Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪FY3/15 Sees Second Consecutive Year of Record
Profits, FY3/16 Important Year for Next Medium-termManagement Plan
Sun-Wa Technos Corporation (8137) is a trading company that specializes in technology
products. Its three divisions are electrical machinery, electronics, and general machinery.
The company has grown by selling equipment and materials for the production lines ofmanufacturers, mainly through its electrical machinery and general machinery divisions, thenselling the products made by these manufacturers, mainly through its electronics division. The
company calls this arrangement two-way trade.
In the fiscal year through March 2015, i.e., in FY3/15, the company achieved record-highsales and profits for the second year in a row, and its profits were in line with the targets in
its medium-term management plan, JUMP 1200. Because sales of some products in Japandeclined y-o-y, the company’s total sales in Japan grew only 5.5% y-o-y, but its sales inother parts of Asia jumped 23.4%, and its sales in Europe and the US rose 7.5%. Thus, total
consolidated net sales increased 9.8% y-o-y. Gross profit expanded 10.3% y-o-y, more thanoffsetting an increase in SG&A expenses, so operating income grew 8.1%.
For FY3/16, the company’s medium-term plan calls for consolidated net sales of \120.0bn
and ordinary income of \4.7bn, but the company has forecast sales of \119.0bn and ordinary
income of \3.8bn. We believe that the company included only definite sales in its sales forecast,while it accounted for all possible costs for future growth. Thus, we consider the company’s
forecasts to be conservative. The company’s main suppliers have released more aggressive
forecasts than the company has.
The company has not released details of its next medium-term plan, which begins in FY3/17.
Although it continues to report record-high results, it has many problems. We believe that bysolving these problems, the company will achieve growth. Among the challenges facing thecompany are the need to increase its business with non-Japanese companies, to strengthen
its engineering business, and to control costs more effectively than it has to date. FY3/16 is an
important year for the company because it is the last year of its current medium-term plan andthe year to prepare its next plan. We believe that it is more important for the company to takemeaningful steps to insure medium-term growth this year than it is to achieve business targets.

伪伪Check Point
・ The company’s business performance has been tracing the goals set out in its eighth
medium-term management plan, JUMP 1200.
・ Sun-Wa Technos achieved record-high profits in FY3/15, for the second consecutive
year
・ The company values stable, continuous returns to its shareholders, so it is likely toraise its dividend again

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1

Sun-Wa Technos at a Glance

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

We encourage readers to review our complete legal statement on “Disclaimer” page.
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SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

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Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

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8-Jul.-15

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伪伪Corporate Overview
A trader of electrical machinery, electronics, and generalmachinery(1) History and Operational Overview
The company was established as a proprietorship in 1946 by Tokuro Yamada. It wasincorporated in 1949 as Yamada Kogyo Kabushiki Kaisha and developed as an independent
trader of technology products. Its three main businesses, electrical machinery, electronics, andgeneral machinery, are linked through two-way trade.
The users of electrical machinery, electronics and general machinery vary, as do the factorsthat drive demand for these products. A company that tries to handle all three fields runs therisk of gaining a broad but shallow understanding of and information about the products andthe technologies behind them. However, Sun-Wa Technos has developed expertise in all threefields, enabling it to thrive as a trader of technology products.
We understand that two-way trade has been an important factor behind the success of thecompany’s business structure. Two-way trade involves the supply of general machinery,
including industrial robots and other types of manufacturing equipment, and electricalmachinery, such as industrial motors and inverters, for the production lines and products ofmanufacturers and the sale of the electronics, mainly components and equipment, made bythese manufacturers. The company developed two-way trade over time while accumulatingknowledge and experience, and it is a distinctive strength.

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3

■Corporate■
Overview

Main Products

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

AC servo motors, programmable controllers, linear motors and various other motors, inverters,
Electrical
power conditioners, clean room robots and vacuum chamber robots for semiconductor
Machinery
manufacturing equipment, power substations and other products
Semiconductor manufacturing equipment, industrial robots, clean room robots for conveying
liquid crystal panels, valve control devices, conveyors, wind- and hydro-power equipment, airGeneralMachinery conditioners and kitchen equipment, various inspection devices, medical equipment, and otherproducts
Electronic components and equipment, including power supplies, connectors, semiconductors,
sensors, miniature fans, light emitting diodes (LEDs), liquid crystal displays (LCDs), personal
Electronics
computers for industrial use, circuit boards for central processing units, memory modules, andother products

Sources and Drivers of Demand for Company’s Products

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Products handled

Drivers of demand,
macroeconomic indicators

Source of demand

Plants of customer companies Capital investment by
Electrical Electrical components for
manufacturers, machinery orders,
Machinery customers’ products
and other measures of industrial
Production lines of customer
Generalexpansion
Machinery companies
Manufacture of final products Consumer spending, industrial
Electronics Components produced bycustomer companies

production index, etc.

