COMPANY RESEARCH AND ANALYSIS REPORT

SUN-WA TECHNOS CORPORATION
8137
Tokyo Stock Exchange First Section

17-Jan.-2020
FISCO Ltd. Analyst

Hiroyuki Asakawa

FISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. In 1H FY3/20, although sales and profits declined due to the fall in demand for capital investment,
growth for the automotive industry continued . ...........................................................................................

01

2. Is making steady progress for each of the four fundamental policies in NEXT 1800,
the new medium-term management plan . ..................................................................................................

01

3. 2H FY3/20 is a period to solidify structures to steadily capture recovery demand from FY3/21. .................

02■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. 1H FY3/20 results........................................................................................................................................

03

2. Segment and regional trends.......................................................................................................................

05■Medium- to long- term growth strategy and its progress--------------------------------------------------- 09
1. New medium-term management plan NEXT 1800 . .....................................................................................

09

2. Progress for “contribute to customer production activities by strengthening core businesses” . .................

11

3. Progress for “expand global business capabilities to support market demand”. .........................................

14

4. Progress for “pursue new business fields to accelerate sustainable growth”.. .............................................

14

5. Progress for “initiatives to realize a sustainable society”..............................................................................

14

6. Growth of the automotive business.. ...... ......................................................................................................

15■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 18■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 21

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

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html██SummaryIs solidifying preparations for a fully-fledged recovery from FY3/21
by steadily implementing the priority measures set out in the new
medium-term management plan and growing the business for the
automotive industry
SUN-WA TECHNOS CORPORATION <8137> (hereinafter, “the Company”) is an independent trading company thatspecializes in technology products. The Company has steadily expanded its businesses by leveraging coverageof three major areas (electrical machinery, electronics, and general machinery) and two-way trade in which it sells
equipment and materials for manufacturers’ production lines and then procures the products made by thesemanufacturers. In recent years, it has been focusing on the engineering business and global SCM solutions.
1.In 1H FY3/20, although sales and profits declined due to the fall in demand for capital investment, growth
for the automotive industry continued
In the Company’s 1H FY3/20 results, sales and profits declined, with net sales of ¥67,608mn (down 6.3% YoY)
and operating income of ¥909mn (down 57.3%). Capital investment in the manufacturing industry in Japan andoverseas decreased due to the impacts of the US-China trade friction and other factors, and based on this, theCompany downwardly revised its full fiscal results forecasts at the time it announced its 1Q results in July 2019.
However, growth was greater than expected for the automotive industry and the amusement industry, and the 2Q
results greatly exceeded the revised forecasts. Sales for the automotive industry are being driven by demand forparts for driving-assist systems, and the steady growth is expected to continue for the time being. This businessis becoming the second pillar of earnings after the business for the factory automation and industrial equipment
industries, and expectations are rising for its growth to provide stable results in the future.
2.Is making steady progress for each of the four fundamental policies in NEXT 1800, the new medium-term
management plan
The Company has formulated NEXT 1800, a three-year medium-term management plan from FY3/20. It is working
to steadily implement the four fundamental policies set-out in it, and overall, it is making steady progress for them.
Within the strengthening of core businesses, for the engineering business, it is taking on the challenge of converting
the business strategy toward improving the profit margin. It can be evaluated positively on the fact that it has notwasted time and taken on reforms at an early stage. On the other hand, the scope of the global SCM solutions
business is steadily expanding, and in terms of profitability also, it seems to have acquired the expected level in aform that utilizes the Company’s many years of experience and business infrastructure. It can also be seen to be
making progress in the respective fields relating to the themes of global business development, expansion into new
business areas, and contributing to a sustainable society. For the management targets, although conditions aresevere in FY3/20, at FISCO we think it is fully possible that it will achieve the initially planned results targets for theplan’s final fiscal year.

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

01 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Summary

3. 2H FY3/20 is a period to solidify structures to steadily capture recovery demand from FY3/21
For the FY3/20 full year, the Company has slightly raised the forecasts from the forecasts in July 2019, to net salesof ¥140,000mn (down 3.7% YoY) and operating income of ¥1,600mn (down 53.1%). On looking only at the 2H, thevalues of the latest October forecasts are at profit levels further below the revised forecasts of July. It was necessary
to downwardly revise the outlook as a result of the increased precision of the forecasts, and the severe conditions
for the Company’s results are expected to continue. But on the other hand, signs of a results recovery can also be
seen. In the 1H, some of the Company’s direct customers, of industrial machinery manufacturers (set manufacturers)
conducted inventory adjustments, and therefore the Company’s sales slumped more than actual demand for capital
investment. But at the present time, set manufacturers have completed their inventory adjustments and orders arerecovering in a form reflecting actual demand. There is also the sense that the severity of the US-China trade friction
has peaked-out, and conditions are expected to transition to a recovery phase from FY3/21. It can be said that the2H is the period to fully prepare for this time, and at FISCO, we think that, while also considering numerical results,
the progress made for this will be the most important evaluation point.
Key Points
In the engineering business, is taking on the challenge of converting the strategy toward raising the profit
margin• In the global SCM solutions business, both the business scope and profitability are trending steadily• The focus is on whether the business for the automotive industry will become a long-term business pillar•㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻕㻞㻜㻜㻘㻜㻜㻜

