SR Research Report
2015/6/29

Tamagawa Holdings Co., Ltd. (6838)
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data andfindings. We will always present opinions from company management as such. Our views are ours where stated.
We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
sr_inquiries@sharedresearch.jp or find us on Bloomberg.

Tamagawa Holdings Co., Ltd. (6838)

SR Research Report

2015/6/29

Contents
Recent updates ......................................................................................................... 4
Highlights .............................................................................................................. 4
Trends and outlook ................................................................................................ 7
Business ................................................................................................................. 17
Business description ............................................................................................. 17
Business segments ............................................................................................... 18
Market and value chain ........................................................................................ 27
Strategy .............................................................................................................. 34
Past performance ................................................................................................. 35
Income statement ................................................................................................ 36
Balance sheet ...................................................................................................... 38
Cash flows........................................................................................................... 40
Other information .................................................................................................... 41
History ................................................................................................................ 41
News and topics .................................................................................................. 42
Other .................................................................................................................. 52
Major shareholders .............................................................................................. 52
Company profile................................................................................................... 53

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Tamagawa Holdings Co., Ltd. (6838)

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Income Statement

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

Total Sales

2,803

2,640

3,106

3,672

4,171

5,095

5,600～7,300
11.0～43.8％

FY03/16

YoY-34.8%

-5.8%

17.7%

18.2%

13.6%

22.1%

Gross Profit

392

326

590

1,049

1,198

1,479

YoY

-58.8%-16.8%

81.1%

77.8%

14.3%

23.4%

GPM

14.0%

12.3%

19.0%

28.6%

28.7%

29.0%

-227

-286

-30

373

477

531

590～850

YoY

-

-

-

-

27.8%

11.3%

11.2～61.2％

OPM

-8.1%

-10.8%

-1.0%

10.2%

11.4%

10.4%

-224

-284

-24

375

478

514

520～790

YoY

-

-

-

-

27.6%

7.5%

2.0～53.7％

RPM

-8.0%

-10.8%

-0.8%

10.2%

11.5%

10.1%

Net Income

-570

-351

-37

340

436

427

400～570

-

-

-

-

28.5%

-2.2%

-5.6～34.9％-20.3%-13.3%

-1.2%

9.3%

10.5%

8.4%

Number of Shares (thousands)

6,774

6,774

6,774

10,753

41,25942,031

-

EPS

-35.1

-17.8

-1.9

15.7

11.7

10.4

10.0～14.0

EPS (Fully Diluted)

-

-

-

14.8

10.6

10.2

-

Dividend Per Share

-

-

-

-

-

1

1.0～3.0

58.9

40.6

38.6

54.3

64.8

75.4

Operating Profit

Recurring Profit

YoY
Net Margin
Per Share Data

Book Value Per Share
Balance Sheet
Cash and Equivalents

665

493

56

390

1,764

1,524

Total Current Assets

1,918

1,530

1,293

2,114

3,421

3,606

Tangible Fixed Assets, net

295

205

133

564

718

2,410

Other Fixed Assets

89

30

18

27

38

154

Intangible Assets

39

-

-

1

31

194

2,341

1,766

1,445

2,709

4,210

6,376

Accounts Payable

443

430

364

386

474

620

Short-Term Debt

433

203

30

40

323

300

Total Current Liabilities

1,026

884

598

708

1,130

1,481

Total Assets

Long-Term Debt

67

-

-

151

294

539

Total Fixed Liabilities

153

83

85

251

442

1,733

Total Liabilities

1,179

967

683

959

1,572

3,215

Net Assets

1,162

799

761

1,751

2,638

3,161

500

203

30

192

618

839

Operating Cash Flow

-1

68

-332

36

764

387

Investment Cash Flow

12

93

77

-454

-265

-865

Financing Cash Flow

-82

-299

-168

783

875

238

ROA

-8.4%

-13.8%

-1.5%

18.0%

13.8%

9.7%

ROE

-43.4%-35.8%

-4.7%

27.1%

19.9%

14.7%

Equity Ratio

49.6%

45.3%

52.7%

64.6%

62.7%

49.6%

Interest-Bearing Debt
Cash Flow Statement

Financial Ratios

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

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Tamagawa Holdings Co., Ltd. (6838)

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Recent updates
Highlights
On June 11, 2015, Tamagawa Holdings Co., Ltd. announced the progress of a business alliance with
Etrion Japan KK.
The company has concluded a Memorandum of Understanding regarding the business alliance with Etrion
Japan, and the two companies have discussed the process for establishing a solar power business in
Misawa, Aomori. Both parties have now agreed upon a Term Sheet setting forth the specific process forthis business and each company’s stake. The company is analyzing the effect of this alliance on earnings
for FY03/16 and plans to make an announcement as soon as possible.
Key points
 The two companies will establish a special-purpose company (SPC) for this joint business.
 Tamagawa may hold a stake of up to 30% in the SPC.
 The two companies aim to complete all procedures necessary to begin construction by December
2015.
 The two companies will jointly decide the method of funding and appoint engineering, procurement,
and construction agents.
Overview of the power plant
Location:
Misawa, Aomori
Operator:
GP Energy A, GP Energy B, GP Energy C, GP Energy D (wholly owned units)
Premises:
153,000sqm
Capacity:
10MW
Feed-in tariff:
JPY36/kWh (before tax; fixed for 20 years)
Revenue:
JPY390mn a year (estimate)First year output:
10,852,814 kWh (estimate)

On May 13, 2015, the company announced earnings results for full-year FY03/15; see the results
section for details.

On May 12, 2015, the company announced a reduction in capital reserves and the distribution of asurplus.
At a meeting of the board of directors held on the same day, the company resolved to reduce capitalreserves by JPY200mn and transfer the entire amount to the capital surplus account. It plans to use
JPY41mn of the increase in capital surplus to pay a dividend of JPY1 per share. The aim of the above is tosecure shareholder return, and ensure a flexible capital policy in future.
The planned record date for this distribution is March 31, 2015, provided the proposal to reduce capitalreserves is approved at the general meeting of shareholders on June 26, 2015, and the necessary
procedures to protect creditors are completed.

On April 20, 2015, the company announced that the Ministry of Economy, Trade and Industry (METI)
authorized a geothermal binary power plant.
The Kyushu Bureau of Economy, Trade and Industry (under METI) authorized the company’s planned

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geothermal power plant in Beppu (Oita Prefecture) as a facility to generate renewable energy.
As of April 2015, the company holds seven plots for the construction of this facility, offering a total
capacity of about 875kW (a one plot, 125kW geothermal plant generates electricity roughly equivalent to
a 1MW solar power plant). Having received authorization from METI, the company plans to build the plantand begin selling electricity as soon as possible.
The company plans to make a further announcement once the effect on earnings for FY03/15 iscalculated.

On April 2, 2015, the company announced additional information on a business alliance with Etrion
Japan KK, which was first announced on March 30, 2015.
Overview of Etrion Corporation
According to the company, Etrion Corporation, the parent company of Etrion Japan KK, is a member of theLundin Group, which a resource group with an established track record in the fields of oil, natural gas,
mining, and energy. The market capitalization of the Lundin Group totals CND15.4bn as of the time ofwriting, and is composed of 11 group companies spanning 25 countries. The top shareholder of the Etrion
Corporation is the Lundin Group, which holds 24% of shares, and the Etrion Corporation is positioned as
the most important renewable energy company within the Lundin Group.
Overview of the Lundin Group (unit: Canadian dollars)(Solar Power G eneration)

Mining exploration
Mining production
Mining production
Other
Mining production

G roup Market Cap

Oil exploration
Oil production
Oil exploration
Oil production
Oil exploration

Source: Company data

On March 30, 2015, the company announced a business alliance with Etrion Japan KK.
On the day of announcement, the two companies signed a Memorandum of Understanding to make a
joint investment in a solar power plant in Misawa, Aomori Prefecture.
Etrion Japan KK is part of the Etrion Group under parent company Etrion Corporation, which constructs,
owns, and operates full-scale solar power plants. It is an independent power producer (IPP) with solar
power plants totaling 130MW in output in Italy and Chile, and is listed on the Toronto and Stockholm stock

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Tamagawa Holdings Co., Ltd. (6838)

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exchanges. Headquartered in Canada, this international renewable energy provider also has branches in
Geneva, Miami, Rome, Santiago, and Tokyo.
As announced on December 26, 2014, the company has acquired the land for a solar power plant in
Misawa, and is making preparations to begin selling electricity as soon as possible. Per this Memorandumof Understanding, Tamagawa and Etrion will raise funds for this project once both companies havecompleted their due diligence. The company thus expects to complete the construction soon and with nomajor issues. The company has yet to decide on the method of raising funds, and how the plant will be
operated.
Overview of the power plant
Location:
5-chome, Mukawame, Misawa City, Aomori Prefecture
Operator:
GP Energy A, GP Energy B, GP Energy C, GP Energy D (wholly owned units)
Premises:
153,000sqm
Capacity:
10MW
Feed-in tariff:
JPY36/kWh (before tax; fixed for 20 years)
Revenue:
JPY390mn a year (estimate)First year output:
10,852,814 kWh (estimate)

On March 24, 2015, the company announced the start of electricity sales at its solar park in Sodegaura(Chiba Prefecture).
The company launched electricity sales on March 24, 2015, after connecting to the Tokyo Electric Power(TEPCO) grid. The company does not expect this to have any material impact on earnings results for
FY03/15.
Overview of the Sodegaura solar park
Name:
Sodegaura Hayashi Power Plant
Footprint:
Approx. 15,000sqm
kW output:
Approx. 1,300kW
Feed-in tariff:
JPY36/kWh (pre-tax; fixed for 20 years)
Expected revenue: Approx. JPY60mn per year from the sale of electricity(cumulative total for 20 years: JPY1.2bn).

For corporate releases and developments more than three months old, please refer to theNews and topics section.

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Trends and outlook
Quarterly trends and results
Quarterly Performance (cumulative)

FY03/14

FY03/15

FY03/15(JPYmn)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

% of FY Est.

Sales

914

1,820

2,738

4,171

835

1,924

3,101

5,095

101.8%

YoY

23.9%

14.5%

7.8%

13.6%

-8.7%

5.7%

13.3%

22.1%

FY Est.
5,004
20.0%

Gross Profit

253

547

848

1,198

261

617

996

1,479

YoY

51.0%

35.7%

15.1%

14.3%

3.0%

12.8%

17.4%

23.4%

GPM

27.7%

30.0%

31.0%

28.7%

31.2%

32.1%

32.1%

29.0%

164

332

532

721

204

405

624

947

YoY

10.2%

7.3%

9.7%

6.8%

24.0%

22.0%

17.4%

31.4%

SG&A / Sales

17.9%

18.2%

19.4%

17.3%

24.4%

21.0%

20.1%

18.6%

Operating Profit

89

215

317

477

57

212

372

531

371.9% 129.2%

25.6%

27.8% -35.8%

-1.3%

17.6%

11.3%

9.8%

11.8%

11.6%

11.4%

6.9%

11.0%

12.0%

10.4%

95

219

319

478

56

210

364

514

YoY

847.7% 163.0%

32.3%

27.6% -40.8%

-4.1%

14.2%

7.5%

RPM

10.4%

12.0%

11.6%

11.5%

6.8%

10.9%

11.7%

10.1%

90

191

305

436

26

120

261

427

939.0% 108.7%

23.2%

28.5% -71.1% -36.9% -14.5%

-2.2%

4.2%

10.5%

11.1%

10.5%

8.4%

9.1%

SG&A Expenses

YoY
OPM
Recurring Profit

Net Income
YoY
Net Margin

9.8%

Quarterly Performance

3.1%

FY03/14

6.3%

8.4%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Sales

914

906

918

1,433

835

1,089

1,178

1,993
39.1%

YoY

23.9%

6.3%

-3.4%

26.7%

-8.7%

20.1%

28.3%

Gross Profit

253

293

301

350

261

356

379

482

YoY

51.0%

24.7%

-9.6%

12.2%

3.0%

21.3%

25.8%

37.8%

GPM

27.7%

32.4%

32.8%

24.4%

31.2%

32.7%

32.2%

24.2%

164

167

200

190

204

201

220

323

YoY

10.2%

4.5%

14.1%

-0.7%

24.0%

20.0%

9.7%

70.5%

SG&A / Sales

17.9%

18.5%

21.8%

13.2%

24.4%

18.5%

18.6%

16.2%

Operating Profit

89

126

101

161

57

155

160

159

68.0% -35.9%

32.5% -35.8%

23.2%

57.6%

-0.9%
8.0%

YoY

371.9%

OPM

9.8%

13.9%

11.0%

11.2%

6.9%

14.2%

13.6%

95

124

100

159

56

154

154

150

Recurring Profit
YoY

847.7%

69.1% -36.6%

19.1% -40.8%

24.1%

54.5%

-6.1%

RPM

10.4%

13.7%

10.9%

11.1%

6.8%

14.1%

13.1%

7.5%

90

101

114

131

26

94

141

166

22.0% -26.8%

42.6% -71.1%

-6.6%

22.9%

26.6%

11.1%

9.2%

3.1%

8.7%

11.9%

8.3%

Net Income
YoY

939.0%
9.8%

Net Margin

517
8.4%
10.3%

101.4%

507
6.0%
10.1%

93.9%

455

FY03/15(JPYmn)

SG&A Expenses

102.8%

12.5%

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

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Segment Breakdown (cumulative)

FY03/14

FY03/15(JPYmn)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Sales

914

1,820

2,738

4,171

835

1,924

3,101

5,095

YoY

23.9%

14.5%

7.8%

13.6%

-8.7%

5.7%

13.3%

22.1%

692

1,382

2,235

3,230

777

1,741

2,748

3,401

-0.1%

-2.5%

-2.7%

2.3%

12.2%

26.0%

22.9%

5.3%

222

415

467

890

33

137

293

1,606

- 320.9% 179.1% 101.8% -85.2% -67.0% -37.1%

80.4%

Electronics and Telecoms Equipment
YoY
Solar System Sales
YoY
Solar Power Plant Operations
YoY
Geothermal Power Plant Operations

23

36

52

25

45

60

88

-

-

-

-

-

93.3%

63.9%

70.7%

-

-

-

-

-

-

-

-

89

215

317

477

57

212

372

531

371.9% 129.2%

25.6%

27.8% -35.8%

11.3%

Operating Profit
YoY-

Electronics and Telecoms Equipment
YoY
Solar System Sales
YoY
Solar Power Plant Operations
YoY
Geothermal Power Plant Operations
Total
Adjustments