Sun-Wa Technos serves a wide range of industries, but about one-quarter of its customers
produce factory automation equipment or other kinds of industrial equipment. This concentrationreflects the fact that the general machinery business and the electrical machinery businesscater mainly to manufacturers of industrial equipment. However, the electronics division
provides somewhat more than 70% of the company’s total sales, as it sells a wide range ofcomponents, from semiconductors and general electronic parts to electric power sources andsensors, to a far-flung array of industries, including manufacturers of industrial equipment.
As a result, it is difficult to break down the company’s sales by industry. Broadly speaking,the electrical machinery business and the general machinery business are geared to trendsof capital investment in Japan, while the electronics business is geared to trends in industrial
production.

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4

■Corporate■
Overview

Developing overseas business, mainly in Asia, in response tocustomer requests(2) Overseas Business

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

For the past several decades, Japanese manufacturers have been moving operations overseas
to cope with such challenges as yen appreciation and trade friction. Since most of Sun-Wa
Technos’s customers are Japanese manufacturers, the company has also developed overseas
operations in response to customer requests. Since the company mainly deals with production
facilities-related products and Japanese companies’ overseas plants are in other Asian
countries, that is also where most of Sun-Wa Technos’s overseas offices are located.
History of Overseas Expansion

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Nov. 1949
May 1995
Dec. 1997
Apr. 1998
Jul. 1998
Nov. 1998
Apr. 2000
Jan. 2001
Dec. 2001
Sep. 2002
Oct. 2006
Jan. 2009
Aug. 2013
Mar. 2014
Oct. 2014

Yamada Kogyo Kabushiki Kaisha
Sun-Wa Technos (Singapore) Pte. Ltd.
Sun-Wa Technos (Hong Kong) Co., Ltd.
Sun-Wa Technos Europe GmbH. (Düsseldorf, Germany)
Sun-Wa Technos America, Inc. (Chicago, U.S.A. )Sun-Wa Technos Taiwan Co., Ltd. (joint venture)
Sun-Wa Technos (Malaysia) Sdn. Bhd.
Sun-Wa Technos Taiwan Co., Ltd. (subsidiary)
Shanghai Sun-Wa Technos Co., Ltd.
Shenzhen Representative Office of Sun-Wa Technos (Hong Kong) Co., Ltd.
Sun-Wa Technos Asia (Thailand) Co., Ltd.
Sun-Wa Technos (Shenzhen) Co., Ltd.
Hanoi Representative Office of Sun-Wa Technos (Hong Kong) Co., Ltd.
Taichung Office of Sun-Wa Technos Taiwan, Co., Ltd.
PT. Sunwa Technos Indonesia

Breakdown of Overseas Sales by Geographical Market, FY3/12–FY3/16E

Source: Earnings presentation materials

The company’s overseas business has been growing, but it serves other Japanese companies
almost exclusively. As detailed in a later section, we believe that an expansion of its overseas
business to serve non-Japanese companies, while not easy, would provide great growthpotential, if successful.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

伪伪Status of medium-term management plan, JUMP 1200
Business results in line with targets in the eighth medium-term
management plan, JUMP 1200

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.

(1) Summary
FY3/16 is the last year of the company’s eighth medium-term management plan, called
JUMP1200. The policies being pursued through this plan aim to expand global business,enhance corporate value, strengthen the company’s organization, and improve its profitability.
To achieve these goals, priority measures include the strengthening of engineering capabilities,business in emerging economies, the development of new growth markets, and the establishmentof new businesses.
The company plans to implement the concrete steps described below as part of its priority
measures. Some time will be required before many of these actions contribute fully to sales andprofit growth, but the plan has not been hollowed out. We applaud management for diligently
implementing measures to achieve growth over the medium-to-long term. In the first two yearsof the current medium-term plan, business results have been in line with plan.