㻡㻘㻜㻜㻜
㻠㻘㻝㻟㻡

㻝㻢㻜㻘㻜㻜㻜

㻠㻘㻜㻜㻜

㻟㻘㻠㻝㻜
㻟㻘㻜㻝㻠

㻝㻞㻜㻘㻜㻜㻜

㻟㻘㻜㻜㻜

㻞㻘㻠㻠㻠

㻤㻜㻘㻜㻜㻜

㻝㻠㻢㻘㻣㻡㻥
㻝㻜㻡㻘㻣㻠㻤

㻝㻠㻡㻘㻠㻝㻜

㻝㻝㻢㻘㻢㻝㻝

㻝㻘㻢㻜㻜㻝㻠㻜㻘㻜㻜㻜

㻠㻜㻘㻜㻜㻜

㻜

㻞㻘㻜㻜㻜

㻝㻘㻜㻜㻜

㻜
㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜㻌㻱

Source: Prepared by FISCO from the Company's financial results

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

02 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html██Results trends
Sales to the mainstay factory automation and industrial equipment
industries declined, mainly due to the impact of the US-China trade
friction, and profits also decreased significantly
1H FY3/20 results
The Company reported lower sales and profits in 1H FY3/20 at ¥67,608mn in net sales (-6.3% YoY), ¥909mn inoperating income (-57.3%), ¥1,036mn in ordinary income (-55.2%), and ¥689mn in net income attributable toowners of the parent (-58.3%).
The Company downwardly revised the 1H and the full fiscal year results forecasts at the time it announced the 1Q
results on July 30, 2019. Compared to the revised forecasts, net sales and operating income were above forecastby ¥3,608mn and ¥609mn, respectively.
1H FY3/20 results(¥mn)
FY3/191H FY3/20

1H results

2H results

Full year
results

Initialforecast

YoY

Revisedforecast

YoY

Results

Net sales

72,16473,246

145,410

Operating income

2,129

1,281

3,410

74,0002.5%

64,000-11.3%

67,608

-6.3%

1,500

-29.6%

300-85.9%

909-57.3%

YoY

Operating margin

3.0%

1.7%

2.3%

2.0%

-

0.5%

-

1.3%

-

Ordinary income

2,312

1,315

3,627

1,600

-30.8%

400-82.7%

1,036-55.2%Net income attributable toowners of the parent

1,651

977

2,628

1,150

-30.4%

350-78.8%

689-58.3%

Source: Prepared by FISCO from the Company's financial results

The Company has formulated NEXT 1800, its new three-year medium-term management plan from FY3/20 to
FY3/22. FY3/20 is the first fiscal year of this plan, but due to the impact of the US-China trade friction, capital
investment cooled down for a wide range of manufacturers, regardless of industry, and this had a major impact on
the Company.
As stated above, the results were a decline in sales and a major decrease in profits. But in a situation in which the
US-China trade friction has intensified in the form of tariffs being raised and an expansion in the scope of items
subject to them, the negative impact on the results of this on Japanese companies, including the Company, wasfully expected. In this environment, it prompted a swift downward revision in the results forecasts at the stage ofannouncing the 1Q results, and subsequently achieved 1H results that exceeded these revised forecasts. At FISCO,
we think that this was appropriate, as the method of disclosing information to market participants (investors).
Looking on a quarterly basis, breaking down the 1H, it is possible to read that results bottomed-out in the 1Q andshowed signs of recovery in the 2Q. Also, results slumped for the factory automation and industrial equipment
industries, which is the Company’s mainstay field, but they continued to grow for the automotive industry, which is
growing remarkably. Moreover, due to its position, a feature of the Company’s results is that they tend to fluctuate up
and down more than actual demand for products, and the current 1H was a period in which they greatly fluctuatedin a downward direction. It is possible that they will fluctuate greatly upward in the form of recovering this downward
portion in the recovery process in the future. So at FISCO, our evaluation is that these results are not necessarily acause for pessimism.
We encourage readers to review our complete legal statement on “Disclaimer” page.

03 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION

17-Jan.-2020

8137 Tokyo Stock Exchange First Section

http://www.sunwa.co.jp/ir/index.html

Results trends㻽㼡㼍 㼞㼠㼑㼞㼘㼥㻌㼞㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻔¥㼙㼚㻕㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻕㻠㻡㻘㻜㻜㻜

