Outlook for Wave Block Holdings (7940).

2. Business Strategy

(1) Reconstruction of Profit Earning Ability in Mature Fields

a) Strengthening cooperation between geothermal energy and existing fields

To strengthen the profitability of the Material Solutions business, we will promote the cooperation between geothermal businesses and existing fields that are expected to expand in demand in the future from the viewpoint of SDGs (realization of decarbonized society, improving working environment). For geothermal businesses, the policy is to focus on two fields, facility gardening and factories/warehouses, as sales targets. For facility gardening, we will propose high value-added solutions with agricultural materials such as shading nets, insect screens, and vinyl houses. For factories and warehouses, we expect to expand sales of industrial materials (partition sheets, temporary facilities, tents) and increase opportunities to win orders. We will also cooperate with wholesale distributors as well as direct sales to explore potential demand through media marketing. To maintain and improve competitiveness, we will continue to develop technology for improving energy efficiency performance (measurement and control, heat exchange and circulation), not only for construction but also in cooperation with partner companies, including subsidiary Eisen Corporation.

For geothermal energy-using energy-saving systems, there are cases where we can use government or local government subsidy systems※. If the recognition of the benefits of introducing these systems spreads, the sales scale is expected to expand further. Initially, we handled small-scale projects to accumulate design and construction expertise, but recently we have been negotiating with large-scale projects exceeding 100 million yen in sales.

※Invested more than 100 million yen including in-house factories (Daiho Fukuroi Factory) in January 2023. Half of it is the subsidy. It is calculated to recoup the investment cost in about 4 years by using subsidies, assuming a reduction effect of about 140 million yen per year in lighting and heating costs. The system can be used for about 15 years, and it is expected to contribute to a cost reduction effect of 150 million yen in total, as well as reducing CO2 emissions. Also, improving the working environment is expected to improve productivity of employees.

b) Improvement of profitability through structural reform and production optimization in low-growth/low-profit fields

In the Material Solutions business, we sell many products. For products belonging to low-growth and low-profit fields, we will improve profitability by optimizing production. For fields where revenue improvement is not expected, we will reorganize and integrate them and focus on investing management resources in growth and high-profit fields to reinforce profitability. We will also optimize domestic and foreign production balances by advancing the reorganization of domestic subcontracted factories and outsourced processing. We are also progressing with discussions on cooperative projects with RP Tokai Plastics, an equity-method affiliated company mentioned below, which is expected to contribute to further profitability improvement in the future.

(Written by FISCO guest analyst, Jo Sato)