-1.3%

17.6%

82

188

327

480

93

257

435

467

88.6%

26.8%

3.9%

28.1%

13.7%

36.8%

33.0%

-2.7%

25

48

32

51

-10

-6

-19

112

-

-

-

-5.5%

-

-

-8

-14

-21

-20

10

16

16

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

99

222

338

512

93

268

432

602

-10

-7

-22

-35

-36

-55

-60

-70

FY03/14Segment Breakdown (quarterly)- 118.6%
22

FY03/15(JPYmn)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Sales

914

906

918

1,433

835

1,089

1,178

1,993

YoY

23.9%

6.3%

-3.4%

26.7%

-8.7%

20.1%

28.3%

39.1%

692

690

853

994

777

964

1,007

652

-0.1%

-4.7%

-3.2%

16.0%

12.2%

39.8%

222

193

52

424

33

104

Electronics and Telecoms Equipment
YoY
Solar System Sales
YoY- 144.4% -24.6%

Solar Power Plant Operations
YoY
Geothermal Power Plant Operations
Operating Profit
YoY
YoY

23

13

15

-

-

-

-

YoY
Solar Power Plant Operations
YoY
Geothermal Power Plant Operations
Total
Adjustments

1,313

25

20

14

28

- -14.2%

10.1%

86.8%

-

-

-

-

-

-

-

-

89

126

101

161

57

155

160

159

32.5% -35.8%

68.0% -35.9%

82
88.6%

Solar System Sales

157

54.6% -85.2% -46.0% 202.4% 209.8%-

371.9%

Electronics and Telecoms Equipment

18.0% -34.4%

23.2%

57.6%

-0.9%

153

93

164

178

32

1.3% -16.5% 156.1%

13.7%

54.5%

-10

5

106

139

25

23

-

-

-15

19

-8

-6

-8

1

10

6

-

-

-

-

-

-

- -77.4%- -79.4%

27.9% -79.0%
-13

131

- 590.8%-07- 349.3%

-

-

-

-

-

-

-

-

99

123

116

173

93

175

165

169

-10

3

-15

-13

-36

-20

-5

-10

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

FY03/15 results (announced May 13, 2015; see preceding table)
Sales:
Operating profit:

JPY5.1bn (+22.1% YoY)
JPY531mn (+11.3%)

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Recurring profit:
Net income:

JPY514mn (+7.5%)
JPY427mn (-2.2%)

Electronics and Telecoms Equipment
Orders:JPY3.2bn (-7.8% YoY)
Sales:
JPY3.4bn (+5.3%)
Operating profit:
JPY467mn (-2.7%)
Mobile telecom providers increased their investments in wireless facilities at the beginning of 2H. However,they changed construction plans during Q4.
The company sought to win new orders in the area of 3.9-generation mobile facilities, defense facilities,
and public wireless facilities. The company at the same time installed a new high-definition monitoring
system for use at its group solar-power plants.
Solar System Sales
Orders:JPY1.7bn (+102.8% YoY)
Sales:
JPY1.8bn (+101.8%)
Operating profit:
JPY112mn (+118.6%)
The company streamlined its operations and expanded sales reach to all parts of the country.
Solar Power Plant Operations
Sales:
JPY87mn (+70.7% YoY)
Operating profit:
JPY22mn (operating loss of JPY19mn a year earlier)
Sales of electricity at the Shimonoseki solar park were in line with targets. Plants in Tateyama andSodegaura (both in Chiba Prefecture) began operations in February and March 2015.
Geothermal Power Plant Operations
This segment was created during FY03/15. The company is preparing to start operations of geothermal
power plants during FY03/16. No sales were recorded, and operating loss was zero.

Q3 FY03/15 results (announced February 13, 2015)
Sales:
Operating profit:
Recurring profit:
Net income:

JPY3.1bn (+13.3% YoY)
JPY372mn (+17.6%)
JPY364mn (+14.2%)
JPY261mn (-14.8%)

Net income declined year-on-year because robust revenues in recent years eliminated losses carriedforward at subsidiaries, meaning income tax returned to a normal level.
Electronics and Telecoms Equipment
Orders:JPY2.7bn (-4.9% YoY)
Sales:
JPY2.7bn (+22.9%)
Operating profit:
JPY435mn (+33.0%)
Operating profit exceeded the company’s initial full-year forecast of JPY370mn.

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Mobile telecoms companies changed construction plans, resulting in lower orders year-on-year, but arecovery has been underway beginning in 2H FY03/15. According to the company, some sales to mobile
telecoms companies were brought forward to Q3, meaning sales are unlikely to increase year-on-year in
Q4. Public expenditure on defense facilities and public wireless facilities continued.
Tamagawa secured orders in its new business, testing equipment for power semiconductors. It expects toreport sales in FY03/16. The company also promoted its new optical transmission device forhigh-definition video to companies that plan exhibitions, nursing facilities, and security companies, as partof its focus on winning orders in this business.
Solar System Sales
Orders:JPY1.5bn (+107.5% YoY)
Sales:
JPY293mn (-37.1%)
Operating loss:
JPY18mn (operating profit of JPY32mn in Q3 FY03/14)
Although the company worked to make sales operations more efficient, there were shipment delays asclients pushed back construction commencement dates. Sales and profits were down year-on-year as aresult.
Initial forecasts called for full-year segment sales of JPY1.0bn and operating profit of JPY104mn. As of Q3,
the company has achieved 28.8% of its sales target, and has booked an operating loss. According to thecompany, it may still achieve its targets due to the division and sale of solar parks in Q4 (January to March
2015). Specifically, the company expects to book sales of about JPY900mn and operating profit of about
JPY90mn from the division and sale of solar parks in Yokohama (Kanagawa Prefecture), Kagoshima
Prefecture, and Nagasaki Prefecture, after having first bought the land and constructed the facilities.
Solar Power Plant Operations
Sales:
JPY59mn (+63.8% YoY)
Operating profit:
JPY15mn (operating loss of JPY21mn in Q3 FY03/14)
Sales of electricity at the Shimonoseki solar park were in line with targets, yielding higher sales and profits
year-on-year.
The company expects to complete construction on a 2.0MW output solar park in Tateyama (Chiba
Prefecture) and a 1.3MW output solar park in Sodegaura (Chiba Prefecture) during this year, FY03/15.
Geothermal Power Plant Operations
Newly established during Q3 FY03/15, this segment is working to commence operations of geothermal
power plants as soon as possible. No sales were recorded, and due to miscellaneous expenses, thecompany booked an operating loss of JPY0mn for the segment.
The company also plans to construct a geothermal power plant across seven plots in Beppu (Oita
Prefecture) with a total output of about 875kW. According to the company, this is equivalent to a solarpark with an output of about 7MW, as each geothermal plot of 125kW or so provides the same amount ofelectricity as a solar power plant with an output of about 1MW. The company plans to bring the newfacility online in FY03/16, and is targeting electricity sales of about JPY250mn per year.

1H FY03/15 results (announced November 12, 2014)
Sales:
Operating profit:

JPY1.9bn (+5.7% YoY)
JPY212mn (-1.3%)

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Recurring profit:
Net income:

JPY210mn (-4.1%)
JPY120mn (-36.9%)

Electronics and Telecoms Equipment
Orders:JPY1.8bn (+8.3% YoY)
Sales:
JPY1.7bn (+26.0%)
Operating profit:
JPY257mn (+36.8%)
In Q1 FY03/15 (April-June), mobile telecoms companies changed construction plans, resulting in a slow
start for base station-related capex. But orders began growing year-on-year in Q2 (July-September), andoverall base station-related sales for 1H were up 11.2% YoY. Sales related to public expenditure for
defense facilities and public wireless facilities were up 52.1% and 16.3% YoY, respectively. The company’s
focus on proposals for high-end products paid off, as these high-margin products contributed JPY696mn
to sales (+67.7% YoY).
Demand related to fire trucks and regional disaster prevention wireless systems also contributed to
growth in public wireless facilities-related sales.
R&D spending increased by JPY46mn YoY to JPY105mn, resulting in a 1.7pp drop in segment OPM, to11.9%.
Solar System Sales
Orders:
JPY152mn (-58.4% YoY)
Sales:
JPY136mn (-67.0%)
Operating loss:
JPY5mn (operating profit of JPY47mn in 1H FY03/14)
Although the company worked to make sales operations more efficient, there were shipment delays asclients pushed back construction commencement dates.
Solar Power Plant Operations
Sales:
JPY45mn (+93.2% YoY)
Operating profit:
JPY16mn (operating loss of JPY13mn in 1H FY03/14)
Sales of electricity at the Shimonoseki solar park were in line with targets.

Q1 FY03/15 results (announced August 11, 2014)
Sales:
Operating profit:
Recurring profit:
Net income:

JPY835mn (-8.7% YoY)
JPY57mn (-35.8%)
JPY56mn (-40.8%)
JPY26mn (-71.1%)

Operating profit fell as solar system sales dropped YoY and SG&A expenses increased due to higher costs
for strengthening compliance and fundraising.
Electronics and Telecoms Equipment
This segment saw delayed capex spending from mobile telecoms companies as construction plans werereevaluated for base stations, while public expenditure for defense facilities and public wireless facilities
continued. Orders received totaled JPY779mn (+2.8% YoY), sales were JPY776mn (+12.2%), andoperating profit was JPY92mn (+13.7%).
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2014 trade fair, held in May 2014. Tamagawa said that inquiries about its products from new clients andsectors have increased following the exposition.
Solar System Sales
Although the company worked to make sales operations more efficient, there were shipment delays due
to construction commencement dates being pushed back. More application for equipment approval, due
to a revision in feed-in-tariffs and the consumption tax hike, meant grid-connection to electric powercompanies was prolonged. As a result, orders received were JPY141mn (-21.2% YoY), sales were
JPY32mn (-85.2%), and operating loss was JPY10mn (operating profit of JPY25mn in Q1 FY03/14). The
company expects to book sales in FY03/15 without the prolonged grid connection that affected sales thisquarter.
Solar Power Plant Operations
Sales of electricity at the Shimonoseki solar park were strong and proceeded according to plans. For thesegment overall, sales were JPY25mn (no sales recorded in Q1 FY03/14) and operating profit was
JPY10mn (operating loss of JPY7mn in Q1 FY03/14).

For details on previous annual results, please refer to the Historical financial statements
section.

Full-year (FY03/16) outlook
FY03/16 Forecast(JPYmn)Sales
CoGS
Gross Profit
GPM
SG&A
SG&A/Sales
Operating Profit
OPM
Recurring Profit
RPM
Net Income
Net Margin

1H Act.
1,924
1,307
617
32.1%
405
21.0%
212
11.0%
210
10.9%
120
6.3%

FY03/15
2H Act.
3,171
2,309
862
27.2%
543
17.1%
319
10.1%
304
9.6%
307
9.7%

FY Act.
5,095
3,616
1,479
29.0%
947
18.6%
531
10.4%
514
10.1%
427
8.4%

FY03/16
FY Est.
5,600～7,300

590～850520～790400～570-

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

FY03/16 forecast
Sales:
Operating profit:
Recurring profit:
Net income:

JPY5.6bn to JPY7.3bn (+11.0–43.8% YoY)
JPY590mn to 850mn (+11.2–61.2% YoY)
JPY520mn to 790mn (+2.0–53.7% YoY)
JPY400mn to 570mn (-5.6–34.9%YoY)

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Long-term outlook
In April 2013, Tamagawa announced its medium-term plan effective through FY03/18. The plan called forsales of JPY10.0bn, an operating profit margin of 20% and ROE of 20%. The company has not announced
any medium-term plans since then. Given the changes that have occurred since the time of thatannouncement—business environment fluctuations, growing revenue opportunities and revised
fundraising conditions—Shared Research believes Tamagawa is on track toward its targets. For FY03/17,
we expect Tamagawa to generate sales of JPY9.0bn, recurring profit of JPY1.6bn and net income of
JPY1.0bn.
Tamagawa expects several factors to drive earnings growth: higher sales from the Electronics andTelecoms Equipment segment; sales of electricity from solar and geothermal power plants that currently
are or will become operational; and the partial or entire sale of some of its solar power plant equipment
and geothermal power plants. Shared Research’s forecast does not take into account profits on the sale ofsolar modules in the Solar System Sales segment, as such sales are provisional.
Long-Term Outlook(JPYmn)Electronics and Telecoms Equipment
YoY
Sales

Renewable Energy

FY03/16
SR Est.

FY03/17
SR Est.

3,420

3,700

4,300

5.9%

8.2%

16.2%

1,584

1,800

4,800

68.2%

13.6%

166.7%

Group Total

5,004

5,500

9,100

YoY

20.0%

9.9%

65.5%

YoY

Electronics and Telecoms Equipment
YoY
Operating
ProfitFY03/15
CE

Renewable Energy
YoY

465

400

430

-3.2%

-14.0%

7.5%

129

400

1,150

308.7%

210.1%

187.5%

Group Total

517

800

1,580

YoY

8.4%

54.7%

97.5%

Net Income

455

640

1,030

YoY

4.2%

40.7%

60.9%

Source: Company data
Figures may differ from company materials due to differences in rounding methods.
Renewable Energy includes solar system sales, solar power plant, and geothermal power generation operations.

Electronics and Telecoms Equipment
Since Masanori Kobayashi—CEO of Tamagawa Electronics—became a director at Tamagawa Holdings inJune 2011, the plan has been to exit unprofitable projects, strengthen R&D, and launch new products to
expand sales, while stepping up sales of more profitable Tamagawa-brand products. The company
anticipates higher demand for devices used in mobile telecoms base stations, alongside devices for
defense, disaster prevention, and environmental analysis:
 Mobile network operators (MNOs) are likely to accelerate base station upgrades as they launch
LTE-Advanced high-speed data transmission services around 2016. The company’s partnership withAce Technologies has enabled mass production, short lead times, and large-lot production of low cost
components. According to the company, in preparation for the 2020 Tokyo Summer Olympics there is
expected to be an increase in demand, driven by demand for small-cell infrastructure that can handle

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high-speed data traffic.
 Tamagawa expects demand to rise in connection with high-frequency wireless technology applications
in new areas. Demand is growing in Japan’s defense systems industry as ongoing territorial issues
increase the need for high-definition-image coastal monitoring. In this context Tamagawa wants todevelop millimeter-wave radio and signal processing systems.
 To harness growing demand for environmental measurement systems, the company plans toaccelerate development of its own products used for detection and analysis of airborne pollen, loessparticles (carried by the jetstream from the Yellow River region of China), fine particulates (PM2.5) andradioactive contamination. In line with achieving profitability at subsidiary Tamagawa Electronics, thecompany increased investments in R&D. As a result, a solid framework for new product proposal anddevelopment has emerged, pushing up the sales composition of internally developed products.
Products developed in-house accounted for 30% of sales in FY03/13 and 40% in FY03/14; thecompany aims to increase this figure further, to over 40% during FY03/15.
In March 2015, Tamagawa plans to establish a second-tier subsidiary in Vietnam, Tamagawa Electronics
Vietnam Co., Ltd. The company intends to sell quality products for lower prices by manufacturing highfrequency devices. It projects capex of about JPY25mn related to this initiative, plus the cost of leasing
land and buildings for a manufacturing plant in Vietnam in an industrial park for Japanese companies.