㻝㻘㻤㻜㻜㻠㻜㻘㻜㻜㻜

㻟㻢㻘㻟㻝㻢 㻝㻘㻢㻜㻜㻟㻡㻘㻜㻜㻜

㻝㻘㻠㻜㻜㻟㻜㻘㻜㻜㻜

㻝㻘㻞㻜㻜㻞㻡㻘㻜㻜㻜

㻤㻠㻤㻝㻘㻜㻜㻜㻞㻜㻘㻜㻜㻜

㻤㻜㻜㻝㻡㻘㻜㻜㻜

㻢㻜㻜㻝㻜㻘㻜㻜㻜

㻠㻜㻜

㻡㻘㻜㻜㻜

㻞㻜㻜

㻜

㻜

㻝㻽

㻞㻽

㻟㻽

㻠㻽

㻝㻽

㻲㼅㻟㻛㻝㻣㻞㻽㻟㻽㻠㻽㻲㼅㻟㻛㻝㻤㻝㻽㻞㻽㻟㻽㻲㼅㻟㻛㻝㻥㻠㻽㻝㻽㻞㻽㻲㼅㻟㻛㻞㻜

Source: Prepared by FISCO from the Company's financial results

As stated above, net sales declined 6.3% (¥4,556mn) YoY, while by business segment, net sales decreased
20.8%(¥2,767mn) in the electrical machinery segment, which had the biggest impact. In contrast, they declined
only 2.0% (¥1,083mn) in the electronics segment, which was the smallest decline in the 3 business segments.
Compared to the revised forecasts announced on July 30, 2019, net sales were ¥3,608mn above forecast. The
factors behind this were the greater-than-expected growth of sales of electronic parts for the automotive industry(mainly for vehicle on-board electronic parts) and for the amusement industry in Asia and Europe/US.
On the other hand, in profits, the biggest impact was from the decline in profits due to the lower sales. Also, whilesales slumped to the factory automation and industrial equipment industries, they grew to the automotive industry.
As a result, the product mix deteriorated, which caused the gross profit margin to decline. The Company worked to
cut costs and on other measures, but these efforts could not absorb the decline in gross profit, so operating income
declined greatly, down by more than 50% YoY.
Compared to the July revised forecast, operating income was ¥609mn above forecast. The reasons for this were
net sales grew more than expected for the automotive industry and for the amusement industry in Asia and Europe/
US, and also from the effects of the efforts to cut costs. Compared to the extent to which net sales were above
forecast, the extent to which profits were above forecast was small. This was because net sales increased mainly
for sales in the automotive industry, which has a relatively low profit margin. This can also be understood from thepreviously described deterioration of the product mix.

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

04 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION

17-Jan.-2020

8137 Tokyo Stock Exchange First Section

http://www.sunwa.co.jp/ir/index.html

Results trends㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼢㼍㼞㼕㼛㼡㼟㻌㼙㼍㼞㼓㼕㼚㼟㻳㼞㼛㼟㼟㻌㼙㼍㼞㼓㼕㼚
㻝㻟㻚㻝㻑

㻝㻠㻚㻜㻑

㻝㻞㻚㻠㻑

㻝㻞㻚㻡㻑

㻿㻳㻒㻭㻌㼑㼤㼜㼑㼚㼟㼑㼟㻌㼞㼍㼠㼕㼛
㻝㻞㻚㻢㻑

㻝㻞㻚㻡㻑

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼙㼍㼞㼓㼕㼚

㻝㻞㻚㻞㻑

㻝㻝㻚㻡㻑

㻝㻞㻚㻜㻑

㻝㻝㻚㻞㻑
㻝㻜㻚㻟㻑

㻝㻜㻚㻜㻑

㻥㻚㻥㻑

㻥㻚㻡㻑

㻤㻚㻜㻑

㻥㻚㻟㻑

㻥㻚㻡㻑

㻟㻚㻞㻑

㻟㻚㻝㻑

㻝㻜㻚㻞㻑

㻥㻚㻢㻑
㻤㻚㻣㻑

㻤㻚㻥㻑

㻥㻚㻜㻑

㻢㻚㻜㻑
㻟㻚㻣㻑

㻠㻚㻜㻑

㻞㻚㻢㻑

㻞㻚㻟㻑

㻞㻚㻤㻑

㻞㻚㻢㻑

㻞㻚㻟㻑
㻝㻚㻟㻑

㻞㻚㻜㻑
㻜㻚㻜㻑
㻲㼅㻟㻛㻝㻞

㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥 㻝㻴㻌㻲㼅㻟㻛㻞㻜

Source: Prepared by FISCO from the Company's financial results

In a severe business environment in general, net sales to theautomotive industry continue to increase from the strong demandfor driving-assist systems
2. Segment and regional trends
The Company discloses net sales after breaking them down into the three business segments of electrical machinery,electronics, and general machinery, according to the products handled. It also discloses net sales and operating
income as segment information by region. An overview is provided below.
Trends in net sales by business segments(¥mn)
FY3/191H

2H

Full year

1H FY3/20

13,332

11,237

24,56910,565YoY

7.6%-24.0%-9.6%-20.8%

Electronics

53,55355,817

109,370

52,470

YoY

6.4%

-7.1%

-1.0%

-2.0%

5,278

6,192

11,470

4,571

14.3%

36.5%

25.3%

-13.4%

72,16473,246

145,410

67,608

7.2%

-7.8%

-0.9%

-6.3%

Electrical machinery

General machinery
YoY
Total net sales
YoY

Source: Prepared by FISCO from the Company's financial results

In the electrical machinery segment, sales increased of electrical machinery parts for the semiconductor industry, butthey decreased of electrical machinery parts for the industrial machinery industry. Therefore, this business segment’s
net sales declined 20.8% YoY to ¥10,565mn.

