The share price of Tokyo Energy & System (TES), a power‑plant construction subcontractor, rose 22.54% on May 13 to ¥2,479 following the release of robust FY3/26 results, including a 78% year‑on‑year increase in operating profit. OP was guided to go up by 54% for FY3/27. The stock later reached ¥2,642 on May 26 before pulling back to around ¥2,000.

Management attributes the recent weakness to a period of market‑wide consolidation rather than any change in fundamentals. Given TES’s positioning within the data‑center construction ecosystem, the correction may also reflect short‑term rotation away from the broader AI‑related infrastructure theme.

Once the consolidation phase stabilizes and steady growth will become evident in its financials, TES could benefit from renewed attention.

Topix overhung

In addition, TES had a relatively low float ratio of 33% at the time of the next‑generation TOPIX inclusion assessment, and management expected the company to be phased out of the index — a view that was already widely shared in the market. Since then, TEPCO has reduced its stake from 24.33% to 18.21%, which lifted TES’s liquidity ratio to roughly 55%. Management now believes this improvement materially strengthens the company’s eligibility and that TES could be selected for TOPIX inclusion in the next review cycle.

Hikari Tsushin is a 7.4% shareholder.

I see multiple structural drivers for TES that should support a more stable earnings profile and a gradual improvement in margins, making this an appropriate time to take a closer look at the name.

Order momentum remains strong, underpinned by several medium‑term themes:

Nuclear‑related work tied to restarts,

Data‑center‑linked substation projects, and

Decarbonization upgrades at thermal plants.

These are areas where TES already has established capabilities and where visibility is improving.

Management has also shown its renewed focus on profitability, prioritizing disciplined bidding and margin protection. This change in stance should help lift operating margins over time, especially as higher‑value projects in energy infrastructure and data‑center electrical systems become a larger share of the mix. Another plus factor is the company’s willingness to reduce its cross-shareholdings by Y1.5 Bn in FY3/25 and Y1.2 Bn in FY3/26.

My meeting with management focused on the progress toward these growth initiatives.  Interested in learning how management is increasing profitability?

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