Solar Systems Sales
In June 2014, payment was not made by Ise Foods Inc. president and chairman Hikonobu Ise for a third
party share issuance, rights to these shares were forfeited. As a result, a business and capital alliance
between the company, Hikonobu Ise, and Yukihiro Akimoto, president of Retail Branding Co., Ltd. wascanceled. The agreement was planned to allow for development of solar power generation facilities onland owned by Ise Foods. However, in the same month, Tamagawa Holdings entered into a business andcapital alliance with Ise Power, for which Yukihiro Akimoto serves as president, and Hikonobu Ise serves
as chairman. Ise Power plans to develop solar power generation facilities on land owned by Ise Foods,
and Shared Research believes that this agreement will allow for the company to be a supplier of solar
power equipment.
Ise Power has applied for a feed-in tariff rate of JPY36 / kWh, and its renewable power generation
facilities have been approved by the Ministry of Economy, Trade and Industry. Locations that have been
approved for development for sale of electricity to power companies span 27 locations in 10 prefectures,for a total land area of up to 1.4mn sqm. This will allow for installation of solar power generationequipment capable of generating up to 76.5MW of power. Additionally, 30 other locations are currently
pending approval at a feed-in tariff rate of JPY32 / kWh.
Shared Research thinks that sales of Solar Power Systems resulting from the alliance with Ise Power will
be a significant contributor to earnings results for Tamagawa Holdings from FY03/16 onward.
Ise Foods Inc. was founded in 1914 and is the largest producer of chicken eggs in Japan. It is also the largest
producer of chicken eggs on the east coast of the US, and is expanding operations on the west coast as well.

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Solar Power Generation
Generating capacity of solar power plants
As of November 2014, the company’s solar power facilities, including those already in operation andplanned facilities on secured land, had a combined generating capacity of 11.4MW (see “Solar power
plant generation in Business section”). According to the company, starting with the Tateyama, Chiba plant,
it has pushed up the internal rate of return (IRR) on solar power systems by acquiring and building themthrough leases. The average IRR on these plants is 13.4%, and the average net present value of expected
future cash flows is JPY3.2bn.
In December 2014, Tamagawa acquired from ISE Power the rights to produce power in the city of Misawa,
Aomori Prefecture, reaching a decision to build and operate a solar power plant there. When operationscommence in March 2016, Tamagawa expects the Misawa power plant to have around 10MW ofgeneration capacity, adding some JPY390mn to annual earnings.
The company is also negotiating and investigating the construction of 15 more solar power plants asshown in the table below, with total potential capacity of 61.6MW (including 43.6MW already approved forgrid connection by power companies). These projects are yet to be confirmed, and potential capacity willvary depending on negotiations with land owners and the size of investments available to the company.
Per Tamagawa’s calculations, the total net present value of future cash flows (after subtracting
Tamagawa’s investment) from all potential projects is JPY14.3bn.
Tamagawa Holdings potential power plants
RegionPowerplantsAvg.
feed-in-tariff(JPYmn)(JPYmn)Kyushu

5

34

1.8

583

116

436

320

East Japan

3

38.0

21.7

8,325

1,655

6,850

5,185

Central Japan

6

33.6

14.1

4,878

975

4,920

3,945

North Japan

1

36.0

24.0

8,975

1,791

6,620

4,829

Total

15

36.1

61.6

22,743

4,548

18,82914,280(JPY)

Capacity

Capex(MW) (JPYmn)

Tamagawa's PV of future
investment
cashflows

NPV of future
cashflows(JPYmn)Source: Company data

Improving fundraising
Shared Research thinks that the recent trend of looser lending restrictions by financial institutions willallow the company to readily expand its solar power generation business.
According to the company, lending from financial institutions has shown improvement since FY03/14, due
to a recovery in earnings at subsidiary Tamagawa Electronics and solid results from the Shimonoseki Solar
Power Plant. Borrowing activity included a loan of JPY200mn from Chiba Bank for long-term operating
expenses and a JPY200mn loan from Resona Bank (subsidiary of Resona Holdings, Inc.; TSE1: 8308) for
short-term operating expenses. Development is also progressing for a 2MW solar power plant currently
scheduled to begin operation in February 2015 in Tateyama City, Chiba. For solar power generation
systems to be used at this facility, the company entered into a lease agreement with Ricoh Leasing Co.,
Ltd. (TSE1: 8566) in the amount of JPY901mn.
In December 2014, Tamagawa announced plans to issue share options in January 2015 for allocation to
Macquarie Bank Limited. The company expects to raise JPY2.2bn, which it will invest in projects such as
the Misawa power plant.

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Geothermal power generation business
Geothermal power generation
Geothermal power generation involves using steam and hot water produced under the earth’s surface todrive steam turbines connected to electricity generators. This type of generation produces less carbon
dioxide than thermal power stations. Another advantage is that geothermal generation is not affected by
the depletion or rising prices of fuel, and it can be used in perpetuity. Geothermal generation also provides
stable power; it is not affected by the weather, seasons, or day/night fluctuations like other major
renewable energy sources such as solar and wind power.
The two main methods of geothermal power generation are steam and binary generation.
 Steam generation: With this method, turbines are driven directly by natural steam at temperatures of
200–300C or more. Subterranean water at high temperatures and pressures is dominated by either
steam or hot water. With the former, moisture can be easily removed and the dry steam routed toturbines to generate electricity. If the source is dominated by hot water, the fluid is first run through aflasher, which separates the steam from the hot water. In a double-flash cycle, turbines are driven byboth high- and low-pressure steam.
 Binary generation: This method is used when hot water and steam temperatures are 150C or less, andthus cannot drive turbines directly. Heat is exchanged from the geothermal fluid to a medium that has
a lower boiling point than water (such as a water/ammonia mixture), and steam from that medium
drives turbines to generate electricity.
Feed-in tariff system for geothermal power generation
Under the FY 2014 feed-in tariff system, the price for electricity produced by solar power plants is JPY32
per kilowatt and the purchase period is 20 years (consumption tax not included for 10kW or more). In
contrast, the price for electricity produced by geothermal power plants is JPY40 per kilowatt and thepurchase period is 15 years (consumption tax not included for 15,000kW or less).
Beppu geothermal power plant
Tamagawa made the decision in December 2014 to begin a geothermal power generation business. The
company is building a binary generation plant in the city of Beppu, Oita Prefecture that uses a nearby
spring as its hot water source. The Beppu geothermal power plant, slated to generate 125kW of power
and involve capex of JPY200mn, is scheduled to commence operations in August 2015. According toTamagawa, the new plant should have generation capacity equivalent to a 1MW solar power plant andproduce an internal rate of return (IRR) of around 16%. This figure is high compared with its average IRRof around 13% for solar plants currently in operation and those that have been sited.
This development is the first instance of a listed Japanese company entering the geothermal power
generation business since the feed-in tariff system went into effect in July 2012 with the promulgation of
the Act on Special Measures Concerning Procurement of Renewable Energy by Operators of Electric
Utilities. Tamagawa plans to leverage its first-mover advantage and apply the expertise it gains to develop
the business further.
The company will spend JPY92mn to start this business. This outlay will go to build generation facilities for
the Beppu geothermal power plant, install pipes, acquire rights to the power source and purchase land. In
December 2014, Tamagawa announced plans to allocate warrants to Macquarie Bank Limited in January
2015. Part of the JPY2.2bn it raises with this issue will go toward investment in the geothermal power
generation business.

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Business
Business description
Tamagawa has two business segments: 1) Electronics and Telecoms Equipment business, which it has
been involved in since the founding of consolidated subsidiary Tamagawa Electric Co Ltd in 1968; and 2)
Solar Business, launched in FY03/12. In Q1 FY03/14 Tamagawa divided the Solar Business into Solar
Power Plant operations and Solar Systems Sales.
Earnings by segment

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

Act.

Act.

Act.

Act.

Act.

Act.

3,248

2,709

2,390

2,406

3,156

3,230

YoY

-14.2%-16.6%-11.8%

0.7%

31.2%

2.3%

Components

75.6%

96.6%

90.5%

77.5%

85.9%

77.4%

Solar system sales(JPYmn)
Sales

Electronics and telecoms equipment

-

-

-

19

441

890

YoY

-

-

-

-

2215.0%101.8%

Components

-

-

-

0.6%

12.0%

21.3%
52

Solar power plant operations

-

-

-

-

-

YoY

-

-

-

-

-

-

Components

-

-

-

-

-

10.7%

Total
YoY
OP

FY03/14

Electronics and telecoms equipment

4,299

2,803

2,640

3,106

3,672

4,171

7.1%

-34.8%

-5.8%

17.7%

18.2%

13.6%

-162

-292

-236

63

375

480

YoY

-

-

-

-

497.4%

28.1%

Components

-

-

-

-

100.4%

100.7%

Solar system sales

-

-

-

-24

54

51

YoY

-

-

-

-

-

-5.5%

Components

-

-

-

-

14.5%

10.7%

-

-

-

-

-12

-20

-

-

-

-

-

58.3%

Solar power plant operations
YoY

-

-

-

-

-3.3%

-4.1%

Total

Components

-212

-290

-283

-9

387

512

Others

144

63

-6

-16

-11

-

Adjustments

-

-

3

-4

-2

-35

Consolidated

-68

-227

-286

-30

373

477

-

-

-

-

-

27.8%

YoY
Source: Company data

Figures may differ from company materials due to differences in rounding methods.
In FY03/14, the company changed segments to include solar system sales and solar power plant operations.

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Business segments
Electronics and Telecoms Equipment
77.4% of FY03/14 sales; 100.7% of FY03/13 operating profit
As some business segments have operating losses this segment accounts for over 100% of OP.
Since the founding of consolidated subsidiary Tamagawa Electric in 1968, Tamagawa has used its
high-frequency wireless technology to develop, manufacture and sell high-frequency devices (amplifiers,
attenuators, filters, distributors and frequency synthesizers). These products are used in wirelessequipment used in mobile telecoms base stations as well as in broadcasting and disaster prevention andfirefighting systems. High-frequency devices (circuits and measuring instruments) support an antenna’sradio wave transmissions by screening radio waves and adjusting signal intensity. They are physicallyconnected to cables.

Source: Company materials

According to Tamagawa high-frequency wireless is useful for data and video transmission as it uses
wide-band radio waves, enabling fast transmission. In recent years the share of digital technology intelecoms and broadcasting equipment has been rising. However digital is not suitable for some front-end
parts used for directly transmitting high-frequency signals. There is still a place for high-frequency analog
technology and Tamagawa specializes in analogue high-frequency technology. While many vendors,
including Tamagawa, are able to provide digital technology, few companies specialize in making
high-frequency analog technology products. Hence, Tamagawa occupies a niche with high market share.
Its market share in mobile telecoms base station parts stands at around 15%.
Mobile telecoms base stations: Mobile telecoms networks are built around wireless base stations, whichhave large antennas connected to wireless telecoms equipment joined to each other by fiber-optic and othercables. As mobile phone signals will only transmit over a limited range, operators create a honeycomb shaped
network by installing a large number of base stations throughout a service area. In 2013 Japan had 550,000
base stations per MCA Inc.

During FY03/14, approximately 44% of Electronics and Telecoms Equipment sales come from devices formobile telecoms base stations, about 28% from defense system-related sales, and 28% from devices forareas as government services, disaster management and terrestrial digital broadcasting. Tamagawa’s
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attenuators, which identify radio waves of certain frequencies from among the diverse range of radio
waves both transmitted and received by the antenna and amplify those specific radio waves.
Electronics and telecoms equipment sales by industry(JPYmn)FY03/13Total

FY03/14

3,155

3,233

1,924

1,422

YoY

-

-26.1%% of total

-

44.0%

Mobile telecoms

DefenseYoY% of total
Others (government etc.)

504

905

-

79.6%

-

28.0%

727

906

YoY

-

24.6%

% of total

-

28.0%

Source: Company data

About 60% of sales are custom orders for large electrical/electronics manufacturers, telecoms carriers
and broadcasters; 40% are own-branded products sporting wider gross profit margins. The segment’s
gross profit margins are higher for products produced in-house.
In the 1990s base station components sales saw strong growth as domestic carriers aggressively built
networks. Until 2005 Tamagawa tracked circa 30% market share. Thereafter foreign rivals with keen
pricing gained market share prompting Tamagawa’s growth to stall. The segment’s profitability recovered
once the company stopped accepting money-losing orders in FY03/12. The plan is to develop higher
value-added products to boost profitability.
Ace tie-up
In May 2013 Tamagawa unveiled an alliance with Ace Technologies Corp (Ace) of Korea, to market
high-frequency devices, antennas and peripheral equipment in Japan. Ace is a big manufacturer ofhigh-frequency devices and antennas, which are used a lot in Korea and Europe. Ace has several
subsidiaries in Guangdong, China, and can supply cost-competitive products quickly. Tamagawa’s quality
control experience and sales network in Japan, in tandem with Ace’s manufacturing knowledge, spells
cost competitiveness and potential market share gains. By using Ace’s manufacturing facilities, Tamagawa
says it is aiming to reduce production costs by 30%. From Q4 FY03/14, production outsourced from Ace
for mobile telecom base station filter components began, and the company said it is experiencing sales
growth on better pricing and wider margins.

Solar System Sales
21.3% of FY03/14 sales; 10.7% of FY03/14 operating profit
In July 2011 Tamagawa entered an exclusive agreement to sell the solar modules of GPPV Solar Pte Ltd(GPPV below), and began selling GPPV solar systems (The exclusive selling agreement was changed to aselling agreement in February 2014, in order to further the growth of both companies’ businesses).
Tamagawa’s solar power facilities:

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Souce: Company materials

In 2011 the company used the quality control methods it developed in its Tamagawa Electric Electronics
and Telecoms Equipment segment to improve, via installing EL testers for module inspection, GPPV’s
production lines. The sharing of images between Tamagawa and GPPV and inspecting all the products
enhanced product quality.
EL Tester: a method of using electroluminescence (EL) on solar battery cell modules, recording data andmeasuring with a camera to inspect for defects.