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

05 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Results trends

In the electronics segment, sales grew of electronic parts for the automotive industry, but they decreased ofelectronic parts and electronic equipment for the industrial machinery industry, and also of electronic equipment
for the semiconductor industry. Therefore, this business segment’s net sales declined 2.0% YoY to ¥52,470mn.
In the general machinery business segment, sales increased of production equipment for the semiconductor industry,
but they decreased of production equipment for the industrial machinery industry. As a result, in this businesssegment as a whole, net sales declined 13.4% YoY to ¥4,571mn.
Detailed trends by regions(¥mn)
FY3/19Japan

2H

Full year

Net sales

57,65358,340115,993

53,889

YoY

10.1%

-6.8%

0.9%

-6.5%

1,065

874

1,939

529

13.9%

-37.5%-16.9%-50.3%

Operating income
YoY

1.8%

1.5%

1.7%

1.0%

Net sales

18,646

18,542

37,18816,243

YoY

5.1%-14.8%-5.8%-12.9%

778

430

1,208

289

15.4%

-47.2%-18.8%-62.9%

Operating margin

Asia

Operating income
YoY

4.2%

2.3%

3.2%

1.8%

Net sales

4,204

3,880

8,084

3,746

YoY

11.9%

-24.0%-8.8%-10.9%

275

-21

254

35

YoY

69.7%

-

-18.3%-87.2%

Operating margin

6.5%

-0.5%

3.1%

0.9%

Operating margin

Europe/US

1H FY3/20

1H

Operating income

Source: Prepared by FISCO from the Company's financial results

In Japan, net sales were ¥53,889mn (down 6.5% YoY) and operating income was ¥529mn (down 50.3%). Sales
grew of electrical machinery parts for the semiconductor industry and electronic parts for the automotive industry.
But overall, sales decreased for the industrial machinery industry in each business segment, while they also fell ofelectronic equipment for the semiconductor industry. Therefore, sales and profits declined.
In Asia, net sales were ¥16,243mn (down 12.9% YoY) and operating income was ¥289mn (down 62.9%). Althoughsales increased of electronic parts for the amusement industry, this was insufficient to cover for the decreases insales of electrical machinery parts and electronic parts for the industrial machinery industry and of electronic partsand production equipment for the semiconductor industry. As a result, sales and profits declined significantly.
In Europe/US, net sales were ¥3,746mn (down 10.9% YoY) and operating income was ¥35mn (down 87.2%). Salesof electronic parts for the amusement industry were strong, but sales of electronic parts for the industrial machineryindustry decreased, so sales and profits declined significantly.
Looking at the trends by business segment and region described above, the sales conditions by demand destination
are as follows.

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

06 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Results trends

Segment and regional trends
Japan
Electricalmachinery
Automotive industry

Electronics

Asia
Generalmachinery

Electricalmachinery

Europe/US

Electronics

Generalmachinery

Electricalmachinery×××Electronics

Generalmachinery○

Semiconductor industry

○

×

○

Industrial machinery industry

×

×

×

×

×

×

○

○

FPD industry
Smartphone industry
Amusement industry*○ and × indicate YoY increases and decreases in sales, respectively.
Source: Prepared by FISCO from the Company's financial results

In the business for the industrial machinery industry, results were sluggish in all three business segments, while
regionally also, there was a worldwide slump, including in the mainstay markets of Japan and Asia. For the semiconductor industry, in Japan sales increased of electrical machinery parts and general machinery (mainly production
equipment), but the declines in sales in Asia and Europe/US stood out. Within Japan also, sales declined in theelectronics segment, which is considered to provide the highest percentage of total net sales.
Even in this situation, net sales for the automotive industry grew firmly. The Company’s products for the automotive
industry are broadly divided into two types; 1) vehicle on-board electronic parts, and 2) production equipment.
It seems that the current situation is that on-board electronic parts constitute 70% to 80% of net sales for the
automotive industry, and in the 2Q, sales grew both of on-board electronic parts and production equipment. The
Company does not disclose information specifically on “on-board electronic parts,” but it seems that they are parts
used in fields relating to driving-assist systems like collision prevention and automated driving, which have becomea major development in the automotive industry. Therefore, at FISCO we estimate that their sales will continue togrow firmly.
As previously stated, due to its position, a feature of the Company’s results is they tend to fluctuate up and down
more than actual demand for products, and the structure of this is as follows. On dividing the Company’s earnings
according to the industry where demand occurs, earnings from the industrial machinery industry are overwhelming
large. Conversely, when looking at the actual product flow, we see that there are broadly two cases; cases of
direct sales by the Company to the end user (a typical example being a case of the Company directly delivering
production line equipment to a manufacturer), and cases of the Company providing parts to set manufacturers,
such as production equipment. In the mainstay business for the industrial machinery industry, there are many casesof the latter.
In the case of the latter, it occurs in the form of the Company being inserted between set manufactures andmovements in “companies’ capital investment,” which is, so to speak, actual demand. Set manufacturers, basedon their own demand forecasts, order many parts from the Company if they expect demand to be strong in the
future, but conversely, if demand becomes weak, they prioritize liquidating their inventory on-hand. Therefore, there
is a tendency for orders to the Company to be narrowed-down more than movements in actual demand. This is the
structure that causes the significant variability of the Company’s results. The formula is “The extent of the fluctuation(variability) in the Company’s results = the extent of changes in capital investment in the manufacturing industry(trend in actual demand) + the effects of set manufacturers’ inventory adjustments.”

