9517.T

Market Environment Tailwinds

• Growing power demand: After years of declining demand, growing AI and data center development, plus new semiconductor factory construction in regions like Hokkaido, have reversed the trend with power demand expected to grow from 2023 onward.
• Energy policy shift: Japan's 7th Strategic Energy Plan targets increasing renewable energy's share of domestic power from 22.9% (FY2023) to 40-50% by 2040, creating new business opportunities.
• Full-scale launch of carbon pricing/emissions trading: GX-ETS (Green Transformation Emissions Trading Scheme) enters Phase 2 in April this year, mandating participation for operators with annual direct emissions over 100,000 tons (300-400 large companies, accounting for ~60% of Japan's total annual emissions). Up to 10% of required emissions reductions can be met via purchased eligible carbon credits (J-credit or JCM credits), creating a 6 million ton annual credit market opportunity.

Domestic Operational Highlights

• Power retail business: Serves 260,000 low-voltage power customers as a new power provider, with trading capabilities to boost profitability.
• Aggregation business strengths: Key competitive differentiator is end-to-end service from power generation to supply and demand management to retail customer delivery. Additional strengths include an existing retail customer base, high-precision supply/demand forecasting, optimized distributed energy management, market trading expertise to maximize revenue, and integrated decarbonization solutions. Core projects include:
  • Grid-scale energy storage: 2 storage projects have been approved for investment, with the 2MW/8MWh Kushima City, Miyazaki project (50-50 joint venture with Samsung C&T Japan) scheduled to complete commissioning and start trial operation in March 2025. Total investment for the two projects is 500 million yen to 600 million yen, with expected annual profit of ~100 million yen per project over a 20-year project life, with good current profitability. The storage facility will earn revenue by providing balancing capacity through the supply-demand adjustment market, capacity market, and Japan Electric Power Exchange.
  • JR East renewable energy aggregation project: Enex procures power from JR East-owned solar plants, manages variable output and supply/demand forecasting, and delivers stable carbon-free power to JR East's major facilities in Ibaraki Prefecture via its retail subsidiary Evergreen Marketing.
  • Solar co-located storage: Stores curtailed solar generation during oversupply periods and discharges at night to increase usable renewable output.
  • Corporate PPAs: Provides end-to-end renewable power procurement solutions for corporate customers.
• Biomass operations: Handles 1.6 million tons of biomass fuel annually (including third-party sales), owns 5 domestic biomass power plants, and is expanding upstream fuel supply chain capabilities to maximize biomass value.

Southeast Asia (Vietnam & Cambodia) Operational Highlights

• Vietnam operations:
  • Operational assets: 1 operational 20MW Hau Giang biomass power plant (uses rice husk fuel, started commercial operation in April 2024, eligible for JCM carbon credits), 1 operational wood pellet mill in Tuyen Quang (started production March 2024, processes wood residues into pellets for export to Japan).
  • New development: Two 50MW new biomass power plants (Yen Bai and Tuyen Quang) have received investment approval and government permitting, held a groundbreaking ceremony in December 2024, and are scheduled to start commercial operation at the end of FY2027. The projects require 1 million tons of wood residue fuel annually, with supply chain development currently underway. Both are eligible for JCM carbon credits.
  • Coal co-firing demonstration: Launched a demonstration project with Vinacomin Power at two existing coal-fired plants (Cao Ngan and Na Duong) testing 20-30% biomass co-firing to reduce CO2 emissions while maintaining power output, with an expected potential of 45,000 tons of annual JCM credits from the two plants. Enex is evaluating the business model for future expansion.
  • Profit outlook: Both Hau Giang power plant and Tuyen Quang pellet mill are expected to achieve operating break-even and move into operating profit by FY2026, after addressing early-stage startup issues and fuel supply volatility.
• Cambodia operations:
  • 80MW hydropower plant: Currently under development, with a 35-year power purchase agreement with Electricite du Cambodia guaranteed by the Cambodian government, scheduled to start commercial operation in December 2025. The project is held as a non-consolidated joint venture to improve capital efficiency.
  • 1 new biomass power plant and 1 new solar power plant: Received cabinet approval in September 2024, scheduled to start operation by FY2027. The project includes planned reforestation alongside residue fuel collection, and JCM credit applications are currently underway.

