: All fuel produced was sold to the group-owned Saga Imari Biomass Power Plant (no third-party sales). A 348 million yen gross profit was recorded in the quarter, following an accounting reclassification of some costs from SG&A to cost of goods sold that changes year-over-year comparison baselines.

Total consolidated revenue for the half-year was 27.043 billion yen, representing a 50.1% increase year-over-year, and accounts for 57.5% of the full-year plan.

• Grid connection for energy storage and renewable energy projects now has longer wait times, increasing connection costs, which has raised the difficulty of completing projects and created clearer segmentation between feasible and non-feasible projects.
• Energy storage projects rely heavily on imported equipment (battery cells account for 70-80% of total project cost), so delivery delays for imported equipment could disrupt construction progress and profit recognition.
• Profitability of grid-connected energy storage projects faces pressure from declining prices in the supply-demand adjustment market, though customer demand remains strong.
• Large energy storage EPC projects create timing gaps between payables and receivables that require working capital funding.

Q: Since the company has not publicly disclosed an internal first half ordinary profit plan, how does the 2.584 billion yen first half result compare to internal plans? Can you break the upside into timing-related gains and core operational outperformance?

A: The upside versus plan is primarily driven by accelerated progress on energy storage projects in contract-based engineering EPC, which brought forward revenue recognition that was originally scheduled for later periods. Additional upside comes from unspent SG&A and unplanned foreign exchange gains in non-operating income. The gap versus full-year plan will narrow over the remainder of the fiscal year due to this forward recognition, and overall engineering is tracking in-line with the full-year plan of 19.7 billion yen in revenue and 3.3 billion yen in gross profit, assuming on-time delivery of energy storage equipment (most of which is imported).

Q: The gross margin for renewable energy contract-based EPC hit ~20% in the second quarter, which is a high historical level. Is this level of profitability sustainable for energy storage projects, or is it driven by project-specific factors?

A: The high gross margin in this quarter is attributable to one specific high-margin energy storage project that recognized revenue in the period. Gross margins do vary across projects, and the company targets an average gross margin of ~15% for the overall contract-based EPC portfolio going forward.

Q: Can you update on the current status of the overall energy storage business, covering: 1) demand for grid-connected energy storage amid falling supply adjustment market prices, 2) inquiry levels for smaller FIP conversion projects, and 3) the current competitive landscape for energy storage installation?

A: While some market observers note that profitability for grid-connected energy storage has become more challenging due to price changes, we have not seen customers abandon projects due to poor profitability. The need for power grid balancing remains high, and most customers still see strong long-term opportunity in energy storage given the expected growth of renewable energy, so inquiry volume remains strong. However, grid constraints and higher connection costs have made it clearer which projects are feasible to develop, and we continue to carefully screen projects and build a solid pipeline. For FIP conversion projects, continued output curtailment in Kyushu means many customers want to add energy storage after FIP conversion. Additionally, many customers are looking to add energy storage to maintain profitability after their FIT/FIP purchase periods end, so we are seeing a growing pipeline of viable projects. In terms of competition, more firms are entering the energy storage installation space as the market grows, but we have completed more than 10 projects, have experience working with all major battery manufacturers across multiple regions and use cases, and we offer end-to-end services including aggregation (operation management), maintenance, and monitoring. Our full-suite capabilities make us a strategic partner rather than just a contractor, which keeps us well-positioned with customers.

Q: How does the company plan to fund growth investments for energy storage and data center-related businesses?

A: For grid-connected energy storage stations, our business model is to develop projects and propose them to energy storage operators to execute, with our role being to secure land/grid connections, design optimal battery portfolios, and secure the EPC contract. This means we do not need to take on large project investment ourselves, so we do not require large-scale funding for this segment, other than limited upfront development costs. We do need to maintain sufficient working capital to bridge timing gaps between payments for EPC projects, as noted earlier. For FIP conversion + energy storage co-location on our own solar power plants in Kyushu, we do need to fund these investments ourselves, so we are pursuing funding from financial institutions to cover these costs and address working capital needs. We view the data center space as a strong business opportunity: the construction of new data centers and semiconductor fabs is driving massive increases in power demand, and Japan's carbon neutrality target means this additional demand must be met with new renewable energy capacity, which creates opportunity for our business. Additionally, large-scale grid connection is already congested, so customers that want to start data center operations quickly can use our on-site generation solutions (cogeneration, fuel cells) to supply power while waiting for grid connection, so this is an attractive business opportunity rather than a large capital investment need for us.