FISCO Ltd. Analyst
Hiroyuki Asakawa

Policy and Priority Measures

JUMP1200 Targets versus Actual Results and Current Forecasts

FY3/2013
Results
Net sales
Operating income
Ordinary income
Net income

88,264
2,269
2,519
1,520

(unit: \mn)Medium-term Management Plan (JUMP 1200)
FY3/2014
FY3/2015
FY3/2016
InitialTargets
Results
Targets
Results
Targets
forecasts
98,000101,378
110,000
111,276
120,000
119,000
3,100
3,211
3,700
3,471
4,400
3,500
3,400
3,438
4,000
3,761
4,700
3,800
2,000
2,168
2,500
2,466
2,850
2,500

Renew and integrate organization, improve sales capability(2) Strengthen role of the main sales divisionThis step is being taken to realize the priority measure of building an organization that enhances
our integrated electrical machinery, electronics, and general machinery businesses and ourengineering capabilities as much as possible.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■Status■of medium-term management plan, JUMP 1200

On April 1, 2015, the company renewed and integrated its organization to strengthen its sales
capability. To bolster its engineering business, it established a new engineering department
within the main sales division, separate from an industrial solutions department. At the sametime, it set up two other new specialist departments in the sales division, an office to promotebiomedical applications, and a department to sell automotive products.

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

The engineering business proposes and sells total solutions combining systems, rather than
individual products, in the electrical machinery and general machinery businesses. The neworganization allows Sun-We Technos to assume the role of a coordinator of business. The
industrial solutions department gathers information from suppliers and other external parties
and conceives of projects, while the engineering department designs, proposes and installs thesystems needed for these projects.
New Organization to Strengthen the Role of the Main Sales Division

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Source: Earnings presentation materials

Sun-Wa Technos Asia (Thailand) has been building an engineering business for several years,
and has completed 20–30 projects. In 2015, this subsidiary projects sales of about \2.6bn,of which, \550mn is to come from engineering business. Sun-Wa Technos’s reorganization
aims to apply the success of its engineering business in Thailand to build a global engineeringbusiness.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■Status■of medium-term management plan, JUMP 1200

Sales at Sun-Wa Technos Asia (Thailand), FY3/14–FY3/16E

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
Source: Earnings presentation materials

FISCO Ltd. Analyst
Hiroyuki Asakawa

Plans to establish subsidiaries in Mexico and the Philippines in
FY3/16(3) Developing subsidiaries in developing economies
In August 2013, the first year of the JUMP1200 medium-term plan, Sun-Wa Technos opened a
representative office in Hanoi, Vietnam. This office is part of the Sun-Wa Technos subsidiaryin Hong Kong, but the office is generating annual sales of more than \1bn, so Sun-Wa Technos
is considering elevating the status of the unit to a subsidiary. In October 2014, Sun-Wa
Technos opened a subsidiary in Jakarta, Indonesia. As the Thai subsidiary seeks to support
the construction of production facilities by companies entering the Thai market, the Indonesiansubsidiary seeks to support the construction of production facilities by companies entering theIndonesian market, with a prime emphasis on engineering business.
In FY3/16, Sun-Wa Technos plans to open subsidiaries in Mexico and the Philippines. The
Mexican subsidiary will concentrate on providing goods and services to the automotive
industry, while the Philippine subsidiary will target the assembly of precision equipment. The
U.S. subsidiary of Sun-Wa Technos, Sun-Wa Technos America, Inc., has offices in Illinois andSouth Carolina, but Sun-Wa Technos is thinking about opening a third office in the US to deal
with an anticipated rise in demand from certain customers.

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■Status■of medium-term management plan, JUMP 1200

Overseas Development

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

Source: Earnings presentation materials

Improving sales approach to four growth markets, including newenergy(4) Promoting negotiations targeting growth markets
The company’s electronics business caters to a wider array of clients than its other businesses.
Of course, it aims to increase the number of its customers, but it is particularly targeting four
growth markets, new energy, energy saving, medical treatment and home care, and social
infrastructure.
In FY3/15, Sun-Wa Technos’s three businesses negotiated about \12.7bn of transactions
with companies in these four growth markets. This was almost \1bn more than the \11.8bn
forecast by the company at the end of H1 FY3/15. Some of these negotiations contributed tosales in FY3/15, and some will contribute to sales in FY3/16, while others won’t contributeat all. The company now estimates that its businesses will negotiate \16.6bn of transactions
with companies in the four growth markets in FY3/16. Based on experience, about 30% of thenegotiated amount will be realized as sales. Thus, sales to these growth markets are likely tocontinue to grow.
Value of Transactions Negotiated in Four Growth Markets
FY3/14MarketFY3/15H1 FY3/15 H2 FY3/15 FY3/15
amountforecast
forecast\4.5bn\5.0bn\2.0bn\7.0bn\1.7bn\2.0bn\1.0bn\3.0bnAmountNew energy
Energy saving
Medical treatment
and home care
Social infrastructure
Total