Tamagawa said that if a minute crack forms in a solar module cell during production, some years later thecrack will widen, denting efficiency. Better quality control at GPPV should reduce fade.
Through sales agencies the company provides customers with photovoltaic (PV) modules and power
conditioners. Where necessary the company also negotiates with electric utilities on behalf of customers
and assists with loan applications to financial institutions.
Regarding sales activities, the company has offices in Kyushu, Nagoya, and Tokyo, and has eight sales
employees as of December 2014.
Customers are primarily corporate clients that are existing customers or introduced from partner firms.
Most customers are debutants jumping on the bandwagon of the solar power build-up, supported by theJapanese government, which has a 20 year fixed rate guarantee for feed-in tariffs of solar power facilities
that generate 10kW or more. Other individuals and companies view solar power generation as a tax
conservation method, due to the generous deductions and instant depreciation available for suchdevelopments. In December 2012, the company formed a partnership with Goto city in Nagasaki

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Prefecture, based on which it is installed a solar park. This has led to an increase in inquiries from local
governments in surrounding areas.
In Japan contracts under the Feed-in Tariff (FIT, for details see later in report) scheme of the Ministry of
Economy, Trade and Industry (METI) oblige electric utilities to buy electricity generated using 10-kilowatt ormore solar power plants at a fixed price for 20 years. Prices and durations are revised every year. In 2014
(April 2013 – March 2014) the price of solar electricity was JPY36 (excluding tax) per kW for 20 years. Prices
for 2015 (April 2014 – March 2015) have been lowered to JPY32 (excluding tax) per kW. Generation facilities
must obtain FIT certifications from METI. If a solar power producer applies for Green Investment Tax
Incentives, related facilities can be fully depreciated immediately. The government also has similar
regulations in place for wind, hydroelectric, geothermal, and biomass generation.

The company sells solar systems for about JPY300,000 per kW of installed capacity. Sales are determinedby multiplying installed generating capacity (kW) by the price per kW of installed capacity. Solar systemgross profit margin is 15-25%.
In the solar system sales business, one risk is that the price paid under the FIT scheme will be cut, leading
to lower demand. Initial investments at solar parks enjoy economies of scale—a capacity increase does
not require a proportionate increase in upfront investment. Tamagawa thinks that even if the FIT pricewere to be lowered to JPY30.0 per kWh, the customer would still obtain an investment yield of at least
10.0%.
Specifically, at a price of JPY36.0/kWh (excluding tax; for projects that were approved between April 2013
and March 2014), annual electricity sales revenue from a 1MW plant is estimated at JPY40mn. As of
December 2013, the initial investment for a 1MW solar park is approximately JPY300mn, and based on
this figure, the investment yield is estimated at 13.3%. In contrast, the initial investment required for asolar park with a 1.2MW capacity is around JPY330mn, and even if the FIT were reduced to JPY30.0/kWh,the annual revenue would be JPY38mn, giving an investment yield of 11.5%.

Solar Power Plant Operation
10.7% of FY03/14 sales; operating loss of JPY20mn in FY03/14
The solar power plant operation business comprises solar power system sales and from FY03/14 theoperation of mega solar (power generation solar parks).
What is mega solar?
Mega solar refers to solar power stations of 1MW-plus. Since the start of the FIT scheme for renewableenergy in July 2012 it has been easier to secure profits, and a number of players from different sectors
have joined the fray. There is also a trend for local governments and private-sector businesses to join
forces and build mega solar businesses on vacant land. While output varies with the location and amountof sunlight, a 1MW mega solar plant typically generates a minimum of 1,000 MkWh per year. A normal
four-person household uses 5.5 MkWh per year; a 1MW mega solar plant can normally supply 300
households. Mega solar plants need land: a 1MW plant covers about 15,000 m2 (Tokyo Dome: 47,000m2).
To take advantage of the FIT scheme first the operator needs METI approval to certify that the generation
facilities comply with the law. The purchase price for power generated in the scheme depends on when
the facilities were certified rather than when operations started. Other than gaining licenses for thegenerating facilities and equipment, operators face no special requirements to qualify to sell all the

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renewable power they generate under FIT. While it is necessary to appoint a chief electrical engineer
company operators do not need to have electricity business experience.
Tamagawa’s solar power plant operating business
When Tamagawa was considering entering the mega solar business, in June 2012 it set up a planning
office and in September that year set up subsidiary GP Energy. Its first project—Shimonoseki power plantin Shimonoseki, Yamaguchi prefecture—began operations in June 2013.
Tamagawa operates mega solar power plants in this subsegment, forming special-purpose companies(SPC). The SPC buys or leases land on which it builds and runs solar power plants of 1MW-plus capacity.
The SPC scheme enables separate project financing, i.e., finance based on expected revenues for aparticular project. As of December 2014, Tamagawa HD had 10 subsidiaries responsible for running solar
power plants, GP Energy 1 Co., Ltd. through GP Energy 6 Co., Ltd. and GP Energy A, LLC through GP
Energy D, LLC.
The company said upfront investment in mega solar plants—covering PV modules, supporting structures,electrical facilities and labor—runs to JPY260–320mn per MW.
Electricity is sold to electric utilities. Revenue is selling price per kW multiplied by total amount ofelectricity sold. FIT defines electric utilities’ purchase prices as JPY40.0 (excluding tax) per kW forelectricity generated at facilities that were FIT-certified in 2012, JPY36.0 (excluding tax) for those certified
in 2013, and JPY32.0 (excluding tax) for those certified in 2014. Purchase duration is fixed at 20 years.
If a solar plant generating 1.0GW to 1.4GW of electricity per year was FIT-certified in 2012, electricutilities will buy electricity for JPY40 (excluding tax) per kW—implying revenues of JPY40mn. Weather andother factors impact the amount of power generated. Panel aging cuts output by 0.25-0.75% per year.
The main costs are depreciation, land rent, maintenance fees and insurance. Gross profit margins hoveraround 50% and the unlevered internal rate of return could be 9%.
Tamagawa’s solar power plants
As of November 2014, the company’s solar power facilities, including those already in operation andplanned facilities with secured land had a combined potential generating capacity of 11.4MW. Shared
Research estimates that revenue from the operating and planned plants will be around JPY515mn.
As of February 2015, the Shimonoseki and Tateyama (Chiba Prefecture) plants were in operation. The
company also plans to bring a 1.3MW solar park in Sodegaura (Chiba Prefecture) online in late March2015.
The company is also building a 1MW solar park in Minami Shimabara, Nagasaki Prefecture, and preparing
to begin construction of a 5.5MW solar park in Goto City, Nagasaki Prefecture, which it expects to begin
operations in Q4 FY03/16.
In addition, in December 2014 three Tamagawa subsidiaries acquired a power operator license in the cityof Misawa, Aomori Prefecture, from ISE Power. At the same time, Tamagawa announced plans to buildand operate the 10MW Misawa solar power plant. The company expects to begin selling electricity fromthe plant by FY03/16, contributing around JPY390mn to annual sales.

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Shimonoseki Solar Power Plant

Source: Company materials
Tamagawa Holdings solar power plants
Feed-in-tariff

Output
(MW)

Area
(sqm)

Completion Investment
date(JPYmn)Shimonoseki,
Yamaguchi

40.0

1.6

24,081Q1 FY03/13

440

77

Tateyama

Tateyama, Chiba

40.0

2.0

35,386Q4 FY03/15

637

96

Sodegaura

Sodegaura, Chiba

36.0

1.3

15,000Q4 FY03/15

488

56

Minamishimabara,
NagasakiMinamishimabara,
Nagasaki

40.0

1.0

12,000Q4 FY03/16

299

48

Goto Islands

Goto,
Nagasaki

36.0

5.5

100,000

Q4 FY03/16

-

238

Total

-

-

11.4

-

-

-

515

Completion Investment
date(JPYbn)Sales(JPYmn)Solar parks

Location

Shimonoseki

Sales(JPYmn)Source: Company data
Shared Research estimate for sales, based on annual electricity sales of 1,200MW per 1MW solar power facility.

Misawa power plant details
Solar park

Location

Misawa power plant

Misawa, Aoyama
Prefecture

Feed-in-tariff

Output
(MW)

Area
(sqm)

36.0

10.0

153,000

FY03/16

3.4

390

Source: Company data

Fundraising in solar power generation business
In November 2014 Tamagawa said that the number of potential projects was increasing. These plans arestymied by personnel constraints. For the five years from FY03/08 Tamagawa posted back-to-back net
losses, making debt funding difficult. To launch the mega solar business in January 2013 it raised

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JPY901mn (assuming all options exercised) via share placement and share option issuance. The company
is trying different operating models.
According to Tamagawa Holdings, it has an increasing number of financing options, owing to its twoconsecutive years of profitability as of FY03/14, and earnings results at the Shimonoseki solar power
plant.
Accordingly, in January 2014 the company took out a loan of JPY200mn from Chiba Bank for long-term
operating expenses. In March 2014, it took out another loan of JPY200mn for short-term operating
expenses from Resona Bank, followed by a June 2014 loan of JPY100mn from Higashi-Nippon Bank forlong-term operating expenses. Development is progressing on a 2MW solar power plant scheduled to
begin operation in February 2015 in the city of Tateyama, Chiba Prefecture. For solar power generation
systems to be used at this facility, the company has entered into a lease agreement with Ricoh Leasing in
the amount of JPY901mn. In December 2014, Tamagawa also announced plans to raise JPY2.2bn by
allocating share options to Macquarie Bank Limited in January 2015. These funds are earmarked forinvestments including the Misawa and Minamishimabara power plants indicated above.
Tamagawa is considering project finance and investment from sleeping partners. In June 2013 thecompany was certified as a qualified institutional investor.
Sales to power producers and suppliers
Tamagawa said it can sell its electricity to a new breed of electricity retailers called Power Producers andSuppliers (PPSs) at higher rates than it receives under FIT. Thus it wants to sell to PPSs.
Power Producer and Supplier (PPS): New entrants to the electricity market selling low price electricity
derived from other companies’ factories or generated in-house. They emerged following partial deregulationin 2000 when the sale of large lots of electricity in the retail market was liberalized.

Electric utilities buy renewable electricity as follows.
 The electric utility buys renewable electricity from the generating company at a fixed price set via FIT.
 The utility sells the electricity it has bought to the end user thereby receiving revenue, including arenewable energy levy based on the cost of buying the renewable electricity.
 The utility pays the renewable energy levy to an electric utilities’ expense coordinating body.
 The expense coordinating body distributes the renewable energy levy monies to the utilities inproportion to the amount of electricity they have bought.
 The money that the expense coordinating body distributes to the utilities is the difference between
what they paid to buy renewable electricity and their avoidable costs. For the electric utilities avoidable
cost is the actual expense of selling renewable electricity.
Avoidable costs: The costs that the electric utility did not incur because it did not generate a certain
amount of electricity which it instead bought under the FIT scheme.

Avoidable cost depends on how each electric utility calculates electricity charges. In financial 2013 thehighest was Tokyo Electric Power (TEPCO) at JPY9.98 per kWh and the lowest was Hokuriku ElectricPower at JPY4.37. Avoidable costs for the PPSs are a weighted average of the electric utilities where they
operate. The highest is equal to TEPCO’s JPY9.98. On the Japan Electric Power Exchange (JEPX, awholesale power market) the spot price of electricity was around JPY15 per kWh in May 2014. PPSs
arbitrage the difference between the spot price and avoidable costs. They make money by buying
renewable electricity from the generators under FIT and selling it on the JPEX.

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Strengths and weaknesses
Strengths
 Benefiting from stable demand the electronics business has regained competitiveness:
The company said it has regained its competitive edge in high-frequency devices. Selling higher
value-added products via original equipment manufacturer (OEM) channels and beefing up telecoms
and public (defense and disaster prevention) demand has borne fruit. In public demand a preference
for Japanese suppliers lends Tamagawa an advantage over overseas rivals. Restarting R&D and sellingunder its own brand should enhance earnings.
 Correct size and skills for solar success: Although Tamagawa is building its solar power
generation business from scratch it already has experience in solar installations and project financing.
It is listed and sports a profitable core business but given its modest size tackling small projects makes
sense. Tamagawa appears to have the qualities to attract partners. A big plus: the government
guarantees selling prices. If funding crystalizes watch for the solar parks to fuel earnings growth.
 Entrepreneurial management wants to rekindle investor trust: Shared Research flags aresolve to get it right this time. It has entrepreneurial energy although is aware of investor scepticism.
Liaising with investors and partners, Tamagawa wants to rebuild its image. According to the company,
investors appreciate its full disclosure.

Weaknesses
 Reputation: Tamagawa has a history of business failures. CEO Toru Masuzawa is the subject ofcontroversy. Masuzawa has been a defendant in a number of civil lawsuits relating to his time at J
Bridge, but asserts that he was a victim of circumstance, and will rebuild his reputation and prove his
management acumen. In addition to developing procedures to deal with reputational risk, in February
2014, the company established a compliance committee, and contracts with an outside legal firm foradvisory services.
 Shortage of manpower in Solar: The Solar Business had a staff of 67 as of December 2013. The
complexity of projects requires personnel with high entrepreneurship, strong motivation and expansive
knowledge from fundraising to electrical engineering. However, efforts to hire appropriate personnel
quickly may block sound corporate growth. Considering the downtrend in the feed-in-tariffs ofrenewable energy and limited business opportunities, this lack of human resources is concerning.
 Potential rate cuts for fixed-rate feed-in tariffs: It is Shared Research’s understanding that as of
May 2014, demand for solar power generation construction is a direct result of the fixed-rate feed-in
tariff system implemented from July 2012. However, the rate has been lowered each consecutive year,
and it is likely that demand for solar power generation construction will decline in the medium term.
According to the company, it will combat this issue by improving power conversion efficiency of its
solar cells and other components in an effort to continue providing benefits to consumers.

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Group companies
At end FY03/13 the group comprised Tamagawa Holdings Co Ltd and five consolidated subsidiaries.













Tamagawa Electronics Co Ltd (100%): electronic and telecoms equipment business.
Tamagawa Solar Systems (100%): solar system sales business.
GP Energy Co Ltd (100%): solar power plant business.
GP Energy 2 Co Ltd (100%): solar power plant business.
GP Energy 3 Co Ltd (100%): solar power plant business.
GP Energy 3-A Co Ltd (100%): solar power plant business.
GP Energy 5 Co Ltd (100%): solar power plant business.
GP Energy 6 Co Ltd (100%): geothermal power plant business.
GP Energy A LLC (100%): solar power plant business.
GP Energy B LLC (100%): solar power plant business.
GP Energy C LLC (100%): solar power plant business.
GP Energy D LLC (100%): solar power plant business.

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Market and value chain
Market overview
Wireless telecoms infrastructure
Smartphones and tablets are revolutionizing the wireless telecoms market. Smartphones
generate 10-20x as much data traffic as traditional mobile phones. As bandwidth-hungry content
mushrooms, data volumes swell. Dealing with the traffic surge is a pressing issue, creating demand for
network infrastructure that can handle serious data volumes and speeds. As of 2014, telecoms operators
have aggressively rolled out high-speed mobile services like LTE and WiMAX. Spectrum reallocation is
helping too. There is also a nationwide trend toward data offloading—using wi-fi and the like to funnel
data through the fixed-line network.
Mobile data traffic is forecast to grow by 20.8x from 2010 to March 31 2016 (1.84x per year on
average); traffic could swell by as much as 39.1x (2.08x per year). Source: Wireless LAN Business Study
Group Report, published in July 2012 by the Ministry of Internal Affairs and Communications. Who knows
whether network infrastructure will keep up? In LTE NTT DoCoMo (TSE1: 9437) had 24,400 base stations
by end FY03/14, and 55,300 at end FY03/14. By end FY03/15, it plans to increase this figure to 95,300.
KDDI Corp (TSE1: 9433) plans to increase its capital expenditures for mobile telecom equipment from
JPY344.3bn in FY03/14 to JPY380.0bn in FY03/15.