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

07 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Results trends results a nd changes in actual demand
F l uctuations in the Company’s㻸㼑㼢㼑㼘㻌㼛㼒㻌㼍㼏㼠㼡㼍㼘㻌㼐㼑㼙㼍㼚㼐

Level of the Company’s results

ϭ,&zϯͬϮϬ

Source: Prepared by FISCO from interviews, etc.

At FISCO, we think that this structure itself is rooted in the Company’s position, so fundamentally, it would be
difficult to eliminate it. However, we should not forget that this structure also works to push-up its results during aphase in which demand bottoms-out and recovers. Also, even if it is difficult to eliminate this variability of results,
there are policies that can mitigate it, of changing the demand (customer) structure and the product structure. If
speaking of the present time, an example of this is steadily growing sales for the automotive industry and each year
improving their percentage of total net sales. As previously stated, a fairly large part of the Company’s net sales forthe automotive industry are from on-board electronic parts, which correspond to cases of direct sales to the final
customer. For the part for which it is inserted between set manufacturers, the Company’s results fluctuations are
similar to changes to actual demand, and the situation above all at the current time is that actual demand is trending
upward. At FISCO, we think that expanding to other products and markets, while maintaining the structure of thebusiness for the industrial machinery industry, which is Company’s mainstay business and strength, will improve thestability of results and enable the creation of an earnings structure that can demonstrate explosive power to expand
profits during times of economic boom.

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

08 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html██Medium- to long- term growth strategy andits progress

Aiming to realize sustainable growth in the medium- to long-term basedon NEXT 1800, the new three-year medium-term management plan
1. New medium-term management plan NEXT 1800
(1) Overview of the medium-term management plan
In May 2019, the Company announced NEXT1800, its new three-year medium-term management plan. Its
medium- to long-term growth strategy is to use this three-year medium-term management plan as a signpost
toward realizing sustainable growth in the medium- to long-term through steadily implementing the priority measures and achieving the numerical targets described within it.
In its long-term management vision “Sun-Wa Vision 2025,” the Company calls for “strengthening core businesses
to build operations that contribute to advances in industrial activity in local societies as a total coordinator of
production sites and distribution and help in attaining the goal of ¥250bn in consolidated net sales in FY3/26.” It
positions NEXT 1800, the new medium-term management plan, as an action plan for the next three years towardrealization of the corporate mission and Sun-Wa Vision 2025, similar to previous medium-term management plans.
NEXT 1800 presents four items as fundamental policies, including “contribute to customer production activities
by strengthening core businesses.” It also highlights priority measures for each of the policies. We review thedetails of plan measures later in this report. In the core portion of income growth, the Company hopes to make
improvements and achieve further advances versus Challenge 1500, the previous medium-term management
plan, and realize a growth strategy with even higher certainty, while also carrying out initiatives for new businesscreation that lay the groundwork for growth over a longer term as a new initiative. Additionally, it places moreemphasis on themes with strong social content, such as work style reforms that enhance productivity by utilizing
ICT in a way that addresses changes in society, achievement of a corporate culture that stimulates interest inwork, and contributions to SDGs (sustainable development goals), than previously.
Fundamental policies in NEXT 1800
Contribute to customer production activities by strengthening core businesses★ Strengthen core businesses★ Promote collaboration with business partners to bolster solution proposals
Expand global business capabilities to support market demand★ Strengthen hiring of overseas local employees and organizational capabilities★ Consider establishment of new locations
Pursue new business fields to accelerate sustainable growth★ Strengthen investments in new business creation★ Cultivate managerial personnel by adopting an intrapreneurship program★ Create new value through SCM improvements
Initiatives to realize a sustainable society★ Foster a corporate culture that stimulates interest in work by boosting employee engagement★ Implement work style reforms that “enhance productivity” utilizing ICT★ Conduct initiatives that contribute to SDGs
★ Fulfill corporate social responsibility (promote CSR and compliance)
Source: Prepared by FISCO from the Company's results briefing materials

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

09 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress(2) Management goals in the NEXT 180 plan
Management goals in NEXT 1800, as suggested by the plan name, are ¥180,000mn in net sales, ¥4,800mn inoperating income, and ¥5,000mn in ordinary income in FY3/22, the final fiscal year.
In FY3/20, which is the plan’s first fiscal year, the 1H results were below the initial forecasts, so the Company
downwardly revised the full fiscal year forecasts from the initial forecasts. Due to this situation, the managementtargets for FY3/21 and FY3/22 may be revised in the future.
Management targets of NEXT 1800(¥mn)
Medium-term management plan NEXT 1800