Planned for FY3/16
and following years
As of Nov. As of May
Amount2014
2015\7.8bn\4.0bn\5.7bn\3.0bn\3.0bn\7.8bn\0.3bn\1.0bn\0.2bn\1.2bn\1.1bn\2.0bn\2.0bn\0.1bn\6.6bn\0.5bn\8.5bn\0.1bn\3.3bn\0.6bn\11.8bn\0.8bn\12.7bn\0.5bn\9.5bn\1.1bn\16.6bn

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■Status■of medium-term management plan, JUMP 1200

Examples of Large Projects Negotiated in the Four Growth Markets
MarketNew energy
New energy
Medicaltreatment andhome care

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

Energy saving
Energy saving
Energy saving
Energy saving
Socialinfrastructure

Project

Business

Electronic components for equipment to inspect lithium ion batteries Electronics
Electronic components for equipment to recharge electric vehicles Electronics
Proposals to reduce personnel by using robots to support medical
General machinery andtreatment, to rehabilitate patients, and to convey drugs onelectrical machinery
production lines
Propose the installation of smart houses and offices that use little General machinery andenergyelectrical machinery
Systems that monitor electric power consumption in commercial
Electrical machinery,buildings and plants
electronics
LED lighting in refrigerated showcases of supermarkets
Electronics
Propose improvements in the air-conditioning systems of plants and Electrical machinery,
warehouses
electronics
Electronic parts for railway fault detection systems

Electronics

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪Our Thoughts on a New Medium-term Management Plan
Company forecast of FY3/16 ordinary income falls far short oftarget in the current medium-term management plan
Although sales and profits have been growing briskly, we are not satisfied. As detailed later,
the company forecasts an FY3/16 ordinary income of \3.8bn, which is much less than the\4.7bn targeted in the current medium-term management plan. We believe that this gap stems
from the fact that the company plans to invest and spend more in FY3/16, while the operating
environment is favorable, than it had originally planned to, thereby setting a strong base for
growth over the three-year period of the next medium-term management plan.
Of course, the company has not divulged the content of its next medium-term plan, but wethink that the plan should strive to accomplish the following four objectives:
1. Strengthen the business base by increasing transactions with non-Japanese companies
2. Build the engineering business to a significant scale
3. Establish new businesses in growth areas
4. Improve cost control
The second and third of these goals are being pursued in the current medium-term plan, andthey should be retained in the new plan. Elements of the first and fourth goals are also present
in the current plan, but they are not prominent. We believe that the new management planshould clearly focus on the first and fourth objectives.

Increasing transactions with non-Japanese companies would
probably allow the company to obtain highly profitable projects(1) Increase business with non-Japanese companies
As mentioned before, most of Sun-Wa Technos’s overseas business is conducted withsubsidiaries and affiliates of Japanese companies. The company could probably expand its
overseas business working just for such subsidiaries and affiliates. However, we believe thatit should increase its overseas business with non-Japanese companies to build the businessto another scale. By doing so, it would lift sales and increase the likelihood of winning highly
profitable work.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■Our
■
Thoughts on a New Medium-term Management Plan

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

However, we believe that the company’s two-way trade model, which supports businessgrowth in Japan, may be an impediment to selling to non-Japanese companies. Our reasoning
is as follows. The electronics business, which provides more than 70% of the company’s total
sales, procures all its products from Japanese companies. These products are probably too
advanced, too costly and too high in quality for many non-Japanese companies, especiallythose in Asian countries other than Japan. If the company were to trade in goods made by
Japanese companies with the functions and prices suitable to these non-Japanese customers,
it would simply be copying its inferior competitors, and it may erode the company’s profitability.
We think that for Sun-Wa Technos to increase its business with non-Japanese companies,
it should establish two-way trade among non-Japanese companies, just as it has among
Japanese companies. In other words, it would supply general machinery and electrical machinerycomponents made by non-Japanese companies to other non-Japanese manufacturers, thensell the electronic products of these customers to non-Japanese companies. By supplying partsof production equipment to non-Japanese companies, Su-Wa Technos could also increase
its engineering business. Japanese companies tend to focus on cutting-edge production
equipment, and supplying such equipment does not always support profit growth for Sun-Wa
Technos. For many non-Japanese companies, Sun-Wa Technos could supply products andtechnologies made in Japan that are considered outdated in Japan, products for which thecompany has substantial experience and knowhow. This might also enhance the company’s
reputation as a trader of technology products.
Time will probably be required to establish a two-way trade model for non-Japanese companies.
However, we believe that this time would be shortened significantly if the company applied its
experience in Japan. If the company chooses non-Japanese partners wisely, it could greatly
expedite the establishment of a two-way trade model, in our opinion.
Image of Two-Way Trade for Japanese Companies and Non-Japanese Companies