S ource: Industry materials, S R. Inc. Research

Beyond LTE the mobile phone carriers plan to commercialize LTE Advanced technology from 2015. This
may prompt further aggressive capex to keep smartphone addicts happy.
LTE Advanced
LTE Advanced is a fourth generation mobile telecoms standard recognized by the International
Telecommunication Union (ITU)*, offering higher speeds than LTE which has spread globally. Under
development, it aims at providing speeds of up to 1Gbps when the user is stationary and up to 100Mbps

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when moving on a train.
* In mobile and electronic telecoms the ITU aims to establish standards and regulations between countries.
Main activities: standardization, allocation of mobile spectrum and coordinating connections between
countries to enable international telephone calls.

Faster speeds under LTE Advanced will be attained by adding technical elements to existing LTE
technology. Two elements are key: upgrading the multiple-input and multiple-output (MIMO) technology
used in spatial multiplexing, and carrier aggregation to enable bandwidth expansion.
MIMO technology is used to increase the volume of data that can be handled at any one time by sending
different data packets and separating the mixed signals once received. In addition to the currently prescribed
2x2 MIMO and 4x4 MIMO, under LTE Advanced it will be possible to implement 8x8 MIMO using eight pairs ofantennas. The upshot: higher maximum transmission speeds. Under current LTE technology where MIMO is
not installed on the uplink side (sending data from the mobile device) it is handled by 2x2 MIMO and 4x4
MIMO.

It is Shared Research’s understanding that NTT DoCoMo’s current LTE network is composed mostly of 3Gbase stations that have been updated with LTE components. In contrast, new frequency allocations areplanned for the introduction of LTE Advanced, and this will require changes to base stations, including theantennas. In the long term, it is reasonable to think that demand for capital investment in mobile telecom
equipment will increase, with NTT DoCoMo leading the way for implementation of LTE Advanced.
On December 19, 2014, the Ministry of Internal Affairs and Communications announced the allocation of
3.5GHz bandwidth for the LTE-Advanced 4G mobile communications system to three companies: NTT
DoCoMo, KDDI and SoftBank Mobile. KDDI plans to begin service in the 3,520–3,560MHz band in June 2016,
NTT DoCoMo plans on 3,480–3,520MHz in October 2016, and SoftBank Mobile on 3,560–3,600MHz in
December 2016.

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Solar power market
Outlook for Japan’s solar power market
Fuelled by concerns over global warming and an escalating oil price, clean energy is in the spotlight.
Nuclear power from a safety perspective fails to live up to the clean energy label. A promising new energy
source is photovoltaic (PV) or solar generation, using solar cells to convert sunlight to electrical energy
without releasing CO2.
Underpinned by government policies promoting solar power in Japan, the number of solar power
installations is multiplying. However, according to the Ministry of Economy, Trade and Industry, theamount of electrical power produced by renewable sources in Japan in FY 2013, including hydroelectric,
was 10.7% of total power output, and solar power accounted for just 1.0% (0.2% during FY 2011; 0.4%
during FY 2012).
Approved by the Cabinet in April 2014, the new Strategic Energy Plan includes items such as maximizing
growth of renewable energy sources for three years after 2013, focusing on growth in the sector beyond
2016, and aiming to go above and beyond the measures outlined in the plan.
The existing Strategic Energy Plan, approved in August 2009, called for 13.5% (141.4bn kWh) of energy tocome from renewable sources by 2020. Additionally, the Advisory Committee for Natural Resources andEnergy published a recommendation in 2010 that 20% (214.0bn kWh) of energy come from renewablesources by 2030.

According to the JPEA PV Outlook 2030, published by the Japan Photovoltaic Energy Association (JPEA),
the amount of solar power generation capacity is estimated to reach 49GW by 2020, and 102GW by 2030.
Concerning early installation figures, 2014 is expected to be slightly higher than 2013, gradually tapering
off in subsequent years.
Japan’s policies to promote solar power
In the past, to promote the spread of renewable energy, electricity companies voluntarily bought such
power; the Renewable Portfolio Standard (RPS) Law and subsidy programs at the local government level
were also used. By 2004 Japan was number one in the world for installed solar cells. However after thesubsidy program operated by the New Energy Foundation was terminated in 2005 the domestic market
shrank.
Renewable Portfolio Standard (RPS) Law is the abbreviated name for a law enacted in Japan in June
2002—the Special Measures Law concerning the Use of New Forms of Energy by the Electric Power Industry.
The law was designed to promote the use of new energy by mandating minimum usage for electricity derived
from new energy sources by electrical utilities.

For this reason, based on an urgent proposal in January 2009, METI reinstated a subsidy program. In
February 2009 the Ministry of the Environment also announced estimates for the cost and economic
benefits of adopting renewable energy sources. As a promotion measure, the ministry proposed a feed-in
tariff (FIT) scheme, which commenced in November 2009 covering surplus power generated byhouseholds. The Act on Special Measures Concerning Procurement of Renewable Electric Energy by
Operators of Electric Utilities (abbreviated to FIT Act) was enacted in August 2011 and implemented inJuly 2012, and became fully eligible for the FIT scheme.
Feed-in Tariff (FIT) scheme
Under the FIT scheme, to promote the use of renewables, electric utilities are required to buy all the

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power generated by five types of renewable energy sources, including solar and wind. Solar power was
popular in Spain and Germany owing to a similar system. A high tariff is designed to stimulate thedevelopment of renewables. As of May 2014, surplus power from solar generated from sub 10kW systems
is bought under FIT and all power from solar power generated from systems over 10kW is bought under
FIT.
For less than 10kW solar power generated systems, the FIT scheme is applied, and surplus solar power
generated by households is sold to electric utility companies. When the scheme was launched in 2009, thefeed-in tariff for surplus power was JPY48/kWh. The tariff remains fixed for 10 years from installation of
the solar power system. The scheme envisages annually lowering the tariff for newly installed generation
capacity. As of May 2014 the FIT for new installations was JPY37/kWh (excluding tax).
Separate from the surplus power FIT scheme (net metering), a different scheme covering all power
generated by a renewable electricity producer has also been established. This scheme enables producers
to sell all power generated regardless of their own consumption. In Japan, a FIT scheme for over 10kW
capacity was launched in July 2012. FIT tariff rates for 2012 were JPY40 (excluding tax) per kWh, andpower companies are required to purchase power at this rate for 20 years. Prices have since been pushed
down, with the rate being JPY36 (excluding tax) per kWh in 2013 to JPY32 (excluding tax) per kWh in
2014.
The tariff and purchase period set under the FIT schemes are set each year by METI before the start of
the financial year. The minister is required to take into account the opinions of a neutral, third-party
committee (Feed-in Tariff Calculation Committee), which conducts public deliberations. To promote solar
power supplementary provisions, the law requires power producer profits to be taken into consideration
when determining the feed-in tariff for three years from the start of the scheme. The cost of purchasing
power is recouped by utilities as an extra amount on electricity charges. However when the minister sets
the feed-in tariff he is required to ensure that the extra charge is not excessive.
In the case of solar power the FIT for commercial solar power systems with a capacity of 10kW or more
in FY03/13 was JPY40/kWh (excluding tax) but in FY03/14 this was reduced to JPY36.0/kWh (excludingtax) and further in FY03/15 to JPY32.0/kWh. The Feed-in Tariff Calculation Committee proposal
accounted for a range of conditions and set a level that would let producers get a 6% IRR. This was in linewith the law, providing for higher returns in the scheme’s first three years—meaning IRR is set 1-2%
above the normal level.
Solar power (10kW or more)
FY03/13

FY03/14

40.0

36.0

32.0

325,000

280,000

275,000

1,500

1,500

4,000

150

150

150

Maintenance cost

1.6% of construction cost

1.6% of construction cost

General expenses

FIT

Price before tax (JPY)

Capital cost

System unit cost (JPY/KW)
Land modification cost (JPY/KW)

Annual running costs

Land leasing fees (JPY/sqm)

14% of maintenance cost

14% of maintenance cost

Labor expenses

JPY3.0mn

JPY3.0mn

Internal rate of return (IRR) (before tax)

6.0%

6.0%

FY03/15

JPY8,000/KW
6.0%

Source: Feed-in Tariff Calculation Committee
System unit costs includes solar panels, power conditioners, installation, and construction expenses

Risk of abolishing FIT
Spain’s solar bubble in 2007 was caused by its feed-in tariffs (FIT) policies. The purchase price of power

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was significantly increased to promote solar power. Subsequently Spain’s government changed its policy.
It cut the purchase price, set a purchase ceiling, established a purchase price limit, shortened thepurchase time period and eliminated subsidies, both retroactive and future. This precipitated a big decline
in the number of solar power users.
In 2001 the EU adopted a directive to promote renewable energy and Spain issued new measures in both2004 and 2007 to boost renewable energy. Measures introduced in 2007 focused on the purchase period
for FIT, set at 25 years. The purchase price was set to ensure a 17% IRR, and the annual purchasedvolume of solar power was increased to 2,708 MW in 2008 from 102MW in 2006. As a result solar capacity
significantly overshot the government’s target. Transmission companies posted big losses owing to thehigh cost of electricity, prompting the government in September 2008 to cut the fixed rate for solar power.
In 2009 the bubble burst for Spain’s solar power market, with new installations collapsing to 17 MW.
Japan’s FIT scheme is set at a sensible level, with the purchase period set at 20 years and the purchaseprice set for a 6% IRR. This is much lower than it was in Spain. Even taking into account a possible
reduction in the purchase price for the FIT scheme, which is required following the third year since
implementation in 2015, Japan’s demand for solar power is unlikely to mirror Spain’s experience.
In Germany, the government introduced in 2000 the Renewable Energy Law to develop its solar power
market. Electric utility companies are required to buy all the solar power produced at a fixed price for 20
years. Hence solar equipment sales took off and installed capacity was the highest in the world in 2005. Alarge amount of equipment continued to be installed, reaching 31% (approximately 32GW) of theworldwide total in 2012 (European Photovoltaic Industry Association). New installed volume reached 7GW
per year in 2010-12. However electricity prices increased sharply as a result and in June 2012 the German
government cut the purchase price. Germany’s Federal Ministry of the Environment said it expects
purchased volume to fall by 2.5-3.5 GW in 2013.
Mega solar power plants
In Japan, following the introduction of FIT for renewable energy in July 2012, a variety of players entered
the solar power generation business. According to METI, before the introduction of the FIT scheme inJune 2012, solar power generating capacity was around 900,000 kW. By June 2014, this had grown toabout 8.5mn kW.
As of November 2014, possible headwinds included delays to grid connection approval from powercompanies for renewable energy power plants in September 2014, and a stricter facility certification
regime.
Delays to grid connection approval for renewable energy power plants
The number of solar power facilities increased after the introduction of the feed-in-tariff (FIT) scheme in
July 2012. Output from new renewable energy facilities and applications for grid connection together
exceeded demand for electricity during slack periods, leading some power companies—Hokkaido, North
Japan, Shikoku, Kyushu, and Okinawa—to hold back on grid connection approval for renewable energy
power plants over a certain size in September 2014.

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Renewable energy output by power company
Certified output(approx.)('000KW)

Solar, wind power output andamount applied for (approx.)('000KW)

Hokkaido

3,330(Output: 700)
As of March 2013, applications havebeen received for about 1.9mn KW ofsolar power, and 560,000KW of wind
power.

All applications for grid connection on hold except solar
power facilities under 10KW (announced September 30)
2,700 (solar power plants over 500KW may connect to thegrid provided they control output withoutcompensation).

North Japan

11,50012,600(technical investigations incomplete on
about 600 applications)

9,700

All applications for grid connection on hold except solar
facilities under 50KW (announced September 30).

Shikoku

2,500

2,800
(technical investigations incomplete on
about 20 applications)

2,500

All applications for grid connection on hold except solar
facilities under 10KW (announced September 30).

17,90017,600Applied for: 13,700
Output: 3,900(technical investigations incomplete on
about 500 applications)

8,000

All applications for grid connection on hold except solar
facilities under 10KW (announced September 24).

600

320 (only solar)
Output: 130
Applied for: 190

Power company

KyushuOkinawa

Off-peak demand Notes('000KW)

Amount applied for has surpassed the amountpermissible (announced September 30).
Individual negotiations planned, including policies such500
as stopping the production of solar power for a certain
length of time and introducing power storage facilities
in solar power plants.

Source: Ministry of Economy, Trade and Industry
The certified output does not include output moved from facilities built before the introduction of the FIT scheme in July 2012.
In the run up to the end of the financial year, power companies have accepted some applications before the completion of technical investigations.

Amid fears that this may limit the maximum renewable energy output, the Ministry of Economy, Trade andIndustry (METI) decided to investigate power companies’ measures to accept renewable energy
applications. On September 30, 2014, METI established a working group for the grid connection ofrenewable energy, under the New and Renewable Energy Subcommittee (the Committee on Energy
Efficiency and Renewable Energy of the Advisory Committee for Natural Resources and Energy). This
working group is comprised of experts who will verify grid capacity, and discuss measures for increasing
capacity, from a neutral stance.
The working group plans to release its conclusions by the end of 2014.
As of October 2014, suggestions for increasing capacity include limiting hourly output, limiting output for
longer or more types of power plants, developing power storage facilities and operational systems, andincreasing connections between regions. Shared Research understands that limiting output for longer orfor more types of power plants may put downward pressure on solar park revenues.
Per the Act on Special Measures Concerning the Procurement of Renewable Electric Energy by Operatorsof Electric Utilities, when demand for electricity is low, electricity providers must limit their own output ofthermal power and prioritize renewable energy. But electricity providers can still request that suppliers ofrenewable energy limit their output. However, if electricity providers make such requests on more than 30days per year, suppliers of renewable energy can claim compensation equal to the income they would
have received from the sale of electricity, had output not been limited.
In April 2013, Hokkaido Electric Power Co., Inc. (HEPCO) announced measures in response to grid
capacity for large solar power plants of 500kW or more. When the total output of these large facilities isover 700,000kW, HEPCO will not pay monetary compensation, even when it asks suppliers to limit their
output on more than 30 days. In this way, HEPCO is increasing its capacity for grid connections.
According to the METI working group, it may be possible to increase total grid capacity by changing the
30 day limit for requests from electricity providers to renewable energy suppliers to limit output, or bymaking smaller solar power plants (under 500kW) and wind power plants subject to limits on output.

