What is the SE construction method? Is the legal revision a tailwind? Prominent investor Hasshan poses questions to President Tagasari! Continuation of Vol.1

■ N.C.N. Tagasari

N.C.N. Inc. was established following the Hanshin-Awaji Earthquake, and today it has developed as a platform business providing digitalization, structural design, energy-saving design, and materials necessary for structural calculations. The company collaborates with 615 construction companies nationwide to offer a system that protects asset value in residences. Therefore, it is appreciated that N.C.N. is understood as a company that creates new systems in the wooden industry, unlike house manufacturers. Our business is supported not only by 615 construction companies and house manufacturers across the country, but also by nine group companies. The business is divided into asset division, technology division, and lifestyle division.

A well-known affiliated company is MUJI HOUSE, which handles "MUJI Houses." This company is a joint venture with Ryohin Keikaku Co., which develops MUJI products, providing residences, renovations, and stores.

The acquisition of Suihou Co., which possesses unique technology, has been completed. This company handles pure wooden buildings, which are rare in wooden construction. For example, it constructs buildings that require advanced carpentry skills, such as the "Sunny Hills Minami-Aoyama Store" designed by renowned architect Kengo Kuma. This acquisition has further propelled these businesses.

In the future, the company will actively enter the inbound demand and lodging business. It collaborates with the subscription-based vacation home provider "Sanu," who also operates a company developing and providing lodging facilities in Ichinomiya. In this way, the company is focusing on platform business, supply business as a construction company, and lifestyle business, while actively making investments. In terms of performance, since the IPO in 2019, there has been a continuous overall growth trend. Although there was a period when operating profits temporarily decreased, a V-shaped recovery has been achieved, and preparations for the next period are underway.

Every year, the number of partners cooperating is gradually increasing, and currently, there are 615 house manufacturers and construction companies involved in business. This scale has already become top-class in the industry, forming Japan's largest group of constructors and craftsmen.

Regarding how the "SE construction method" is utilized, the magazine "ML Welcome," published at bookstores, consists solely of examples of the "SE construction method." The "SE construction method" provides frameworks for a wide range of buildings, from very high-end structures aimed at the wealthy to residences constructed by general construction companies nationwide. In recent years, designs such as large atriums and spacious living rooms have become popular, but structural calculations are essential to safely realize these features, leading to an increased demand for the "SE construction method."

The bakery and restaurant "Sawamura (Old Karuizawa)" in Karuizawa, which was started about 10 years ago, is a prime example of a large-scale building that realized wooden construction early on. This year, a store for Muji was also built using wood. This store adopts the zero-energy building approach known as "ZEB," operating as a building that consumes zero energy.

The Blue Bottle Coffee café located in Toyosu Park was constructed using our "SE structural method" technology. It is one of the cases we would like many people to see.

The lodging facility "YAWN YARD Kouri Island" is operated on Kouri Island in Okinawa, offering wooden architecture that blends into nature.

Here are the highlights of the 2Q performance. For the first half of the fiscal year ending March 2025, the revenue for 2Q was 3.8 billion yen, but ordinary profit has significantly increased. The reasons will be explained in detail by dividing them into four segments: subsidiaries and affiliated companies, the residence sector, the large-scale wooden construction (non-residential) sector, and the environmental design sector.

Last year, aggressive investments were made in subsidiaries and equity method affiliates as part of an investment aimed at future growth. As a result, since all these businesses were in the red, profits significantly decreased. However, this fiscal year, the acquired Suihou and MUJI HOUSE, a related company of Muji, have entered the profit contribution phase. This has led to a significant improvement in profits from negative to positive, making progress.

Regarding the "number of structural calculation shipments," which is our main focus, there was a significant drop in 4Q last year due to stagnation in housing starts. However, as a result of improving sales methods for structural design, a V-shaped recovery was achieved in 1Q and 2Q. Structural calculation reports are shipped in the first half, which go through the procedures for building confirmation applications and take about three months until they progress to the actual house construction process. Therefore, a significant recovery in revenue is expected from the next quarter onward.

For large-scale properties as well, the number of structural calculation shipments is steadily increasing. Notably, there has been a rise in energy-saving calculations. From this period, we have started energy-saving calculations for condominiums, showing significant progress in the graph. The field of digital data has been slow to grow, but by converting data into presentation systems, we are now able to offer new services to those involved in housing sales. This initiative is showing progress.

The future growth strategy will be explained through these three segments: the residence sector, the non-residential sector, and the environmental sector.

The long-awaited mandatory structural calculations have finally entered the stage of legal revision after about 30 years. Although not yet complete, some progress has been observed. First, energy-saving calculations have become mandatory for newly constructed residences. Since it is difficult to address heating and cooling issues after construction, energy-saving calculations are required at the time of application for confirmation before construction. Additionally, the approval procedures for wooden single-family residences have also changed. Previously, structural calculations and drawing reviews were not conducted for two-story wooden residences, but moving forward, drawing reviews will be added, which is expected to improve the safety of buildings. Furthermore, legal revisions have been announced that will be advantageous for those who implement structural calculations, and a review of the simplistic wall quantity calculation method, which lacks a structural basis, has been decided.

Regarding energy-saving calculations, large buildings are already required to prove their energy efficiency, but now small buildings, specifically those under 300 square meters, including residences, will also need to conform to energy-saving standards. A law has been revised stating that building permits will not be granted unless a building is certified as one that does not consume a lot of energy.

This is the most significant point; until now, buildings that are two stories and have a total floor area of less than 500 square meters were exempt from specification and structural reviews. However, due to this legal revision, buildings with a total floor area of 300 square meters or more (approximately 100 tsubo) will now be required to conduct accurate structural calculations. Additionally, for two-story buildings, reviews of regulations that had previously been omitted will now be conducted. Thus, with advancements in technology, the importance of structural calculations is increasing, and it is believed that a day will come when such calculations become 100% mandatory.

● Hasshan

I have a question. Regarding the mandatory energy-saving and structural calculations, I believe the expansion of application to those over 300 square meters will be a significant advantage for your company. In this trend, which includes system design and political background, could you tell me what specific benefits are anticipated? For example, does your company's residences already conforming to the system give a competitive edge, or will the need for structural calculations potentially increase your business partners? I would appreciate your insights on specific expectations and advantages.

■ N.C.N. Tanakasa

Among the registered contractors of our company, we monitored 489 companies that handle only residences, and the number of houses built by these companies amounts to approximately 0.017 million700. However, only 805 of those have adopted the SE construction method and conducted structural calculations. In other words, despite having 615 contractors, many are still building houses without structural calculation documents. The background for this includes the costs associated with structural calculations. A calculation cost of approximately 0.2 million yen per unit is incurred, making it difficult to pass this cost on to customers. Particularly, as low-cost house manufacturers engage in cost competition at the level of 0.01 million yen per tsubo, competition has been providing buildings without structural calculations, creating a hurdle for contractors to adopt them. On the other hand, similar costs are incurred for energy-saving calculations, but with this legal revision moving from voluntary to mandatory, this cost disparity will be resolved. As a result, the utilization rate of the SE construction method incorporating structural calculations is expected to increase significantly.

● Hasshan

I see. Until now, it wasn't used due to costs, but now it seems it will become mandatory.

■ N.C.N Tanisashi

Yes.

● Hasshan

I understood well. Thank you.

[N.C.N] What is the SE construction method? Is the legal revision a tailwind? A famous investor Mr. Hasshan asks President Tanisashi, to be continued in Vol.3.