Carbon Credit Business

• Enex expects to generate JCM credits from its Southeast Asian renewable energy projects, which can be sold to Japanese companies to meet GX-ETS requirements: Hau Giang power plant expects 23,000 tons of annual credits (expected 230 million yen in annual profit contribution at 10,000 yen per ton), and the two new Vietnamese biomass plants expect 71,000 tons of annual credits (expected 700 million yen in annual profit contribution). Enex operates a circular business model: reinvesting domestic profits into overseas renewable development, generating carbon credits to sell to domestic Japanese customers to fund further expansion.

Historical Performance

• Since listing in December 2014, Enex achieved ~20x revenue growth and ~10x operating profit growth through FY2023 (March 2023). A large net loss was recorded in FY2024 (March 2024) due to past power contracting errors, but the company has implemented internal reforms and returned to profitability in FY2025 and FY2026.

• For FY2025 (current fiscal year): Operating profit guidance was revised downward from 8.5 billion yen to 7.1 billion yen, due to issues including a customer's civil rehabilitation and inventory provisions. Profit attributable to owners of the parent was upward revised from 3.4 billion yen to 4.0 billion yen, due to better-than-expected operating performance.
• 3-year mid-term management plan (through FY2028): Targets total revenue just over 200 billion yen, operating profit of 11.3 billion yen, and profit attributable to owners of the parent of 9.5 billion yen. The majority of operating profit through the mid-term plan's final year will come from domestic operations (including grid-scale energy storage), with overseas projects starting to contribute meaningfully from FY2028 onward, held via joint ventures to improve capital efficiency.
• Post-FY2029 growth outlook: Enex expects pre-tax profit to reach 19 billion yen to 20 billion yen by FY2029, and 25 billion yen to 30 billion yen by FY2030, driven by growth in existing domestic business, aggregation, data center power demand, carbon credit sales, and expanded overseas power and fuel business.
• Long-term target: Increase the share of overseas business revenue to at least 25% from the current 1.5%.

Currently, Enex's business segments have the following revenue contribution breakdown: 1. Domestic Retail & Trading: ~75% of total revenue, 2. Power Generation & Fuel: ~23% of total revenue, 3. Overseas Business: ~1.5% of total revenue (early stage of development, target to increase to at least ~25% of revenue long-term). No absolute financial figures for current segment revenue or profit were provided in the transcript.

• Past operational failure: In FY2024, Enex recorded a large net loss caused by errors in wholesale power contracting and misaligned supply-demand planning. In response, the company has implemented two key governance reforms: established a dedicated Supply and Demand Strategy Department to implement a policy of only procuring volume matching sold volume in the market to avoid negative spread losses, and created a dedicated SCR (Risk Management) Department to provide internal oversight and prevent unmanaged project risk. Management states the reforms have been effective, returning the company to profitability in FY2025 and FY2026.
• Project-specific risks: Energy storage project profitability is dependent on power market prices, requiring careful ongoing monitoring. Vietnamese biomass projects faced temporary fuel price spikes and low initial utilization from early startup issues, requiring active on-the-ground fuel supply chain development to resolve.
• Geopolitical risk: Explicitly called out as a risk for overseas development projects in Southeast Asia, and was raised as a key question during the Q&A section (no detailed mitigation provided in the available transcript).
• Market risk: Exposures to yen depreciation and global commodity (fuel) price volatility, which was a raised as a key question during the Q&A section.

Q: How will the government's target of 40-50% renewable energy share by 2040 impact your revenue, is this a tailwind for your business, and which segments will benefit most?

A: Enex does not have specific revenue projections out to 2040 at this point, but it does expect revenue growth from energy storage and external biomass fuel sales driven by this policy shift. This is a clear tailwind for the business. The primary beneficiary will be the domestic Retail & Trading segment, with some additional benefit to fuel import and external sales activities.

