Overview of Shidenko Co., Ltd.
4. Risk factors, challenges, and countermeasures. The common risk factors in the construction industry include fluctuations in construction investment accompanying economic changes, intensified competition in contract bidding, a decrease in construction profitability due to rising labor and equipment costs, constraints to construction capacity due to labor shortages, delays in project timelines due to changes in plans, and compensation liabilities due to construction defects. Other factors include delays in response to environmental regulations and technological innovation. Regarding construction investment, although there is a possibility of volatility with regard to general private construction, it is expected to remain stable due to urban redevelopment projects in major metropolitan areas and community infrastructure development. In the case of this company, construction of electrical utilities and transmission and distribution equipment for the Shikoku Electric Power Group has become a stable source of revenue, so we consider the risk of performance deterioration due to demand fluctuations to be small. With regard to the rising labor and equipment costs, it seems that the industry as a whole is progressing in passing on the costs to contract prices. Regarding the risk of constraints to construction capacity due to labor shortages, we believe that the impact of the limit on overtime work that began in fiscal year 2024 as a risk factor not only for our company but for the entire construction industry should be recognized. On the other hand, due to the current situation of construction capacity not keeping up with the strong demand for construction, we are scrutinizing contract bids and placing greater emphasis on profitability by selecting contracts (so-called selective orders) in order to improve the profitability of our work. Our company is gradually improving construction capacity by strengthening cost management, including procurement of equipment and materials, improving construction efficiency, actively recruiting and training personnel, and utilizing M&A.
The common risk factors in the construction industry include fluctuations in construction investment accompanying economic changes, intensified competition in contract bidding, a decrease in construction profitability due to rising labor and equipment costs, constraints to construction capacity due to labor shortages, delays in project timelines due to changes in plans, and compensation liabilities due to construction defects. Other factors include delays in response to environmental regulations and technological innovation.
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The impact of the limit on overtime work that began in fiscal year 2024 as a risk factor not only for our company but for the entire construction industry should be recognized with regard to the risk of constraints to construction capacity due to labor shortages. However, we are improving profitability by selecting contracts (so-called selective orders) to make the most effective use of our limited construction capacity, given the current situation of construction capacity not keeping up with the strong demand for construction. In addition to strengthening cost management, including procurement of equipment and materials and improving construction efficiency, our company is moving towards gradually increasing its construction capacity through proactive recruitment and personnel development as well as the use of M&A.
(Authored by FISCO guest analyst Masanobu Mizuta)