Net sales
Operating income
Operating margin
Ordinary income
Ordinary margin

FY3/19 results

FY3/20 managementtargets

FY3/21 managementtargets

FY3/22 managementtargets

145,410150,000

165,000

180,000

3,410

3,100

3,800

4,800

2.3%

2.1%

2.3%

2.7%

3,627

3,300

4,000

5,000

2.5%

2.2%

2.4%

2.8%

Source: Prepared by FISCO from the Company's results briefing materials

But as previously explained, a feature of the Company’s results is that they fluctuate up and down greatly compared to the actual demand for the products it handles. Results fluctuated downwardly in FY3/20, but conversely,in the demand-recovery phase. the Company’s results are expected to show strong momentum greater than the
movement in actual demand.
The issue is the timing of this, but one factor behind the current deterioration of results is the US-China trade
friction, and it is considered that the fourth phase of tariff measures by the US (the first half was implemented on
September 1, 2019, for imports worth US$112.0bn, and the second half is scheduled to be initiated on December
15 for imports worth US$160.0bn) is considered to have temporarily ended. This is because tariff sanctions havebeen imposed on almost all of the US$550.0bn value of imports from China. While it is possible that the movement
toward strengthening sanctions, such as raising the tariff rate, will continue, at FISCO, we think that in the future,
the two countries will shift the focus onto mitigating the friction through trade talks.
If this opinion is correct, the worst period for the Company’s business environment may have been the 1H. This isbecause company managers conduct upfront investment and steadily capture actual demand, while forecasting
the future. The US-China trade friction is intertwined with problems such as Hong Kong and Uyghur, while there
are also factors other than US-China related ones, such as Brexit, and we should not imagine that these problems
will be solved immediately. However, if they gradually and steadily improve, we can expect the Company’s results
to also bottom-out and recover to an upward trend. When considering the sense of speed for this, at FISCO we
think that actual demand will reach a period of fully-fledged recovery in FY3/22, and that benefiting from this, it isfully possible that the Company’s results will trend above forecast. The launch pad for this has been temporarily
lowered due to the downward revision to the FY3/20 forecasts, but we think that the level of the FY3/22 results
may settle in line with the initial forecasts.
Separate to these external factors, the Company itself is also steadily progressing measures for growth. It has
started the new medium-term management plan without any problems, and while there are many aspects notclearly reflected in corporate results, it is making steady progress below the surface. Below, the specific progress
made for the four fundamental policies (themes) are described.

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

10 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress

In the engineering business, is finetuning the strategy toward raising
the profit margin
The global SCM solutions business continues to grow steadily
2. Progress for "contribute to customer production activities by strengthening core businesses"
Among the four fundamental policies set out in the new medium-term management plan, at FISCO, we think thetheme of “contribute to customer production activities by strengthening core businesses” is the most important, inthe sense that it directly relates to the Company’s earnings growth.
Compared to the previous medium-term management plan, the point to focus on is that the scope of the “core businesses” has been widened and two businesses, the engineering business and the global SCM solutions business,have been newly added to the core businesses. This change suggests that both businesses have a scale suitable
to be “core businesses” and have grown to be important businesses.
The specific content of these two business has been repeatedly discussed in previous reports, so here, the main
progress made for them is described.
(1) Progress of the engineering business
The engineering business sells to customers what the Company itself combines and systemizes from the products
previously sold individually that are handled in each of the three respective business segments, of electricalmachinery, electronics, and general machinery. In other words, the engineering business is not some sort of separate, new business, but it is a so-called sales method for each product in an agency business. In this backgroundto which the Company is focusing its attention, there have been a sequence of events that include shifts to higher
functionality for various products and from hard to soft aspects alongside the technological developments andthe increasing sophistication of customer needs. In this situation, selling only individual products would not meetneeds and also tend to create a situation in which it is difficult for business opportunities to grow.
The engineering business has been steadily expanding and continues to remain stably above the ¥10bn level,
which had been the primary goal at the business launch, in the past few years. We think this is a major reason
for “upgrading” engineering business to a core business.

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

11 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress㼀㼞㼑㼚㼐㻌㼕 㼚㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍 㼚㼐㻌㼓㼞㼛㼟㼟㻌㼙㼍㼞㼓㼕㼚㻌㼕㼚㻌㼠㼔㼑㻌㼑㼚㼓㼕㼚㼑㼑㼞㼕㼚㼓㻌㼎㼡㼟㼕㼚㼑㼟㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻳㼞㼛㼟㼟㻌㼙㼍㼞㼓㼕㼚㻌㻔㼞㼕㼓㼔㼠㻕㻯㼛㼙㼜㼍㼚㼥㼣㼕㼐㼑㻌㼓㼞㼛㼟㼟㻌㼙㼍㼞㼓㼕㼚㻌㻔㼞㼕㼓㼔㼠㻕

㻔¥㼎㼚㻕
㻝㻢㻚㻜
㻝㻠㻚㻜

㻝㻢㻚㻜㻑
㻭㼎㼛㼡㼠㻌¥㻝㻝㻚㻡㼎㼚㻭㼎㼛㼡㼠㻌¥㻝㻟㻚㻡㼎㼚 㻭㼎㼛㼡㼠㻌¥㻝㻞㻚㻢㼎㼚㻝㻠㻚㻜㻑㻭㼎㼛㼡㼠㻌¥㻝㻞㻚㻠㼎㼚㻝㻞㻚㻜㻭㼎㼛㼡㼠㻌¥㻝㻝㻚㻝㼎㼚 㻝㻞㻚㻜㻑