Q: What is the expected internal rate of return (IRR) for your first two grid-scale energy storage projects, and what is your profitability outlook?

A: Enex does not disclose specific IRR figures, but expects each project to generate approximately 100 million yen in annual profit on total investment of 500 million yen to 600 million yen, which represents good current profitability over a 20-year project life. Profitability is dependent on market conditions, so the company will monitor performance carefully.

Q: What is the expected profit profile of your biomass power projects linked to carbon credit sales?

A: Enex assumes a carbon credit price of approximately 60 USD per ton (equivalent to ~10,000 yen per ton), which translates to 100 million yen in profit contribution per 10,000 tons of credits. For context, Hau Giang expects 23,000 tons of annual credits (230 million yen annual profit) and the two new Vietnamese plants expect 71,000 tons of annual credits (700 million yen annual profit). Profit from power generation itself is expected to be 500 million yen to 700 million yen annually for these projects, so carbon credits will add roughly equivalent additional profit.

Q: For the Hau Giang biomass plant and Tuyen Quang pellet mill, what is the basis for your target of operating profit next fiscal year, including assumptions around fuel prices and utilization?

A: Enex does not use EBITDA as a disclosed target metric, and prioritizes operating profit growth. Hau Giang has been fully operational this fiscal year but has faced lower utilization due to early startup issues and temporary rice husk price spikes; after Lunar New Year 2025, an on-the-ground procurement team has been working to resolve supply issues, and the project is expected to cross break-even and reach operating profit in FY2026. The Tuyen Quang pellet mill is currently operating relatively steadily, and the company is focused on securing steady fuel supply to reach operating black ink next fiscal year.

Q: What will the segment breakdown of operating profit be in the mid-term plan's final year (FY2028)?

A: Almost all operating profit in FY2028 will still come from domestic operations, including the grid-scale energy storage business. Enex uses joint venture structures for most overseas power projects to prioritize capital efficiency, so the upcoming Cambodian hydropower plant will be non-consolidated, which impacts net profit positioning. The 9.5 billion yen net profit target for FY2028 reflects adding aggregation (including energy storage) to existing domestic business, with overseas business starting to make full-scale contributions to profit at that point.

Q: What is your key differentiation for the aggregation business compared to competitors?

A: The main differentiator is Enex's ability to provide end-to-end, integrated services from power generation, to supply-demand management, to retail delivery to end customers. For example, Enex can connect generation asset owners that want to sell power directly to end customers, and can deliver CO2-free power to customers by coordinating with generators or using Enex-owned generation capacity.

Q: After the FY2024 loss from contracting errors, how have you revised your procurement strategy and internal risk management?

A: Management recognized that properly matching supply and demand for wholesale contracts is critical, so Enex established the dedicated Supply and Demand Strategy Department in FY2025, which now implements a policy of only procuring enough volume in the market to match sold retail volume, to avoid negative spread losses. These changes have been effective, as Enex has returned to profitability in FY2025 and FY2026. Enex also established a dedicated risk management department (SCR Department) to provide internal oversight to prevent unmanaged project risk.

Q: [Listed pre-submitted question] What is your development plan for power projects in Cambodia and how do you address geopolitical risk?

A: No answer provided in the available transcript.

Q: [Listed pre-submitted question] What is the impact of yen depreciation and rising resource prices?

A: No answer provided in the available transcript.

Q: [Listed pre-submitted question] What factors have driven your recent share price increase?

A: No answer provided in the available transcript.

Q: [Listed pre-submitted question] What is your position on the TOPIX index revision?

A: No answer provided in the available transcript.

Q: [Listed pre-submitted question] What is the status of your evaluation of M&A and new business opportunities?

A: No answer provided in the available transcript.

Q: [Listed pre-submitted question] Do you plan to expand overseas outside of Vietnam and Cambodia?

A: No answer provided in the available transcript.