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■Our
■
Thoughts on a New Medium-term Management Plan

The company has been limiting its costs, but there is room for
improvement(2) Improve cost control

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

As a trading company, Sun-Wa Technos maintains stable, low profit margins, regardless of its
efforts. It implements different policies to raise sales, but even if sales grow, making a profit isanother issue. The company’s sales personnel probably consider profitability when negotiating
a sale, but profit conscious is essential as the company’s operating income margin remains
fairly constant, at about 3%.
The reason that we advocate greater cost control is that we foresee a greater-than-usual
increase in personnel costs and investment in developing overseas business in FY3/16. Of
course, upfront investment for future growth is necessary, but it must be normalized, either by
eliminating previous increases or by matching it to the sales increases resulting from previous
spending.
Sun-Wa Technos has generally kept its ratio of SG&A expenses to sales below 10% per year,
which has been an appropriate level. In FY3/16, however, it appears that SG&A expenses will
increase more than projected in the current medium-term plan, causing profit to fall short of
the target. If this is a one-time increase, there may be no need for concern. The company has
controlled costs well in the past, so it may continue to do so, but we would like to see thecompany control costs more in its next medium-term management plan.

㻾㼍㼠㼕㼛㻌㼛㼒㻌㻿㻳㻒㻭㻌㼑㼤㼜㼑㼚㼟㼑㼟㻌㼠㼛㻌㻿㼍㼘㼑㼟㻌㼍㼚㼐㻌㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻵㼚㼏㼛㼙㼑㻌㻹㼍㼞㼓㼕㼚㻾㼍㼠㼕㼛㻌㼛㼒㻌㻿㻳㻒㻭㻌㼑㼤㼜㼑㼚㼟㼑㼟㻌㼠㼛㻌㼟㼍㼘㼑㼟
㻝㻠㻚㻜㻑

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㻝㻜㻚㻣㻑

㻝㻞㻚㻜㻑
㻝㻜㻚㻜㻑

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㼙㼍㼞㼓㼕㼚

㻥㻚㻝㻑

㻥㻚㻡㻑

㻥㻚㻡㻑

㻟㻚㻟㻑

㻟㻚㻣㻑

㻲㼅㻟㻛㻝㻝

㻲㼅㻟㻛㻝㻞

㻥㻚㻥㻑

㻥㻚㻟㻑

㻥㻚㻡㻑

㻟㻚㻞㻑

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㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢㻱

㻤㻚㻜㻑

㻢㻚㻜㻑
㻠㻚㻜㻑
㻞㻚㻜㻑

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㻲㼅㻟㻛㻜㻤

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㻙㻜㻚㻡㻑㻲㼅㻟㻛㻝㻜

㻲㼅㻟㻛㻝㻟

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

伪伪Business Trends and Financial Analysis
Record-high profits for the second year in a row(1) FY3/15 Consolidated Results

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

In FY3/15, consolidated net sales grew 9.8% yoy to \111,276mn, operating income rose 8.1%
to \3,471mn, ordinary income climbed 9.4% to \3,761mn, and net income advanced 13.8% to\2,466mn. Profits reached all-time highs for the second consecutive year.
In the electrical machinery business, sales declined 8.5% yoy because of a drop in domestic
sales of control equipment for solar power systems. In the electronics business, sales rose
15.6% yoy, reflecting increases in sales of electronic parts for factory automation equipment,
automotive equipment, and amusement equipment. In the general machinery business, sales
advanced 16.7% yoy, led by upturns in sales of equipment for LCD production lines and industrial
robots for other kinds of production lines.
Consolidated Results by Segment
FY3/1388,264-1.6%
22,222-9.3%
58,6283.0%
7,412-10.8%
2,269-31.0%
2,519-26.0%
1,520-23.0%Net sales
YOY
Electrical machinery
YOY
Electronics
YOY
General machinery
YOY
Operating income
YOY
Ordinary income
YOY
Net income
YOY

FY3/14
101,378
14.9%
24,75911.4%
69,643
18.8%
6,975
-5.9%
3,211
41.5%
3,438
36.5%
2,168
42.6%

(\mn)
FY3/15111,276
9.8%
22,660-8.5%
80,473
15.6%
8,141
16.7%
3,471
8.1%
3,761
9.4%
2,466
13.8%