㻝㻜㻚㻜

㻝㻜㻚㻜㻑

㻤㻚㻜

㻤㻚㻜㻑

㻢㻚㻜

㻢㻚㻜㻑

㻠㻚㻜

㻠㻚㻜㻑

㻞㻚㻜

㻞㻚㻜㻑

㻜㻚㻜

㻜㻚㻜㻑
㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜㻌㻱

Source: Prepared by FISCO from the Company's results briefing materials and interviews

The engineering business has progressed steadily up to the present time. But on the other hand, an issue canalso be seen, which is that the profit margin in this business has not increased above the initially expected level(specifically, this seems to be in a range of 25% to 30%).
On digging a little deeper on this point, we find that the factors causing the profit margin to not rise is that theCompany, rather than conducting the engineering business in a form that utilizes the knowledge and experience it
has accumulated in the past, seems to be conducting the work exactly as requested by customers, and the partthat is inherently supposed to be profits as “value added” becomes a cost that it incurs in advance.
The Company’s engineering business has been described by comparing it to curry. That is to say, previously
it sold the meat, vegetables, and rice individually as the ingredients (an agency business). But in contrast, theengineering business attempts to use each of these ingredients to make and to sell curry rice, and the structureis that the work to make and season the curry rice provides the value added. But it can be said that in this current
situation, the Company is not making and providing the curry as a completed recipe, but rather it is developing
a curry from scratch every time to suit the preferences of the customer.
Based on this situation, the Company has begun to rebuild the business model of the engineering business. It has
already adopted an orders policy that prioritizes profitability, of passing on orders for projects that do not utilize
its past knowledge. Other than this, it is also working to review various points, including the business model, theservice structure, and the list of fees.
An orders policy prioritizing profitability may cause net sales to decline in the short term. But at FISCO, we thinkthat the biggest reason that the Company decided to strengthen the engineering business is that such a changeof stance for ordering can be justified when considering the improvement to profitability. In terms of the next step,
it is considering measures that will achieve both sales growth and improved profitability, and we shall be focusing
on the specific measures it creates for this.

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

12 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress(2) Progress of the global SCM solutions business
The global SCM solutions business is rooted in the services that the Company has provided since the distancepast of procurement agent, logistics agent, and delivery management services. The various manufacturers that are
its main customers have been pursuing efficiency as major companies and progressing business structural reforms
and restructuring. In this process, they have targeted reducing personnel and bases in areas such as global
logistics, inventory management, and materials procurement, so the reality is that they currently have shortagesof personnel. The Company’s global SCM solutions business captures the need for outsourcing that arises dueto these shortages. The same as the engineering business, this is also one sales method and business method
for the products of the three business segments of electrical machinery, electronics, and general machinery.
Using the moving business as an example, conventional procurement agent and logistics agent services justmoving a person’s items from the former home to the new home. In global SCM solutions business, meanwhile,the service also extends to setting up televisions and PCs for immediate use after the move and procuring andinstalling antennas and Wi-Fi equipment. Engineering business corresponds to selection and procurement ofantennas and Wi-Fi equipment suited to the new area and wiring installation. The move might lead to morebusiness too if an order is received for landscaping and softscaping work. The Company is aiming to grow the
global SCM solutions business by utilizing the expertise it has accumulated over its long history as a technology
trading company and its strength of having an overseas network.
The Company did not announce numerical net sales targets for the global SCM solutions business in the new
medium-term management plan. But at FISCO, we think the target at the present time is ¥20bn.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼕㼚㻌㼠㼔㼑㻌㼓㼘㼛㼎㼍㼘㻌㻿㻯㻹㻌㼟 㼛㼘㼡㼠㼕㼛㼚㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻔¥㼎㼚㻕㻭㼎㼛㼡㼠㻌¥㻝㻜㻚㻡㼎㼚㻝㻞㻚㻜㻭㼎㼛㼡㼠㻌¥㻥㻚㻞㼎㼚

㻝㻜㻚㻜
㻤㻚㻜

㻭㼎㼛㼡㼠㻌¥㻢㻚㻣㼎㼚㻢㻚㻜㻭㼎㼛㼡㼠㻌¥㻟㻚㻤㼎㼚
㻠㻚㻜
㻞㻚㻜
㻜㻚㻜
㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜㻌㻱

Source: Prepared by FISCO from the Company's results briefing materialsOn the start of the new medium-term management plan, the Company launched the global SCM solutions divisionin April 2019. The aim of this was to accelerate growth compared to up to that time as a profitable business bychanging direction by 180 degrees to a proactive stance from a stance that had been slightly passive, which was
because the roots of this business are found in the procurement agent, logistics agent, and delivery management
services.

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

13 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress

Following the launch of the global SCM solutions division, the Company has progressed the transition to professionalism for both the aspects of establishing systems for business execution and reforming employee awareness.
As a result, the situation is that a development has started of creating a “spillover business” toward higher
profitability by developing the capturing of customers’ outsourcing needs (which fundamentally has a low profit
margin as it takes-over the “time” of customers) to breaking through to capture other transactions.