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If limits on output are extended for longer or for more types of power plants, Shared Research sees apossibility that revenues from solar parks may fall below expectations.
Stricter facility certification?
Purchase prices under the FIT scheme are set to enable the supplier to earn a reasonable rate of return.
Prices are likely to fall given that solar generation costs are falling.
As a result Shared Research thinks that some solar park operators are rushing to get certification and lockin high electricity purchase prices. Construction may not start straightaway if in turn they are waiting forconstruction costs to fall. METI said some operators locked in procurement prices from the first year of
the scheme (JPY40/kWh pretax) and then delayed the start of construction.
A June 2014 report from METI on the state of renewable energy power plants said that between the
introduction of FIT in July 2012 and the end of June 2014 non-residential solar facilities with 66.0mn KWof generating capacity gained certification. As of June 2014, about 8.5mn kW of capacity was online,
equal to 13% of certified capacity.
In March 2014, in line with the Administrative Procedure Act and in light of the findings of requests for
information from facilities with more than 400kW of output prior to operation, METI began questioning
operators of non-residential solar power plants (output of 10kW or more) certified in FY 2013 (April
2012-March 2013) without confirmed details regarding location or facilities, In cases where it could notconfirm the necessary information, METI stripped the facilities of their approval. As of August 2014, thetotal output for non-residential solar power plants certified in FY 2013 was 18.7mn kW—METI removed
certification for 1.8mn kW of output, and plans to further question the operators of 2.7mn kW worth of
output. In total, 8.8mn kW is produced by plants that have already begun operating, or fulfilled METI’s
requirements for certification.
Regarding the 2.7mn kW operators subject to further questioning, METI will begin stripping these plantsof their certification after confirming details of location and facility if they do not satisfy requirements.
METI also plans to request information from operators of plants certified in FY 2014.
Shared Research understands that the operators of solar power plants may lose their certification if they
do not make efforts to bring their plants online.

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StrategyStrengthening existing businesses. In Electronic and Telecoms Equipment, Tamagawa aims toincrease sales and profitability by fortifying existing businesses. In Solar, it hopes to grow via a bumper
investment program. The company may also develop renewable energy businesses besides solar power(such as biomass, wind, and geothermal power generation). In November 2014 the company said thenumber of potential projects was increasing. Constraints: insufficient funding and lack of skilled workers.
Raise capital, build its own solar park. Solar power plant operations provide stable cash flows but
need big upfront investment. Selling solar systems, the second part of Tamagawa’s business in thesegment, does not require any upfront capital, but does not provide long-term revenues.
Marking a move into renewables other than solar power generation, in December 2014 Tamagawa
launched a new business in geothermal power generation business. The company has announced plans
to begin selling electricity generated by geothermal power in August 2015.
Tamagawa recognizes its need to push forward with the solar and geothermal power plant businesses togenerate funds for capex—through loans from financial institutions and operating cash flows—as well as
to cover personnel costs. To boost investment efficiency, the company intends to restructure its portfoliowith measures that include the sale of power plants.

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Past performance
FY03/14 results (announced May 13, 2014)
Results by segment:
Electronics and Telecoms Equipment
This segment saw mobile telecoms companies increase their capex spending on base stations and public
expenditure increase for defense facilities and public wireless facilities. Orders received totaled JPY3.5bn(+7.3% YoY) and sales were JPY3.2bn (+2.5%). Specifically, sales in mobile telecoms were JPY1.4bn(-26.5%) due to a large-scale order that was completed in FY03/13 causing a relative decrease. Sales
related to defense systems were JPY905mn (+79.6%).
According to the company, it is becoming increasingly adept at developing products in-house. As a result,sales of internally developed products were JPY1.3bn (+36.6% YoY).
Operating profit for the segment was JPY480mn (+28.1% YoY). In addition to the effects of increased
revenue, the sales composition of internally developed products—which have relatively higher margins
compared to other products in the segment—went up from 30% in FY03/13 to 35% in FY03/14.
Solar system sales
Orders for solar power systems have been increasing since the Act on Special Measures Concerning
Procurement of Renewable Electric Energy by Operators of Electric Utilities (FIT Act—for feed-in tariffs)
came into effect (August 2011). The company also worked to make its sales operations more efficient.
Thus, orders received were JPY845mn (+27.3% YoY), sales were JPY890mn (+83.0%), and operating
profit was JPY54mn (-5.5%).
Solar power plant operations
Sales of electricity began, following the completion of construction of the solar park in Shimonoseki,
Yamaguchi Prefecture. The company booked sales revenue from the project from July 2013. However,other solar power projects required startup investment. In the end, sales were JPY52mn (there were nosales recorded for this segment the previous year), and the company made an operating loss of JPY20mn(against an operating loss of JPY12mn the previous year).

FY03/13 results
Sales hit JPY3.7bn (+18.2% YoY). Operating profit was JPY373mn vis-à-vis a JPY29mn loss in FY03/12.
Recurring profit was JPY374mn contrasting with a JPY23mn loss in FY03/12. Net income was JPY339mn
compared with a JPY37mn loss in FY03/12. Segment results:
Electronics and telecommunications equipment
Owing to a recovery in mobile telecoms companies’ base station capex and a resumption of public
investment in defense and public wireless facilities, sales touched JPY3.2bn (+31.1% YoY) and operating
profit nudged JPY374mn (+497.4% YoY).
Solar energy business
The introduction of FIT in July 2012 and better marketing boosted solar generating system orders. Sales
rose to JPY486mn from JPY19mn in FY03/12. Operating profit came in at JPY41mn vis-à-vis a JPY24mn
loss in FY03/12.

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Biomass energy business
Sales were JPY74mn (-89.0% YoY). Operating loss reached JPY30mn compared with a JPY47mn loss in
FY03/12. The company exited this business in the wake of consolidated subsidiary Bioenergy Resources
Co Ltd filing for bankruptcy.

Income statement
Income Statement

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Total Sales

4,299

2,803

2,640

3,106

3,672

4,171

5,095
22.1%

YoY

FY03/15

7.1%-34.8%

-5.8%

17.7%

18.2%

13.6%

CoGS

3,348

2,412

2,314

2,516

2,623

2,973

3,616

Gross Profit

951

392

326

590

1,049

1,198

1,479

GPM

22.1%

14.0%

12.3%

19.0%

28.6%

28.7%

29.0%

1,020

619

612

619

675

721

947

SG&A / Sales

23.7%

22.1%

23.2%

19.9%

18.4%

17.3%

18.6%

Operating Profit

SG&A

-68

-227

-286

-30

373

477

531

YoY

-

-

-

-

-

27.8%

11.3%

OPM

10.4%

-1.6%

-8.1%

-10.8%

-1.0%

10.2%

11.4%

Non-Operating Income

45

16

18

14

19

9

8

Non-Operating Expenses

105

14

16

8

17

8

25

Recurring Profit

-128

-224

-284

-24

375

478

514

YoY

-

-

-

-

-

27.6%

7.5%

RPM

-3.0%

-8.0%

-10.8%

-0.8%

10.2%

11.5%

10.1%

Extraordinary Gains

52

0

45

-

1

2

5

Extraordinary Losses

341

346

109

7

0

0

0

Tax Charges

-7

-1

3

6

36

44

92
17.7%

Implied Tax Rate

1.6%

0.1%

-0.8%

-20.9%

9.6%

9.1%

Net Income

-408

-570

-351

-37

340

436

427

-

-

-

-

-

28.5%

-2.2%

-9.5%

-20.3%-13.3%

-1.2%

9.3%

10.5%

8.4%

YoY
Net Margin
Source: Company data

Figures may differ from company materials due to differences in rounding methods.

FY03/12 results
Sales were JPY3.1bn (+17.7% YoY). There was an operating loss of JPY29mn from a JPY286mn loss inthe previous year. In the Electronics and Telecoms Equipment division there was a recovery in capex formobile base stations. Sales were up 0.7% YoY. Margins improved due to lowered COGS and operating
expenses. In the biomass energy business, sales rose 172.3% YoY but operating losses were largely inline with the previous year due to cost increases. There was a recurring loss of JPY23mn compared with a
JPY284mn loss in the previous year. We flag an impairment loss of JPY3mn, a loss on sale of investment
securities of JPY3mn and an annual net loss of JPY37mn (JPY351mn loss in the previous year).

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Historical forecast accuracy
Initial CE vs. Results

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Sales (Initial CE)

3,870

3,389

3,110

2,980

3,378

4,504

4,534

Sales (Results)

4,299

2,803

2,640

3,106

3,672

4,171

5,095

Initial CE vs. Results

11.1%-17.3%-15.1%

4.2%

8.7%

-7.4%

12.4%
506

(JPYmn)Operating Profit (Initial CE)

129

139

191

22

69

493

Operating Profit (Results)

-68

-227

-286

-30

373

477

531

-263.3% -249.9% -234.9%

441.1%

-3.2%

5.0%
489

Initial CE vs. Results-153.0%Recurring Profit (Initial CE)

71

133

179

18

65

488

Recurring Profit (Results)

-128

-224

-284

-24

375

478

514

-268.7% -258.8% -233.0%

476.5%

-2.0%

5.1%

Initial CE vs. Results-279.9%Net Profit (Initial CE)

63

133

179

13

60

449

450

Net Profit (Results)

-408

-570

-351

-37

340

436

427

Initial CE vs. Results-747.9%-528.8% -296.3% -384.6%

466.3%

-2.8%

-5.1%

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

From FY03/09 through FY03/12 the company initially forecast profits every year but delivered a series oflosses. However, in the absence of a solid profitability roadmap, results fell short of company forecasts.
FY03/13 results, though, came in well above Tamagawa’s forecasts. In addition to a profit recovery in theElectronics and Telecoms Equipment business, Solar chipped in.

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Balance sheet
Balance Sheet(JPYmn)FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

ASSETSCash and Equivalents

820

665

493

56

390

1,764

1,524

Accounts Receivable

1,033

915

663

864

1,345

1,112

1,377

Inventories

345

275

328

299

328

347

447

Other Current Assets

47

63

45

74

52

197

258

Total Current Assets

3,606

2,245

1,918

1,530

1,293

2,114

3,421

Buildings

162

132

94

80

87

114

130

Equipment, Plant

88

36

5

1

58

87

126

Acc. Depreciation

1,151

997

959

899

884

908

966

451

295

205

133

564

718

2,410

Total Tangible Fixed Assets
Investments

251

69

23

8

14

19

23

Other

16

20

7

9

13

19

131
154

Total Other Fixed Assets

267

89

30

18

27

38

Software

25

25

-

-

1

19

88

Other

22

14

-

-

-

12

106

Total Intangible Assets

47

39

-

-

1

31

194

Total Fixed Assets

765

423

235

150

593

788

2,759

3,010

2,341

1,766

1,445

2,709

4,210

6,376

511

443

430

364

386

474

620

39

31

48

108

86

169

Total Assets
LIABILITIES
Accounts Payable
Accrued Amount Payable
Short Term Debt

507

433

203

30

40

323

300

Other Current Liabilities

99

111

220

156

173

247

392

Total Current Liabilities

1,481

1,226

1,026

884

598

708

1,130

Long Term Debt

216

67

-

-

151

294

539

Other Fixed Liabilities

101

86

83

85

100

148

1,194

Total Long Term Liabilities

318

153

83

85

251

442

1,733

Total Interest Bearing Debt

724

500

203

30

192

618

839

1,544

1,179

967

683

959

1,572

3,215

Total Liabilities
SHAREHOLDER EQUITY (NET ASSETS)
Issued Capital

1,029

1,102

1,102

1,102

1,387

1,625

1,656

Reserves

1,024

1,096

1,096

1,096

1,381

1,620

1,077

-619

-983

-1,335-1,372

-991

-555

445

1,466

1,162

799

761

1,751

2,638

3,161
1,204

Retained Earnings
Total Shareholder Equity (Net Assets)
Working Capital

867

747

562

800

1,287

986

Interest Bearing Debt

724

500

203

30

192

618

839

Net Debt

-96

-165

-290

-26

-198

-1,146-685

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

AssetsDuring FY03/14, current assets accounted for 81.2% of total assets. Primary factors were cash andequivalents (51.6% of current assets in FY03/14) and accounts receivable (32.5%). Operating cash flows
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equivalents increasing from JPY390mn in FY03/13 to JPY1.8bn in FY03/14.
Tangible fixed assets shrank from JPY451mn in FY03/09 to JPY133mn in FY03/12 owing to a string of
impairment losses amid slumping profits. In FY03/13 tangible fixed assets rose to JPY564mn due to the
Shimonoseki power plant (under construction) and JPY97mn of capex in the electronics and telecoms
equipment business.

Liabilities
Accounts payable form the bulk of liabilities at 40% of total liabilities in FY03/14. The average payment
period for accounts payable increased from 1.3 months in FY03/09 to 2.0 months in FY03/11. As cash,
deposits and interest-bearing liabilities were declining, the company had trouble raising funds, andlengthened the time it took to pay creditors. The period shortened after FY03/12 and in FY03/14 was 1.4
months.
Interest-bearing liabilities shrank from JPY844mn in FY03/08 to JPY30mn in FY03/12. Shared Research
estimates that borrowing was difficult due to the profit slump, so Tamagawa repaid short- and long-termborrowings, corporate bond redemptions continued, and there was no debt refinancing. In FY03/13
interest-bearing liabilities increased for the first time in five years and amounted to JPY192mn. Financing
activity for both short-term and long-term debt during FY03/14 caused this figure to increase to
JPY618mn.
In FY03/14 net debt (interest-bearing liabilities minus cash and deposits) was negative, amounting tonegative JPY1.1bn..

Net assets
Due to the extended profit slump and net losses, net assets declined from JPY2.1bn in FY03/08 to
JPY761mn in FY03/12. Retained earnings were minus JPY1.3bn in FY03/12. In FY03/13 net income
returned to the black, leading to an increase in retained earnings for the first time in five years. Capitaland additional paid-in capital increased due to the placement of 2.1mn shares in January 2013 and theissuance of options (potential issuance: 4.8mn additional shares). We note that 1.8m additional shareswere issued in FY03/13 on the exercising of options.
During FY03/14, net assets increased by JPY477mn to total JPY2.6bn. This was due to JPY436mn in net
income and a JPY477mn increase stemming from the exercise of share subscription rights issued in
January 2013.

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Cash flows
Cash Flow Statement

FY03/09

FY03/10

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Operating Cash Flow (1)

259

-1

68

-332

36

764

387

Investment Cash Flow (2)

-17

12

93

77

-454

-265

-865

(JPYmn)Free Cash Flow (1+2)

242

11

162

-255

-418

499

-478

-194

-82

-299

-168

783

875

238

Depreciation & Amortization (A)

217

76

20

14

22

84

106

Capital Expenditures (B)

-82

-22

-7

-12

-446

-254

-866

Financial Cash Flow

Working Capital Changes (C)Simple FCF (NI + A + B - C)

122

-120

-186

238

488

-301

219

-394

-397

-152

-272

-572

568

-552

Source: Company data
Figures may differ from company materials due to differences in rounding methods.

