■Kyokuto Trading ＜8093＞ Medium-Term Management Plan and Growth Strategy

(2) New business development and development

The biggest focus of the medium-term management plan is new business (including M&A). Initiatives in the five growth fields are under the direct control of the president, and management resource investment is being strengthened. The five growth fields are 1) renewable energy, 2) hydrogen and batteries, 3) environmental health, 4) bioproducts, and 5) industrial Dx/IoT. Until now, the company has also been involved in some form in these fields, and it is also a field where knowledge and experience of the market and technology can be applied. The company is planning multiple commercialization from these. The point I want to keep in mind here is that the company has knowledge and know-how for successful M&A. From the fiscal year ending 2023/3, we are focusing on the 5 priority new businesses “offshore wind power generation related business,” “autonomous driving system related business,” “bioproducts,” “India business,” and “new business of an American corporation” from among the 5 growth fields. The activity status of the priority 5 new businesses is successively reported to the Corporate Planning Office. As matters under the direct control of the president, they steer new businesses by judging collaboration/M&A, resource allocation, etc. from a company-wide perspective.

1) Renewable energy sector: offshore wind power generation related business

The offshore wind power generation related business is the company's main focus area, and it is a promising business in the future that also contributes to carbon neutral. The company is focusing on businesses related to offshore wind power generation by utilizing the experience and knowledge of undersea exploration and excavation cultivated in resource development-related businesses until now, and has formed a strategic alliance with the Dutch TWD B.V. (hereafter, TWD) as part of this. TWD designs special large jigs (pile grippers, lifting tools, various mounts, jacket resistance templates, etc.) for the construction of offshore windmills, etc. TWD is a leading company in this field, and it is well known in the industry both domestically and internationally. TWD Japan Co., Ltd. was established in January 2022. The company is involved not only in design, but also in production based on that design, and plans to expand the business into maintenance and maintenance services in the future. The company believes that if it is involved from the design/production stage to operation/maintenance, experience and know-how related to offshore wind turbines can be accumulated. Also, in addition to TWD Japan-related products, the product lineup (marine special ramp systems, underwater exploration/work robots for maintenance) has been expanded from offshore wind power field surveys to maintenance, and it seems that there are also inquiries.

In the offshore wind power generation related business, we are proceeding with order acceptance activities in cooperation with domestic Maricon* and general contractors from among promising “projects relating to the Renewable Energy Utilization Law Sea Area Utilization Act” and “port projects.”

※ Maricon is an abbreviation for Marine Contractor, and Goyo Construction ＜1893＞ and Toa Construction Industries＜1885＞ are famous.

The “Port Project” is a project to build a small offshore wind farm within a port. The company has already received orders and delivered the “off Nyuzen Town in Toyama Prefecture” project for the fiscal year ending 2023/3. Other projects (Kitakyushu Port in Fukuoka Prefecture, Kashima Port in Ibaraki Prefecture, etc.) are also actively working with the aim of receiving orders for designs and products. The “port project” has a small windmill scale, but the speed until orders are received is fast, and expectations are high for short-term orders.

The “Renewable Energy Utilization Act Marine Area Utilization Act” is a large-scale offshore wind power generation. The parties involved in the transaction are diverse and complex, it takes time to coordinate with local residents and people involved in the fishing industry, and it takes time to receive orders. While reliably receiving orders for “port project” projects, we accumulate achievements, and aim to acquire large-scale “projects relating to the Renewable Energy Utilization Law Sea Area Utilization Law.” Offshore wind power operators have been selected for the “Project Related to the Renewable Energy Area Utilization Act.” The Mitsubishi Corp. ＜8058＞ Group won the bid in round 1 (3 sea areas off Noshiro City/Mitane Town and Oga City in Akita Prefecture, off Yurihonjo in Akita Prefecture, and off Choshi in Chiba Prefecture, announced in December 2021) at an overwhelmingly low price. In round 2※ (public offering in 4 sea areas off Happo-cho and Noshiro in Akita prefecture, off Oga city, Katagami city and Akita city in Akita prefecture, off Murakami city and Tainai city in Niigata prefecture, and off Eshima in Saikai city, Nagasaki prefecture, announced in 2024/3), 4 operators “with the earliest start time to start operation” were selected from 12 business applicants. TWD Japan has received numerous inquiries and inquiries from major general contractors Maricon regarding round 2 and 3 projects, and full-scale order acceptance activities have begun.

* Due to reflection on the “total takeover” bid in the first round, a successful bid limit was set where the upper limit of power generation/transmission capacity per business entity was 1 million kW in total so that one business entity would not successfully bid for most of the target sea area. Partly because of this influence, it seems that there have been a series of business entities that have not participated in the public offering despite having carried out environmental impact assessments in advance.

Although it is a business environment where there are many such uncertainties, the offshore wind power generation related business is predicted to grow significantly regardless of whether domestic or overseas, and it can be said that it is a perfect business opportunity for the company. Although it is 2 years behind the original business plan, sales are expected to be 0.5 billion yen for the fiscal year ending 2026/3.

TWD Japan's trade area will be Japan/East Asia (Taiwan) for the time being, but it is planned to strengthen its business base in Japan first. It seems that various seeds other than TWD are being sown in offshore wind power generation related businesses, and I would like to pay attention to the second and third business scenarios.

2) Industrial Dx/IoT field: Autonomous driving system related business

The company embarked on commercialization of an autonomous driving system for special vehicles for internal use at steel mills on the occasion of a request from a major steel manufacturer “whether special vehicles operating within steel plant premises can be automated.” Until now, the company has been working on the development of IoT devices for factories and in-house autonomous driving locomotives. Utilizing that knowledge, a partnership agreement was concluded with the British AB Dynamics Group, which is the top supplier of automobile test systems, to develop an autonomous driving system incorporating obstacle detection functions for current special vehicles that run within factory premises. Currently, we are aiming to commercialize autonomous driving (unmanned) by remodeling existing vehicles.

Customer evaluations are also high in actual driving tests and domestic demonstrations of autonomous driving systems for campus special vehicles in the UK, and early orders are expected. Initially, it was assumed that it would be used on the premises of steel mills and chemical plants, but it seems that there are also inquiries from mining sites. Currently, demonstration tests are underway at client companies. Although technical issues have been resolved, it has been difficult due to safe operation rules and standards, etc., and it seems that it will take a little longer until practical application.

Major steel manufacturers seem to see that it will take 5 to 6 more years to realize “fully autonomous driving” of special vehicles for use on premises, and the company believes that add-on (modified) autonomous driving systems will become a business for the time being (10 to 15 years). Special vehicles are large and expensive equipment, and since there is a considerable amortization period left for currently operating vehicles, it is unlikely that they will switch to fully autonomous special vehicles all at once. The company learned knowledge about fully autonomous driving of special vehicles during that period, and hopes to lead the market by the time it switches to fully autonomous driving.

The autonomous driving system related business for special vehicles for campus use is aiming for full-scale commercialization within 3 years. The company anticipates that demand for autonomous driving will increase more and more in the future due to the aging of special vehicle drivers.

(Written by FISCO Visiting Analyst Keiji Shimizu)