Conservative forecasts could be surpassed(2) Company forecasts for FY3/16
For FY3/16, the company projects a 6.9% y-o-y rise in consolidated net sales to \119.0bn, a
0.8% upturn in operating income to \3.5bn, a 1.0% increase in ordinary income to \3.8bn, anda 1.3% advance in net income to \2.5bn. These projected increases are modest, and the sales
forecast is \1.0bn lower than the sales targeted in the current medium-term management plan,
while the operating and ordinary income forecasts are each \900mn lower.
The company foresees increased sales to the factory automation, other industrial machinery,
and automotive industries in FY3/16, but it forecasts declines in sales to the semiconductor,
LCD and amusement industries. Because of increased hiring and an aggressive expansion of its
overseas business, the company projects a rise in SG&A expenses that curtails profit growth.

We encourage readers to review our complete legal statement on “Disclaimer” page.
13

■Business■
Trends and Financial Analysis

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.

We find the company’s FY3/16 forecasts conservative and see room for higher sales andprofits than forecast, high enough to absorb increased expenses. The three main suppliersto Sun-Wa Technos are Yaskawa Electric (6506), Omron (6645) and Minebea (6479). For
FY3/16, Omron projects a y-o-y sales increase of 6.2%, Yaskawa Electric forecasts an 8.7%
y-o-y sales rise, and Minebea anticipates sales growth of 29.8%. Sun-Wa Technos has about
1,700 suppliers, but we estimate that these three companies supply about 20% of the total
products purchased by Sun-Wa Technos. The sales growth forecast by Yaskawa Electricand Omron reflects the strong trend in manufacturing production equipment and other kindsof equipment industries, while the growth foreseen by Minebea shows its strong tendency
toward manufacturing products for machinery industry, particularly automobiles, and for thesmartphone and other electronic goods industry. The business of these three main suppliers
should affect the business of Sun-Wa Technos directly and indirectly, which is the main reason
we believe that Sun-Wa Technos’s forecasts are conservative.
The company’s FY3/16 forecasts assume an increase in the ratio of SG&A expenses to sales,
but if the company generates more sales than it forecasts, its ratio of SG&A expenses to sales
may not rise as much as it assumes. More important is whether the rise in the ratio of SG&A
expenses to sales will be limited to FY3/16. In this sense, prospects for FY3/17 are more
important than those for FY3/16.
Breakdown of Net Sales and Operating Income by Geographical Market

FISCO Ltd. Analyst
Hiroyuki Asakawa
Japan
Asia
The U.S. and Europe

Net sales
YOY
Operating income
YOY
Operating income margin
Net sales
YOY
Operating income
YOY
Operating income margin
Net sales
YOY
Operating income
YOY
Operating income margin

FY3/13
68,848-7.2%
1,590-34.9%
2.5%
21,524
16.6%
652
5.2%
3.3%
3,298
-5.4%
30
-87.0%
1.1%

FY3/1477,477
12.5%
2,152
35.3%
3.0%
26,756
24.3%
1,021
56.6%
4.1%
3,191
-3.2%
26
-13.3%
1.0%

FY3/1581,749
5.5%
2,128
-1.1%
2.6%
33,014
23.4%
1,260
23.4%
3.8%
3,431
7.5%
87
234.6%
2.5%(\mn)
FY3/16E
87,600
7.2%
2,400
12.8%
2.7%
34,6004.8%
1,100-12.7%
3.2%
4,300
25.3%
70
-19.5%
1.6%

Business Results of Three Leading Suppliers(\mn)
Yaskawa Electric (6506)
Omron (6645)
Minebea (6479)
FY3/15 FY3/16E Growth FY3/15 FY3/16E Growth FY3/15 FY3/16E Growth
Net sales
400,153 435,000
8.7% 847,252 900,000
6.2% 500,676 650,000
29.8%
Operating income 31,532 36,500
15.8% 86,951 90,000
3.5% 60,101 67,000
11.5%
Ordinary income
33,884 37,000
9.2% 87,388 89,000
1.8% 60,140 66,000
9.7%
Net income
24,819 24,000-3.3% 62,170 66,500
7.0% 39,887 48,000
20.3%

We encourage readers to review our complete legal statement on “Disclaimer” page.
14

■Business■
Trends and Financial Analysis

Summary Income Statement

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Net sales
YOY
Gross profit
Gross profit margin
SG&A expenses
YOY
Ratio of SG&A expenses to sales
Operating income
YOY
Operating income margin
Ordinary income
YOY
Net income
YOY
EPS (¥)
Dividend

