MODEC, INC.

Business Details

The Modec (Mitsui Ocean Development & Engineering) group operates a single business centered on EPCI (Engineering, Procurement, Construction, Installation) services for floating offshore oil and gas production facilities such as FPSOs, FSOs, and TLPs, together with Charter Services (Lease + Operation). Its major customers are leading overseas oil and gas development companies such as ExxonMobil, Equinor, Shell, and Petrobras, and the company demonstrates strong competitiveness through fabless project management centered on deepwater oilfield development in Brazil, Guyana, West Africa, and other regions.

Recent Overview

Accelerated FPSO construction progress drove substantial increases in both revenue and operating profit in Q1 FY2026

In the first quarter of FY2026 (ending December 2026) (January to March 2026), steady progress on FPSO construction projects drove substantial profit growth, with revenue of ¥172,224 million (up 31.9% year on year), operating profit of ¥19,626 million (up 74.5% year on year), and quarterly profit attributable to owners of parent of ¥15,853 million (up 90.6% year on year). On the other hand, orders received remained limited to specification changes on existing projects and other items, coming in at a low level of USD 129,315 thousand (down 97.3% year on year). The order backlog stood at USD 17,859,461 thousand (down 3.9% from year-end). Due to the escalation of tensions in the Middle East, crude oil prices surged to over USD 80-100 per barrel, and demand for deepwater oil and gas field development has remained solid. The full-year earnings forecast remains unchanged at revenue of ¥720,038 million and operating profit of ¥72,003 million. The annual dividend forecast is ¥200 (an increase from ¥140 in the previous period).

Key Products

Growth Drivers

• Increase in revenue and gross profit due to steady progress on FPSO construction projects (Q1 FY2026 revenue up 31.9% year on year)
• Visibility of medium- to long-term revenue through the accumulation of an order backlog of USD 17,859,461 thousand (including major projects such as the Gato do Mato FPSO for Shell Brasil and the Hammerhead FPSO for ExxonMobil Guyana)
• Sustained or expanded investment appetite of oil companies for deepwater oil and gas field development driven by rising crude oil prices (over USD 80-100 per barrel) amid escalating tensions in the Middle East
• Continued firm demand for ultra-deepwater and large-scale projects (driven by the need to balance decarbonization with stable energy supply)
• Stable investment income from equity-method affiliates (USD 46,389 thousand in Q1 FY2026, up 0.6% year on year)
• Expanded interest income (financial income of USD 22,202 thousand) resulting from a substantial increase in cash and cash equivalents (USD 1,961,484 thousand)
• Progress on the 2024-2026 Medium-Term Management Plan: full-year FY2026 net profit forecast of USD 370,000 thousand (up 2.6% year on year)

Risks

• Crude oil price volatility risk: In Q1 FY2026, prices fluctuated significantly, rising from the high USD 50s to USD 60s per barrel at the start of the year to over USD 80-100 due to escalating tensions in the Middle East, which could affect the investment plans of oil companies
• Geopolitical risk: escalation of tensions in the Middle East (military attacks on Iran by the US and Israel), an outlook for oversupply due to OPEC Plus unwinding production cuts and increased US production, and uncertainty over the global economic outlook
• Risk of a substantial decline in orders received: orders received in Q1 FY2026 were at a low level of USD 129,315 thousand (down 97.3% year on year), which could lead to a future decline in the order backlog
• Risk of cost overruns on large-scale construction projects: the company has experienced cost overruns and losses on some projects in the past, and similar risks exist for large-scale projects currently underway
• Risk of funding burden during the construction period for lease and charter projects (construction cost burden corresponding to the equity investment ratio)
• Customer concentration risk: the top three customers, ExxonMobil Guyana Limited, Equinor Energy do Brasil, and Shell Brasil, account for approximately 60% of revenue
• Foreign exchange risk: the functional currency is the US dollar, and yen-translated results are affected by exchange rate movements (the translation rate for Q1 FY2026 was USD 1 = ¥159.90)
• Risk of rising construction costs due to inflation and surging energy prices: price levels in major countries are being pushed up again, raising concerns about the impact on procurement costs