Operating cash flow
Operating cash flow hinges on net income, depreciation, goodwill amortization and changes in working
capital. The reason that operating cash flow topped net losses plus depreciation and goodwill
amortization from FY03/09 through FY03/11 was impairment losses, valuation losses on investment
securities and a drop in working capital. In FY03/12 operating cash flow fell despite a narrower net loss
due to an increase in accounts receivable. In FY03/13 despite net income returning to the black operating
cash flow was JPY36mn, as there was an increase in accounts receivable amid better power generation
system sales. In FY03/14, operating cash flow was up, due to factors such as the posting of net income,
cash inflows from depreciation expenses, and a reduction in accounts receivable.

Investment cash flow
Through FY03/12 Tamagawa was restrained in its investments with capex below JPY100mn, so cash flows
from investing activities were minus JPY17mn in FY03/09 but positive from FY03/10 through FY03/12.
Tamagawa became more active on the investment front in FY03/13; tangible and intangible fixed assets
rose by JPY455mn. They rose by JPY97mn in the electronics and telecoms equipment business and by
JPY352mn in solar energy. The Shimonoseki solar park accounted for most of the increase in solar energy
business. In FY03/14, investment cash flow was negative, primarily due to outflows associated with theacquisition of tangible fixed assets.

Financial cash flow
Interest-bearing debt declined from FY03/09 through FY03/12, so financing cash flows remained negative.
In January 2013 Tamagawa made a placement of 2.1mn shares and issued options (if exercised would
prompt the issuance of 4.8mn additional shares) to fund solar park construction. There were 1.8m sharesissued in FY03/13 on the exercising of options. In FY03/13 Tamagawa saw JPY783mn in financing cash
flows: JPY554mn from the issuance of shares; JPY47mn from option issuance; JPY170mn from long-termborrowing; and JPY100mn from corporate bond issuance. During FY03/14, inflows included JPY450mn
from the issuance of shares, and inflows from borrowings.

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Other information
HistoryFounded in 1968, the company was a leader in analog high-frequency wireless technology.
By the mid-2000s the business was derailed by Korean competitors. After several missteps and ownershipchanges Tamagawa found itself with the current leadership in 2012.
J Bridge Corp became a shareholder in 2007. In 2007 J Bridge Corp (now Asia Alliance Holdings Co
Ltd; TSE2: 9318) became a shareholder. J Bridge in turn installed an executive from a company in which
it held an equity stake (J Capital Management Co Ltd, 14.7% stake) to Tamagawa’s board in 2007. The
new board member was then made CEO and proceeded to make a number of failed acquisitions,speculative investments and unwise decisions, leading to further deterioration.
Raised capital for biomass energy in 2010. After the J Bridge-appointed CEO stepped down in 2009,
the company liquidated some money-losing subsidiaries in a bid to regain profitability. But amid declining
sales its core electronics and telecommunications equipment business continued to lose money in
FY03/09-FY03/11. In 2010 the company raised JPY144mn in new capital to launch a biomass energy
business. It was liquidated in March 2012 after posting operating losses in FY03/11 through Q2 FY03/13.
Masanori Kobayashi joins core business in June 2011. In June 2011, Masanori Kobayashi, aveteran of the company, was appointed a director of Tamagawa Electronics Co Ltd, a subsidiary that is thecore business. Kobayashi was subsequently appointed CEO of Tamagawa Electronics in April 2012 and hetook charge of rebuilding the electronics and telecommunications equipment business. The reform
included exiting unprofitable projects, something Tamagawa was routinely doing while battling overseas
rivals. The segment returned to operating profitability in FY03/12.
Keen pricing. In February 2012, Setsuya Fukunaga was appointed CEO of the company (former CEO ofconsolidated subsidiary Tamagawa Solar Systems Co Ltd and dismissed in June, 2014) to head thecompany’s entry into solar system sales. Following Mr Fukunaga’s appointment the company signed an
exclusive sales agreement with China-based GPPV, a photovoltaic (PV) module manufacturer.
Underpinned by price competitiveness and aggressive selling in FY03/13, the business started off its firstyear with an operating profit.
Focusing on profits. In April 2012, following a request from a major Tamagawa HD shareholder, Toru
Masuzawa became executive director of Tamagawa Holdings, and CEO in June 2012. In June 2014,
Tamagawa shifted to a joint leadership system of two representative directors to cope with difficult
market conditions. In addition to the incumbent Representative Director Toru Masuzawa, the company
promoted Masanori Kobayashi to new representative director with the aim to establish a fair andtransparent management base by maintaining and improving its compliance system and ensuring strong
corporate governance. In the same month, Yasuhiko Noguchi assumed presidency of Tamagawa Solar
Systems after the dismissal of Fukunaga.
The company’s main task is to ensure profitability. The focus is on Tamagawa Solar Systems, headed by
Mr. Noguchi, and solar park management where FIT pricing is guaranteed by the government. Anotherpriority is ensuring stable profitability at Tamagawa Electronics under the command of Kobayashi.

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News and topics
March 2015
On March 5, 2015, the company announced revisions to its full-year earnings forecasts.
Full-year FY03/15 forecast revisions (previous forecasts in parentheses)
Sales:
JPY5.0bn (JPY4.5bn)
Operating profit:
JPY517mn (JPY506mn)
Recurring profit:
JPY507mn (JPY489mn)
Net income:
JPY455mn (JPY450mn)
Reasons for the revisions
The company expects sales and profits to outperform previous forecasts, due to it being able to secureland for a low-voltage solar power plant to be sold in lots, as well as robust sales conditions.

February 2015
On February 23, 2015, the company announced that its mega solar power plant in Tateyama City,
Chiba Prefecture commenced operations.
According to the company, connections from its mega solar power plant in Tateyama City to the Tokyo
Electric Power (TEPCO) grid have been completed, and sales of power began on February 23, 2015. The
company does not expect this to have a material impact on its FY03/15 earnings results.
Summary of Tateyama City mega solar power plant
Plant name: Tateyama Power Plant
Land area: approx. 35,386sqm
Generation capacity: 1,999kW
Feed-in tariff (fixed rate for 20 years): JPY40/kWh (tax exclusive)
Estimated feed-in revenue: JPY95mn/year, JPY1.9bn cumulative total for 20 years

On February 6, 2015, the company announced that it will borrow long-term operating funds.
Funds will be loaned to the company from the Chiba Bank in the amount of JPY100mn, with a due date ofJanuary 31, 2018.

On February 3, 2015, the company announced that a subsidiary will secure a site for a low-voltage solar
power plant, to be sold in lots.
Subsidiary Tamagawa Solar Systems Co., Ltd. decided at a meeting of the board of directors that it willsecure land for low-voltage power plant, to be sold in lots. According to the company, after acquiring therights to a feed-in tariff of JPY36 set by the Ministry of Economy, Trade and Industry (METI), it will be able
to divide ownership of the low-voltage power plant into 13 lots, to sell to outside buyers. This is expected
to boost group earnings.
Details of the low-voltage lot sales
Location: Kanoya City, Kagoshima Prefecture
Total area: about 11,070sqm (for all 13 lots)
Output capacity: about 650Kw (for all 13 lots)
Feed-in tariff: JPY36/kWh (fixed for 20 years)

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Acquisition date: February 3, 2015

January 2015
On January 29, 2015, the company announced that it would acquire additional land for its geothermal
power operations.
PurposeTamagawa Holdings, which plans to launch a geothermal power generation business, has alreadyacquired land in Beppu City, Oita Prefecture, to build a 125kW plant. The construction is currently
underway to providing electricity as early as possible. The company has decided to acquire six additionalplots to build plants with a total capacity of 750kW. As a result, the group will have seven plots for a total
capacity of 875kW. A 125kW geothermal plant generates electricity equivalent to a 1MW solar power plant.
Thus, the company will have power plants with a combined generation capacity of a 7MW solar power
plant.
The choice of Beppu City
The company will build binary cycle power plants that use underground steam to rotate turbines. Binary
power plants generate electricity through a medium that has a lower boiling point than water. There is noneed for the company to seek a new energy source because it will use a power source already being used
for a hot spring nearby. Thus, the company will be able to start operations within a short period of time ata relatively low cost. In addition, the company has determined that the location is suitable for geothermal
power generation because another binary cycle power plant is operating nearby and there is an ample
supply of hot water.
Overview of the land
Location: Beppu City, Oita Prefecture
Size: 2,100sqm
Output: 750kW (One plot accommodates a 125kW geothermal plant, equivalent to a 1MW solar
plant. Thus, six plots of land would allow for power generation equivalent toa 6MW solar plant.)
Electricity price: JPY40/kWh (fixed for 15 years)
Expected annual revenue: JPY250mn
Expected initial year output: 6,800,000kWh
Transfer date: January 30, 2015

On January 16, 2015, the company announced the completion of payments related to the issuance of
warrants (with an option to adjust the exercise price).
The payments related to warrants announced on December 26, 2014.

December 2014
On December 26, 2014, the company announced the launch of a new business (geothermal power
generation) and the issuance of warrants (No. 6 warrants with an option to adjust the exercise price).
The company held a board meeting on December 26, 2014 and decided to start a geothermal powerbusiness.
New operations
Tamagawa, which operates a solar-power business, has been seeking another source of renewable

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energy to bolster its earnings. The company held talks with the holder of rights to the geothermal powersource in Beppu City, Oita Prefecture, and conducted feasibility studies. (The company stated that it
would build a 125kW geothermal plant and that it would submit the plan to Kyushu Electric Power Co. andthe Ministry of Economy, Trade and Industry on December 26, 2014 or later.) The power plant can be built
on a small plot of land, and it will provide the company with a stable and efficient source of electricity.
Geothermal power plants, according to the company, are environmentally sustainable because they use
steam from underground reservoirs. Unlike solar power generation, geothermal plants can provide stableelectricity 24 hours a day, 365 days a year, regardless of weather conditions. Moreover, geothermal plants
do not require a large amount of space, allowing for efficient operations. Under the FY2014 feed-in-tariff
system, the price for electricity produced by solar power plants is JPY32 per kilowatt and the purchaseperiod is 20 years (consumption tax not included for 10kW or more). In contrast, the price for electricity
produced through geothermal power plants is JPY40 per kilowatt and the purchase period is 15 years(consumption tax not included for 15,000Kw or less).
Tamagawa will build a binary cycle power plant that uses underground steam to rotate a turbine. Binary
power plants generate electricity through a medium that has a lower boiling point than water. The
medium is vaporized with hot water or steam. There is no need for the company to seek a new energy
source because it will use a power source already being used for a hot spring nearby. Thus, the company
will be able to start operations within a short period of time at a relatively low cost. Most of the steam
taken from the underground reservoir will be returned to its source. Therefore, the plant will have little
impact on the environment.
The company will spend JPY92mn to build facilities, install pipes, acquire rights to the power source, andpurchase land. The project began on December 26, 2014. The company plans to sell electricity starting inJuly 2015.
Tamagawa also decided to allocate No. 6 warrants to Macquarie Bank Limited. The purchase agreement
will be signed after regulatory filings based on the Financial Instruments and Exchange Act.
Overview of the warrants
 Allocation date: January 16, 2015
 Number of warrants: 10,000
 Issuance amount: JPY2.2bn (JPY1,960 per warrant) Potential new shares: 10,000,000 (1,000 shares per warrant): the number of potential new sharesremains unchanged even if the exercise price is changed.
 Amount to be raised: JPY2.2bn (After fees: JPY2.18bn; JPY20mn from warrants and JPY2.18bn fromthe exercise of warrants)
 Exercise price: The exercise price is fixed at JPY218 per share. However, the company has an option, if
necessary for fund-raising purposes, to adopt a mechanism in which the exercise price is adjusted
based on the closing price of the stock. The company may adopt the mechanism on January 16, 2015
and afterward upon the board’s approval. When this option is adopted, the exercise price will be
adjusted to 90% of the closing price on the Tokyo Stock Exchange on a day immediately prior to theeffective date of the exercise. (No maximum exercise price has been set.) However, if the adjusted
price falls below JPY153 (the minimum exercise price), it will be re-adjusted to JPY153.
 Allocation method: third-party allocation
 Party to which warrants are allocated: Macquarie Bank Limited
 Exercise period: January 19, 2015-January 18, 1917

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The party to which the warrants are allocated must guarantee that it will exercise the option and acquire acertain number of shares during the exercise period provided that certain conditions are fulfilled. The
company may write letters to the party to which the warrants are allocated and specify the period during
which the party must guarantee share purchases. The company may do so up to five times. During theperiod of guaranteed share purchases, the party must exercise the purchase option and make payments
equivalent to the guaranteed exercise price in accordance with the liquidity of the shares at that time. The
guaranteed exercise price will be based on whichever the lowest: the average daily trading price during afive-day period prior to the period of purchase guarantee, or the average daily trading price during a
20-day period prior to the period of purchase guarantee.

