■Future Outlook

2. Overview of the Mid-Term Management Plan

Wave Block Holdings <7940> has started a three-year mid-term management plan from the fiscal year ending March 2025. The theme is "To run sustainable returns to employees and shareholders through the acquisition of long-term profits based on stable and continuous growth," and the business strategy focuses on three points: (1) rebuilding earning power in mature fields, (2) expanding growth areas, and (3) maximizing group synergies and deepening relationships further. Additionally, management measures within the group are also promoting initiatives to enhance employee engagement.

The performance targets for the final fiscal year ending March 2027 are set at a revenue of 29,500 million yen, an operating profit of 1,300 million yen, and an ROE of 6.3%. Revenue and operating profit are expected to hit record highs since the fiscal year ending March 2022, after the sale of the interior business. The average annual growth rate over three years is anticipated to be 7.8% in revenue and 49.6% in operating profit, indicating a focus on recovering profitability. By business segment, the Material Solutions business is projected to achieve a revenue of 20,800 million yen and an operating profit of 1,350 million yen, with an operating margin expected to rise 0.8 points from March 2024 results to 6.5%. Furthermore, the Advanced Technology business is set to reach a revenue of 8,700 million yen and an operating profit of 700 million yen, aiming for an operating margin increase of 7.3 points to 8.0%. This business’s profitability may vary depending on the sales trends of purchased products, but if sales of the focused area, Metal decorative films, grow steadily, it is seen as achievable in terms of monetary values.

The sales scale of Metal decorative films is expected to double in three years, mainly for Automobiles, becoming the driving force for revenue.

3. Business Strategy

(1) Rebuilding earning power in mature fields

a) Improving revenue through structural reform and optimization of production in low-growth, low-profitability areas.

In the Material Solutions Business, various products are sold, and efforts are being made to improve profitability for products belonging to low-growth and low-revenue areas through cost reductions by optimizing production and negotiating price revisions. However, for areas where revenue improvement is not expected, there will be consolidation and integration, with a focus on channeling management resources into areas where growth and high revenue are anticipated. As part of this Global Strategy, new products with high added value that can be differentiated from conventional products are being developed, and several noteworthy new products are emerging.

The aforementioned "Daioneo Shade Cooling" is expected to see demand expand not only for vinyl houses during the continuing extreme heat but also for general consumers. Additionally, the vehicle water immersion prevention cover "Water Safe," released in September 2023 as a disaster prevention and mitigation product, is a waterproof sheet designed to prevent vehicle water immersion during heavy rain disasters, developed in response to needs from transportation companies, and has won an excellence award at the "Disaster Prevention and Mitigation × Sustainable Award 2024." Promotions targeted at transportation companies with potential demand, where awareness is still low, will be strengthened, and a carport type for households will also be released.

Additionally, the disaster prevention sheet "SAT! Open Disaster Prevention Sheet*" which can be easily spread by a small number of people during disasters, has also gained attention by winning the highest award, the Minister of Economy, Trade, and Industry Award, at the major comprehensive exhibition in the Home Improvement Stores industry "JAPAN DIY HOMECENTER SHOW 2024." This product achieves about 15% Lightweight compared to conventional products by changing the material while maintaining equal or greater strength than traditional products. Patents for the mechanism of easy spreading and folding have also been obtained, and demand expansion is expected as a high value-added product for disaster stockpiling by municipalities, schools, and businesses. The folding process for manufacturing is done manually at the factory in China, so plans for automation towards mass production are being considered, targeting revenues of 1.5 billion yen in three years for both "Water Safe" and "SAT! Open Disaster Prevention Sheet." It is believed that if such high value-added products can continue to be actively developed and brought to the market, a solid revenue base capable of responding to changes in the external environment can be established.

* Sizes include 3.6×5.4m, 7.2×9m, and 10×10m.

b) Strengthening Collaboration with Geothermal Energy and Existing Fields

As one of the measures to strengthen revenue in the Material Solutions Business, strengthening collaboration with geothermal energy business, which is expected to see expanding demand from the perspective of the SDGs (realization of a decarbonized society, improvement of working environments), will be pursued. The geothermal energy business will focus on two fields as sales targets: facility horticulture and factories/warehouses. For facility horticulture, combinations with agricultural materials (heat-shielding and shading nets, insect nets, vinyl houses, etc.) will be made, while for factories and warehouses, combinations with industrial materials (partition sheets, temporary structures, tents, etc.) will allow for more value-added solution proposals, thus expanding opportunities for order acquisition and is expected to lead to an increase in revenue from agricultural and industrial materials.

Regarding sales activities, efforts will be advanced not only through direct sales but also through collaboration with wholesale trading companies, in addition to digging into potential demand through web marketing. Furthermore, technology development aimed at improving energy-saving performance (measurement & control, heat exchange & circulation fields) will continue to enhance competitiveness, and not only collaboration with the subsidiary Aizen Corporation but also establishing a collaborative system with partner companies to expand the sales area is being considered. Energy-saving systems utilizing geothermal energy may also leverage government and municipal subsidy systems, therefore, if awareness of the benefits of implementation spreads, revenue scale is expected to significantly expand.

* In January 2023, an investment of just over 0.1 billion yen was made in the company's own factory (Dai Oil Fukuroi Factory). Half of that was funded by subsidies. The estimated annual cost reduction effect on utility bills is approximately 14 million yen, and with the use of subsidies, the investment is calculable to be recovered in about four years. Since the system can be used for about 15 years, a total cost reduction effect of 0.15 billion yen is expected, as well as contributing to a reduction in CO2 emissions. Moreover, a better working environment is expected to improve employee productivity.

(Written by FISCO guest analyst, Jo Sato)