■Business description of Reservoir <176A>
1. Business Overview. P-B Systems <4447> is an independent SIer based in Fukuoka, with expertise in system virtualization technology and strong cloud-based infrastructure building capabilities that builds various information systems for mid-sized enterprises, SaaS providers, and public agencies. The secure cloud system business is the core of the business, supporting total security, resilience building related to cybersecurity, and the realization of DX with cloud technology, ranging from digital work promotion to experience-sharing VR theaters with MetaWalkers, a series of emotional system businesses. The company is also fostering metaverse businesses. The company has claimed to have been a "small group of professionals in system virtualization" to date. However, steering toward further growth in the future, the company plans to expand its scale from the FY2024, aiming to transform itself into a "professional group of hybrid clouds."
The company group consists of the company and two consolidated subsidiaries (Central Power Solution, Central Power Energy), divided into three segments: decentralized energy business, green energy business, and energy DX business. The company is often mistaken for a company that expands new power, but its main service is a bulk electricity purchase service for condominiums, where electricity used in condominiums is aggregated and can be purchased collectively. By purchasing in bulk, it is possible to reduce the unit price compared to purchasing individually for each room. It is a unique business model that has been deployed before the liberalization of electricity, with few competitors. The green energy business was launched with the aim of further strengthening the procurement function in the bulk purchase of decentralized energy business, and also handles electricity retailing that competes with some new power companies. Most new power companies consist solely of new power businesses, but the company is connected through functional complementation and synergy in the three businesses it deploys, reducing the risks associated with new power companies. The composition ratio of sales before adjustment for the fiscal year ending June 2024 is decentralized energy business 52.5%, green energy business 44.3%, energy DX business 3.2%.
The main service is the condominium bulk electricity service provided by high-voltage reception and transformation facilities.
2. Decentralized Energy Business
In the decentralized energy business, in addition to providing a bulk electricity service that procures electricity and supplies it to customer condominiums, Central Power Energy is responsible for some of the electricity procurement activities, while Central Power Solution handles the installation, maintenance, and inspection of reception and transformation facilities. In addition to the bulk electricity service for condominium customers, the company also provides services such as renovation work on various electrical facilities not owned by the company within the condominium, gas retail and intermediary sales, as well as the introduction of services from other companies related to housing facilities, etc. Furthermore, the company has recently started offering condominium disaster prevention services by providing decentralized power generation facilities such as solar power generation facilities and rechargeable battery facilities, and is promoting the consolidation and networking of facilities from a medium- to long-term perspective.
(1) Condominium Bulk Electricity Service
The condominium bulk electricity service is a service where the company installs reception and transformation facilities in condominiums, which are originally installed by local electric power companies, and procures high-voltage electricity similar to commercial buildings on a condominium basis, converting it from high voltage to low voltage for supply to individual households and common areas within the condominium. While in condominiums that do not use the company's service, each household pays for low-voltage electricity, in condominiums using the service, they are based on high-voltage rates, resulting in relatively lower electricity charges, and a mechanism to reduce the electricity charges for the entire condominium (individual households and common areas). The amount of reduction in electricity charges can also be allocated to part of the repair reserve fund as a reduction amount for common areas pointed out in recent years with insufficient savings.
In the condominium bulk power reception service, the company owns the facilities as assets, so customers do not need initial investment, while it is a model that recovers the cost of equipment including depreciation as an electricity fee. Since existing condominiums are the main target, in order to introduce the service to customer condominiums, it is necessary to have a resolution in the condominium management association's general meeting, as well as service applications from all households. However, by not requiring initial investment, reducing the fee by approximately 5-10% for the entire condominium compared to major electrical utilities, and being able to allocate some of the repair reserve, it lowers the hurdle for introducing the service. Once introduced, the company can also perform meter reading and maintenance, so it seems that many residents recognize the company as an electricity provider.
The service installs equipment costing 8 to 10 million yen per building with 40 or more units*, so upon introduction, a long-term contract of 10 or 15 years will be signed (with renewals every 1 to 3 years after the end of the period). With a focus on economic rationality such as pricing, the cancellation record has only been for one building so far, steadily increasing the number of serviced units, becoming a stock business that secures long-term and stable income for the company. Unlike new energy companies that primarily source electricity at market prices, the company primarily engages in relative transactions and negotiates bulk contracts for several years, enabling it to exert bargaining power over utility companies. Therefore, although the lead time to introduce the service to condominiums is long, once operational, it generates profits from the first year, and with cash-based investments, it has a revenue structure that can be recovered in 4 to 5 years.
* 40 units per building is the breakeven point, but with the expansion of the target due to the release of condominium disaster prevention services, it seems that balancing the profitability with around 20 units per building has become possible recently.
One of the company's characteristics is its cost competitiveness. Not only generated from business models and bargaining power, but since starting the condominium bulk power reception service in 2004, the company has leveraged the first-mover advantage to solidify the Kansai and Kanto regions with many condominiums as bases, actively promoting self-developed systems and in-house operation of operations as an energy operator. This has led to business expansion such as the establishment of green energy and energy DX businesses through the continuation of the condominium bulk power reception service, as well as subcontracting operation of major electrical utilities.
Currently, about 30% of the market for condominium bulk power reception services consists of direct or indirect subcontracting by power company-affiliated sources for newly supplied condominiums each year, with the remaining about 70% targeting existing condominiums being the company's focus. Therefore, the company aims to further expand the condominium bulk power reception service based on cost competitiveness, and plans to actively promote replacement from around a dozen small competing companies in the existing condominium area.
(2) Condominium Disaster Prevention Service
In April 2023, the company started the condominium disaster prevention service, which supplies electricity by installing decentralized power supply equipment such as solar power generation and rechargeable batteries during power outages, recovering costs through electricity fees received from customers. Positioned as a high value-added service that can be used in conjunction with the condominium bulk power reception service, the company is currently focusing on sales activities to promote the condominium disaster prevention service as a new product for acquiring new customers.
By adding themes such as disaster prevention and environmental enhancement to condominiums, it is considered to make it easier to appeal to new construction condominiums and replacement condominiums, aiming to improve the added value of condominiums. In this process, using rechargeable batteries can help to standardize differences in electricity rates and regional variations, while also aligning with Scope 3* for condominium sellers and the increasing number of REIT companies.
Scope3 refers to the supply chain emissions related to reducing greenhouse gases, which are not included in Scope1 (purchased products and services) or Scope2 (capital goods), but rather the emissions in the upstream and downstream of one's own company.
(Author: FISCO guest analyst Nobumitsu Miyata)