Use of funds
Tamagawa will use the funds to finance subsidiaries’ solar power and geothermal power projects.
Use
To repay loans used to acquire land for a power plantin Misawa City, Aomori Prefecture
To invest in, or provide loans to, four subsidiaries thatwill operate the Misawa plant
To invest in, or provide loans to, a subsidiary that
operates a power plant in Minamishimabara City,
Nagasaki Prefecture
To invest in, or provide loans to, a subsidiary that
operates a geothermal plant in Beppu City
To invest in, or provide loans to, subsidiaries that may
operate solar power or geothermal power plants otherthan those mentioned above
Total

AmountTime Frame

JPY250mn

January 2015-March 2015

JPY879mn

January 2015-March 2016

JPY127mn

January 2015-March 2016

JPY21mn

January 2015-August 2015

JPY904mn

January 2015-January 2017

JPY2,183mn－

On the same day, Tamagawa released an update on its partnership with ISE Power.
Tamagawa on May 30, 2014 signed an agreement with ISE Power to cooperate on the operation of solar
power plants.
Tamagawa and ISE Power agreed that three Tamagawa subsidiaries will acquire a power operator licensein Misawa City, Aomori Prefecture from ISE Power, effective December 26, 2014, and build and run a solar
power plant. The move is part of the two companies’ plan to expand their cooperation in solar businesses.
Tamagawa acquired the land for the power plant on December 16, 2014. The flat land located on the
Pacific Ocean side was previously used by Ise Foods Inc. for a chicken farm. The company stated that theland is suitable for a power plant because it has plenty of sunlight and not much snow.
Tamagawa expects to start selling electricity generated at the plant by March 2016. (It is not certain,
however, when the company will sign a contract with Tohoku Electric Power Co.)
Tamagawa added that these developments will have little impact on the company’s earnings for FY03/15.
Overview of the power plant
Location: 5-chome, Mukawame, Misawa City, Aomori Prefecture
Operator: GP Energy A, GP Energy B, GP Energy C, GP Energy D (wholly owned units)

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Premises: 153,000sqm
Capacity: 10 megawatt
Electricity price: JPY36/kWh (tax excluded; fixed for 20 years)
Revenue: JPY390mn a year (estimate)
Initial-year power generation: 10,852,814 kWh (estimate)
On December 12, 2014, Tamagawa Holdings Co., Ltd. announced the acquisition of a fixed asset bylease (a solar park).
Subsidiary GP Energy 5 Co., Ltd. acquired a solar power plant being planned for construction in Sodegaura(Chiba Prefecture) with an output of about 1.3MW, after signing a lease agreement with Ricoh Leasing
Company, Ltd. (a subsidiary of Ricoh Company, Ltd. [TSE1: 7752]). This lease scheme provides anefficient way for the company to deploy capital.
Leased assets
Name:
Location:
Details:
Lease amount:
Acquisition value:

Sodegaura Solar Park, Chiba Prefecture
Sodegaura, Chiba Prefecture
A complete solar power system
JPY511mn
JPY360mn

Sodegaura Solar Park, Chiba Prefecture
Area:
Approx. 15,000sqm
Output:Approx. 1.3MW
Feed-in-tariff:
JPY36/kWh (pre-tax; fixed for 20 years)
Revenue:
Approx. JPY60mn per year expected from the sale of electricity
Electricity volume: Approx. 1,733,518kWh (expected to be generated in the first year)

November 2014
On November 25, 2014, the company announced the establishment of a second-tier overseas
subsidiary.
Tamagawa Electronics Co., Ltd., a wholly owned subsidiary of the company, will form a subsidiary in
Vietnam on March 31, 2015.
Purpose of establishment
Tamagawa Electronics is engaged primarily in the design, manufacture, and sales of mobile highfrequency telecommunications base stations, and other high frequency devices used in televisiontransmission and public wireless infrastructure. Tamagawa Electronics has been a manufacturer andsupplier to major domestic telecommunications manufacturers. In recent years, price competition has
caused a greater portion of manufacturing and procurement to occur overseas, and in order to meet thisdemand and further reduce manufacturing costs for high frequency devices, the company has decided toestablish a subsidiary in Vietnam with the intent of expanding its sales overseas and providing higher
quality products.
Subsidiary details
Name:
Tamagawa Electronics Vietnam Co., Ltd.
Location: Socialist Republic of Vietnam
Capital: JPY50.0mn
Owner: Tamagawa Electronics Co., Ltd. (100%)

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Business: Manufacture and sales of telecommunications equipment

On November 18, 2014, the company announced progress regarding construction of the solar park in
Goto City, Nagasaki Prefecture.
As disclosed on May 29, 2013, the company has acquired land in Goto City for the construction of a solarpark, and is continuing preparations to begin operations. Tamagawa has now received approval from
Nagasaki Prefecture to develop in a forested area.
As the company continues preparations to begin construction, it has been applying to relevant authorities
for permits required to begin work. Approval from Nagasaki Prefecture to develop in a forested area was
one such requirement to begin construction of the solar park. The solar park is planned to utilize a 5.5MW
extra high voltage system—the first of its type for Tamagawa.
About the Goto City solar park
 Location:
 Operator:
 Area: Capacity: Feed-in tariff: Generation revenue: First-year generation volume:

Yoshikugi-cho, Goto City, Nagasaki Prefecture
GP Energy 2 Co., Ltd. (wholly owned subsidiary)
10 hectares
Approx. 5.5MW
JPY36/kWh (fixed for 20 years)
JPY250mn/year (tentative)
Approx. 6,790,566kWh

The company has modified its capacity estimates for this facility from 6.0MW to 5.5MW.

August 2014
On August 29, 2014, the company announced the acquisition of fixed assets (land for a solar park).
The company purchased the land in Sodegaura, Chiba Prefecture with the intention of building a solar
power plant.
Location and other details of the assets
 Location:
Hayashi Village, Sodegaura, Chiba Prefecture
 Area:15,000sqm
 Acquisition price: JPY125mn
 Transfer date:November 2014.
The Sodegaura Solar Park Capacity:
Approx. 1,300kW
 Planned output: Approx. 1.7mn kWh / year.
The company has already obtained Feed-in Tariff (FIT) certification for this renewable energy generation
facility from the Ministry of Economy, Trade and Industry (METI). The price of the electricity will be fixed at
JPY36 per kWh (before tax) for 20 years.

On August 4, 2014, the company announced the acquisition of fixed assets (land for a solar park).
The company purchased the land in Yokohama, Kanagawa Prefecture with the intention of building a solar
power plant. The details are as follows:

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Location and other details of the assets
 Location:
Asahi Ward, Yokohama, Kanagawa Prefecture
 Area:13,640sqm
 Acquisition price: JPY120mn
 Seller:
Undisclosed
 Transfer date:August 4, 2014.
The Yokohama Solar Park Area:Approx. 17,000sqm
 Capacity:
Approx. 1,200kW
 Planned output: Approx. 1.3mn kWh / year.
The company has already obtained Feed-in Tariff (FIT) certification for this renewable energy generation
facility from the Ministry of Economy, Trade and Industry (METI). The price of the electricity will be fixed at
JPY36 per kWh (before tax) for 20 years.

The company is considering whether to sell the facility in lots or to operate it itself. The company is also inthe process of determining any effects on earnings.

July 2014
On July 22, 2014, the company announced the progress of work on its solar park in Minami Shimabara,
Nagasaki Prefecture.
The company has completed construction of a 49kW low voltage generator, and is now expanding thefacility into a 1MW solar power plant. In a bid to ensure the smooth operation of the new plant, thecompany also changed the contract from a land lease contract to a contract establishing superficies(surfaces rights) on July 22—thus securing the surface rights necessary to build a 1MW solar power plant.
The company has already completed development work on the area required for the expansion, and now
plans to begin full-fledged construction work.
Overview of the Minami Shimabara Solar Park Location:
Nagasaki Prefecture, Minami Shimabara
 Operator:
GP Energy 3-A Co., Ltd. (wholly-owned subsidiary)
 Area:22,112sqm
 Capacity:
Approx. 1MW
 Tariff:
JPY40/kWh (fixed for 20 years)
 Revenue from the sale of electricity (planned): approx. JPY50mn / year Output in the first year (planned): approx. 1.3mn kWh.

June 2014
On June 27, 2014, the company announced a change in leadership.
In addition to the incumbent Representative Director Toru Masuzawa, who will engage in management as
before, the company has promoted Masanori Kobayashi to joint representative director. The company
hopes for a more streamlines decision making process to cope with difficult market conditions.
With the joint leadership, the company aims to establish a fair and transparent management base bymaintaining and improving its compliance system and ensuring strong corporate governance.

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On June 26, 2014, the company announced the dismissal of its CEO.
As a result of an internal investigation, CEO Setsuya Fukunaga was found to have been engaged in
activities that went against the best interests of the company. Although the company has not suffered any
direct material losses stemming from his conduct, the investigation concluded that there was a possibility
that the company would incur future harm. In light of these facts, the company has removed Fukunaga
from the post of CEO.

On June 2, 2014, the company announced the cancellation of a capital alliance agreement and thesigning of a partnership agreement with ISE Power.
Cancellation of capital alliance agreement
Tamagawa Holdings announced that it canceled the capital alliance agreement announced on May 8,
2014, when the company said it formed a business and capital partnership and that it would issue sharesthrough a third-party allocation. The company announced at that time that it would form business andcapital alliances with Hikonobu Ise, president and chairman of Ise Foods Inc., and with Yukihiro Akimoto,president of Retail Branding Co., Ltd. However, Hikonobu Ise did not complete payment for new sharesand forfeited the right to allotment. Therefore, the company canceled the agreement. As for Tamagawa’splan to acquire shares in ISE Power, the company said it would disclose its decision at a later date after
discussing the matter with concerned parties.
Signing of business partnership agreement with ISE Power
Tamagawa Holdings on May 30, 3014 signed a business partnership agreement with ISE Power.
Tamagawa will maintain a previously agreed-upon arrangement in which the company will operate
solar-power businesses through ISE Power, of which Yukihiro Akimoto is the chief executive officer and
Hikonobu Ise is the chairman. This partnership agreement was signed after discussion with Ise and Ise
Foods Inc. concerning the company’s relationship with Retail Branding Co., Ltd.
Under the newly signed agreement, Tamagawa and its subsidiaries will help ISE Power operate solar
power businesses. Specifically, Tamagawa will provide ISE Power with information on companies that canplan, superviser, and construct solar power facilities.

May 2014
On May 29, 2014, the company announced the partial completion of payment and partial forfeiture of
exercising rights for a third-party share allocation.
On May 8, 2014, the company announced the signing of a business and capital partnership and issuanceof shares through a third-party allocation. Of the two recipients of the allotment, Yukihiro Akimoto hadcompleted payment as of the allocation date of May 29, 2014. However, Hikonobu Ise did not complete
payment, and forfeited the right to allotment.
According to the company, the business and capital partnership and the acquisition of shares in ISE Powerto render it an equity-method affiliate will be reevaluated among the interested parties. The company
plans to disclose any relevant information as soon as it is available.

On May 23, 2014, the company announced a change to capital reserves and the appropriation ofretained earnings.

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The company decided to add a resolution regarding the change to capital reserves and the appropriationof retained earnings to the agenda at the shareholders’ meeting. Effective June 27, 2014, capital reserves
will be reduced by JPY573mn, and the equivalent amount will be transferred to retained earnings to be
carried forward, in order to compensate for losses.

On May 15, 2014, the company announced the acquisition of fixed assets (a mega solar power plant)
under a lease agreement.
The company announced that it had entered into a lease agreement with Ricoh Leasing Co., Ltd. (TSE1:8566) to acquire and construct a 2mW solar power generation system (the total cost of the lease is
JPY901mn). Construction plans for this system, located in Tateyama City, Chiba, had been moving
forward via a company subsidiary.
Summary of Tateyama City mega solar power plant
Generation capacity: 1,999kW
Feed-in tariff (fixed rate for 20 years): JPY42/kWh
Estimated feed-in revenue: JPY9.5mn/year, JPY1.9bn cumulative total for 20 years
Operating profit: JPY4.5mn/year, JPY1.0bn cumulative total for 20 years
Scheduled date to begin operation: February 28, 2015
*Revenue is calculated as PV power generation facility with annual power capacity of 1,200MW, with thefeed-in tariff calculated as JPY36/kW for the power price Megasolar plant in Sodegaura, Chiba and
JPY40.4/kW for the Goto Islands power plant

On May 8, 2014, the company announced the signing of a business and capital partnership and issuanceof shares through a third-party allocation.
Tamagawa will form business and capital alliances with Hikonobu Ise, president and chairman of Ise
Foods Inc., and with Yukihiro Akimoto, president of Retail Branding Co., Ltd. The alliance will involve theissuance of new shares through a third-party allocation.
According to Tamagawa, Ise Foods Group (Ise Foods and a company affiliated with Ise Foods and
Hikonobu Ise) owns land on which solar-power generation facilities will be built. (The group has alreadysubmitted an application to use 27 pieces of land in 10 prefectures for power generation and sellelectricity for JPY36 per 1kWh. Facilities to be built on the land tracts have already been authorized by theminister of economy, trade and industry as power facilities that generate renewable energy andapplications for the sale of electricity to electric power companies have been finished. The size of theland totals as many as 1,419,964 square meters. Solar power facilities with a maximum capacity to
produce 76.5 megawatts of electricity are expected to be built. The group also has 30 separate pieces ofland applied for production of electricity to be sold for JPY32 per 1kWh.)Hikonobu Ise will provide the land through Ise Foods to ISE Power. Retail Branding, which is authorized by
the minister of economy, trade and industry to operate renewable energy equipment necessary forsolar-power generation, will change the name of the operations to ISE Power. Tamagawa will provide its
expertise to ISE Power.
Tamagawa will allocate share warrants to Hikonobu Ise and Akimoto, who will exercise the warrants toacquire Tamagawa shares in accordance with the progress of the solar-power project. Tamagawa will use
the money to finance its participation in the project.

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Overview of the issuance of warrants
Allocation date
: May 29, 2014
Number to be allocated: 14,439 (1 warrant equals 1,000 shares)
Issuance Price: JPY7,918 per warrant (JPY114,328,002in total)
Potential new shares: 14,439,00(35.0% outstanding shares as of March 31, 2014)
Amount to be raised: JPY4,648,174,002 (Net:JPY4,622,174,002)
Exercise price: JPY314 a share
Recipients: Hikonobu Ise: 12,377: Yukihiro Akimoto: 2,062*The warrants do not have a provision for a revision in exercise price or the number of shares to be allocated.
(However, the exercise price and the number of shares could be adjusted.)

How and when the proceeds will be used
Use
AmountTo acquire ISE Power shares
JPY10,500,000
from RB
To invest in ISE Power projects or JPY4,611,674,002
lendmoney to the company

Date
May 29, 2014
In accordance with theprogress of the project from
June 2014 until
May 2017

Tamagawa will spend JPY4,622,174,002, which the company will have left after acquiring a stake in ISE
Power, to invest in ISE Power projects or lend to the company. ISE Power will use the money to lease theland or acquire the rights to use the land owned by Ise Foods Group to build power-generation facilities.
The money will also be used for equipment, construction, electrical facilities, buildings, and otherexpenses.

January 2014
On January 24, 2014, the company announced a stock split.
On the record date of February 28, 2014, and the effective date of March 1, 2014, the company will
execute a three-for-one stock split. With this, the number of shares outstanding will increase from13,753,000 to 41,259,000.

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Other
The company has been subject to harmful internet rumors, and is taking steps to improve its reputation,
including filing civil and criminal actions, to bring the perpetrators to account.

Major shareholders
Top Shareholders

Amount Held

Bank Julius Bare & Co. Ltd. Singapore Clients
Mizuho Securities Asia Limited Client Account 69250601
MSIP Client Securities
Japan Securities Finance Col, Ltd
Hiromasa Shimanuki
Yugen Kaisha Sato Sogo Kikaku
Barclays Bank PLC Singapore-Client AC-Non Japanese Residents
Sada Kubota
Masuzawa Toru
Rakuten Securities, Inc.

10.26%
6.97%
6.20%
5.17%
4.60%
3.36%
2.94%
2.49%
2.27%
2.08%

Source: Company data, SR Inc. Research
As of March 31, 2015

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Tamagawa Holdings Co., Ltd. (6838)

SR Research Report

2015/6/29

Company profile

Company

Head officeTamagawa Holdings Co., Ltd

Hamamatsu-cho Place 1F,
1-6-15, Hamamatsu-cho, Minato-ku
Tokyo, Japan 105-0013

Phone

Listed on+81-3-6435-6933

JASDAQ

EstablishedExchange listing

May 7, 1970

August 31, 1999

WebsiteFiscal year-end

http://www.tmex.co.jp/english/index.html

March

IR Webhttp://www.tmex.co.jp/english/ir-info.html

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Tamagawa Holdings Co., Ltd. (6838)

SR Research Report

2015/6/29

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