FY3/11
85,28354.0%
10,867
12.7%
8,085
9.5%
2,781
3.3%
2,875
1,694
-

FY3/12
89,706
5.2%
11,784
13.1%
8,495
5.1%
9.5%
3,289
18.3%
3.7%
3,403
18.4%
1,975
16.6%

FY3/1388,264-1.6%
10,968
12.4%
8,699
2.4%
9.9%
2,269
-31.0%
2.6%
2,519-26.0%
1,520-23.0%

FY3/14
101,378
14.9%
12,680
12.5%
9,469
8.9%
9.3%
3,211
41.5%
3.2%
3,438
36.5%
2,168
42.6%

-32.0
20.0

132.3
20.0

154.2
20.0

118.7
20.0

163.0
22.0

171.8
26.0

174.1
28.0

FY3/1235,741
4,171
27,094
4,476
6,798
3,808
44
2,945
42,53926,914
22,132
2,926
1,856
3,053
1,800
1,253
12,396
1,935
1,341
9,173
-53
175
12,571
42,539FY3/1339,758
7,433
27,866
4,459
7,497
4,074
42
3,381
47,25628,64824,748
2,250
1,650
4,258
2,486
1,772
13,6601,935
1,341
10,437-53
689
14,34947,256

FY3/1445,3296,937
33,075
5,317
8,369
4,038
76
4,254
53,69830,73525,917
2,528
2,290
4,309
2,205
2,104
16,8072,553
1,958
12,350-53
1,847
18,65453,698(\mn)
FY3/1549,2397,584
34,419
7,236
9,509
3,879
243
5,386
58,74832,37027,496
2,782
2,090
4,426
2,100
2,326
18,9292,553
1,958
14,472-54
3,022
21,951
58,748

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa(\mn)
FY3/15 FY3/16E
111,276 119,000
9.8%
6.9%
13,98812.6%
10,516
11.1%
9.5%
3,471
3,500
8.1%
0.8%
3.1%
2.9%
3,761
3,800
9.4%
1.0%
2,466
2,500
13.7%
1.4%

FY3/1055,386-27.5%
6,819
12.3%
7,104
-12.9%
12.8%
-285
-0.5%
-107
-409
-

Summary Balance Sheet
FY3/1029,936
4,730
21,504
3,702
6,930
3,919
78
2,932
36,86624,782
19,630
4,419
733
2,427
1,200
1,227
9,239
1,935
1,341
6,015
-52
416
9,655
36,866

Current assets
Cash and deposits
Accounts receivable
Other
Non-current assets
Property, plant and equipment
Intangible assets
Investments and other assets
Total assets
Current liabilities
Notes and accounts payable-trade
Short-term loans payable, etc.
Other
Non-current liabilities
Long-term loans payable
Other
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Valuation gains or losses
Total net assets
Total liabilities and net assets

FY3/1134,333
3,610
25,987
4,736
6,920
3,854
61
3,004
41,254
27,18921,960
3,100
2,129
3,072
1,800
1,272
10,677
1,935
1,341
7,454
-52
315
10,992
41,254

Cash Flow Statement

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate change on cash andcash equivalents
Net change in cash andcash equivalents
Balance of cash andcash equivalents at term start
Balance of cash andcash equivalents at term end

FY3/10954-65675

FY3/1145-94-985

FY3/12
1,297
-215
-472

FY3/13
3,652
-110
-415

FY3/14-1,374
-127
769

(\mn)
FY3/15
1,353
-444
-470

23

-76

-49

135

236

208

1,587

-1,110

561

3,262

-496

647

2,649

4,236

3,126

3,687

6,949

6,453

4,236

3,126

3,687

6,949

6,453

7,100

We encourage readers to review our complete legal statement on “Disclaimer” page.
15

■Business■
Trends and Financial Analysis

Aiming to improve financial measures over the medium- to longterm(3) Financial analysis

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa

In FY3/15, the company’s ROE fell 1ppt yoy to 12.2%. This is higher than the average ROE forlisted Japanese companies of 8–9%, but the ROE has been trending lower. Therefore, we lookfor improvement in this measure of return to equity investors.
Based on the company’s FY3/16 forecasts and several assumptions, we have estimated thebalance sheet figures for FY3/16 shown in the table below. We estimate that the company’s
ROE is likely to fall to 11.1% in FY3/16 because, even though the company plans to increase
its dividend, we see equity growing at more than twice the rate of net income growth. It’s notpractical to raise ROE only by increasing the dividend. It would probably be more effective tolimit the growth of total assets and use some cash to buy back the company’s outstanding
shares.
However, in our opinion, the ideal situation would be for the company to raise its ROE bycontinuing to increase its net income while moderating the growth of equity. The company still
has great potential to increase its sales and profits, but its dividend payout ratio, at 15%, islower than the corresponding ratios for most Japanese companies and here may be one aspect
the company should consider improving. The company has many options by which to improve
its financial ratios, and we expect this improvement to be a theme for the company over the
medium- to long-term.
Key Performance Indicators

Net sales

FY3/12
89,706

KPIs

SG&A expenses

8,495

Operating income
Ordinary income
Net income

3,289
3,403
1,975

Total assets

42,539Equity12,571

Ratios of profitability and operational efficiency

Ratio of net income
to equity
Ratio of ordinary
income to total
assets
Net income margin
Ratio of total assets
to equity (times)

16.8%

11.3%

13.2%

12.2%

11.1% ROE

8.1%

5.6%

6.8%

6.7%

6.3% ROA

2.2%

1.7%

2.1%

2.2%

2.1% Margin

3.56

3.34

3.06

2.76

2.68 Leverage

2.14

1.97

2.01

1.98

Assuming that the asset turnover rate
1.98 in FY3/16 is the same as the rate in
FY3/15

Asset turnover rate
(times per year)

Average growth rate
for FY3/13–FY3/15

Ordinary income
marginGross income margin
Ratio of SG&A
expenses to sales
Operating income
marginNet sales
Operating income
Ordinary income
Net income(\mn)
FY3/13 FY3/14 FY3/15 FY3/16E
Remarks
88,264 101,378 111,276 119,000 Company forecast
Assuming that the ratio of SG&A
8,699
9,469 10,516 11,246 expenses to sales in FY3/16 is thesame as the ratio in FY3/15
2,269
3,211
3,471
3,500 Company forecast
2,519
3,438
3,761
3,800 Company forecast
1,520
2,168
2,466
2,500 Company forecast
Assuming that the asset turnover rate
47,256 53,698 58,748 61,454 in FY3/16 is the same as the rate in
FY3/15
Calculated assuming that a dividend
14,349 18,654 21,951 22,901 payment of \28 per share is the only
outflow of cash

3.8%

2.9%

3.4%

3.4%

3.2%

13.1%

12.4%

12.5%

12.6%

12.4%

9.5%

9.9%

9.3%

9.5%

9.5%

3.7%

2.6%

3.2%

3.1%

2.9%

-

-

-

7.8%
38.6%
42.0%
-

16.5%
-

We encourage readers to review our complete legal statement on “Disclaimer” page.
16

伪伪Shareholder Return Policy

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

8-Jul.-15

Important disclosuresand disclaimers appear
at the end of this document.

Company aims for stable, continuous returns of profit toshareholders. Expect the company to continue to raise its
dividend
The company’s basic policy is to make stable, continuous returns to shareholders in the formof dividends. It has done so in the past, despite fluctuations in earnings. Even in FY3/09–
FY3/10, when the company suffered net losses following the global financial crisis triggered by
the collapse of Lehman Brothers, it paid a dividend equal to its FY3/08 dividend. In FY3/14–
FY3/15, the company raised its dividend accompanying its profit increases.
For FY3/15, it lifted its dividend by \4 to \26 per share, for a dividend payout ratio of 15.1%.
For FY3/16, it plans to increase its dividend by \2 to \28 per share, for a dividend payout ratioof 16.1%. The company’s results may not be spectacular, but they are steadily increasing, so
the company is likely to continue to raise its dividend.

㻰㼕㼢㼕㼐㼑㼚㼐㼟㻌㼍㼚㼐㻌㻰㼕㼢㼕㼐㼑㼚㼐㼟㻌㻼㼍㼥㼛㼡㼠㻌㻾㼍㼠㼕㼛㻔¥㻕

FISCO Ltd. Analyst
Hiroyuki Asakawa

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㻜㻚㻜㻑

We encourage readers to review our complete legal statement on “Disclaimer” page.
17

Disclaimer
FISCO Ltd. (the terms "FISCO", "we", mean FISCO Ltd.) has legal agreements with the Tokyo
Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock price and index
information. The trademark and value of the "JASDAQ INDEX" are the intellectual properties of
the TokyoStock Exchange, and therefore all rights to them belong to the Tokyo StockExchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use thisreport and take full responsibility for such use. We shall not be liable for any result of its use.
We provide this report solely for the purpose of information, not to induce investment or any
other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on information thatwas current at the time the report was produced, but this information and the content of thisreport are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplications of thereport, without the express written consent of FISCO, is strictly prohibited. Any transmission,
reproduction, distribution or transfer of the report or its duplications is also strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.