Established a base in Ho Chi Minh City, Vietnam.
Expected to contribute in the global SCM solutions business3. Progress for “expand global business capabilities to support market demand”
This theme includes the establishment of a second base in Ho Chi Minh City, Vietnam in August 2019. Vietnam is
growing remarkably and increasing in importance on a seemingly daily basis, so the Company is aiming to strengthen
its sales structure by establishing bases in the main cities in the north and south.
The base’s specific activities will include supporting Japanese companies, discovering excellent global companies
and products, and expanding sales channels to the ASEAN region. In addition to these activities, at FISCO, we
think that the collaborations with the global SCM solutions business to which the Company is placing its focus canalso contribute.

Rectifying SCM through the introduction of a Warehouse
Management System and working to create new value
4. Progress for “pursue new business fields to accelerate sustainable growth”
One specific progress made for this theme is the start of operations of the Warehouse Management System (WMS)
from April 2019. The introduction of the WMS is expected to have benefits on the points of improving logistics quality
and strengthening traceability, making logistics costs visible, and improving production. The Company intends torealize these benefits at an early stage by utilizing the WMS and improving proficiency in it.

Utilizing ICT to newly establish a low-cost sales base in Shikoku
5. Progress for “initiatives to realize a sustainable society”
For this theme, one of the targets is utilizing ICT to realize workstyle reforms that “improve productivity.” The
Company is taking on the challenge of achieving this target by newly establishing a sales base in Shikoku in July
2019. In previous sales bases, two types of staff were needed, sales staff (front office) and administrative staff (backoffice), and this division tended to cause base management costs to increase. However, there are only front-office
staff permanently stationed at the Shikoku sales office, as the back-office work is covered by teleworking by the
Osaka branch office, its head office. This has enabled the Company to establish a base in which staffing costs are
greatly reduced.
If it can be confirmed that this mechanism works as intended, the Company intends to newly establish sales bases
using the same method in Tohoku and other regions, which will lead to the discovery of excellent companies in theregions and the expansion of business scope.

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

14 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress

Net sales for the automotive industry are being driven by drivingassist systems and growing rapidly. The focus is on whether it will
become a long-term business pillar.
6. Growth of the automotive businessIn the 1H FY3/20 results briefing materials, the Company disclosed new values for net sales to the automotive
industry. There has been no change to the fact that its main market is the factory automation and industrial
equipment industries. But the growth in the last few years of net sales for the automotive industry has been more
rapid than expected, while the scale of net sales is also higher than anticipated.
There is no particular focus on growth of net sales for the automotive industry in the new medium-term management
plan. But as stated below, when looking at the Company’s results trends, in terms of the percentages of total sales
and also as the engine of earnings growth, we see that it has come to occupy an important position that cannot be
overlooked. Below, the Company’s business for the automotive industry is described in detail.
(1) Overview of the business scale
The Company’s net sales to the automotive industry can be broadly divided into parts for vehicles’ on-board
products and machinery and materials for plants’ production equipment. Internally, they are respectively called
and divided into automotive (on-board products) and automotive (equipment). In the FY3/19 results, automotive(on-board products) net sales were ¥21,298mn and automotive (equipment) net sales were ¥4,302mn. So whencombining both, total net sales for the automotive industry were ¥25,600mn (17.6% of total net sales).
For FY3/20, the forecasts are for net sales from automotive (on-board products) of ¥24,500mn (up 15.0% YoY),
from automotive (equipment) of ¥3,700mn (down 14.0%), and total net sales of ¥28,200mn (up 10.2%). Their
percentage of Companywide net sales of ¥140,000mn, will be 20.1%, which means they will pass sales forsemiconductors and LCDs to rank second (first place is expected to be maintained by sales for factory automationand industrial equipment)*.
*	In the 1H FY3/20 results briefing materials, the Company disclosed the increases or decreases and the percentage sharesof total net sales in the individual results. According to which, automotive (on-board products) sales grew to 22.8％ andautomotive (equipment) sales were 3.5%, meaning that in total, sales for the automotive industry contributed 26.3% of
total net sales. It is possible that, in the individual results, this was a temporary acceleration occurring only in this 1H, but
it does indicate that the automotive industry has grown to become the Company’s largest customer.

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

15 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress㼀㼞㼑㼚㼐㻌㼕 㼚㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼒㼛㼞㻌㼠㼔㼑㻌㼍㼡㼠㼛㼙㼛㼠㼕㼢㼑㻌㼕㼚㼐㼡㼟㼠㼞㼥
㻭㼡㼠㼛㼙㼛㼠㼕㼢㼑㻌㻔㼛㼚㻙㼎㼛㼍㼞㼐㻌㼜㼞㼛㼐㼡㼏㼠㼟㻕㻭㼡㼠㼛㼙㼛㼠㼕㼢㼑㻌㻔㼑㼝㼡㼕㼜㼙㼑㼚㼠㻕㻔¥㼙㼚㻕㻟㻜㻘㻜㻜㻜
㻞㻠㻘㻡㻜㻜

㻞㻡㻘㻜㻜㻜
㻞㻝㻘㻞㻥㻤
㻞㻜㻘㻜㻜㻜

㻝㻣㻘㻠㻥㻟

㻝㻡㻘㻜㻜㻜
㻤㻘㻣㻠㻣㻝㻜㻘㻜㻜㻜
㻡㻘㻜㻜㻜

㻠㻘㻟㻢㻡

㻞㻘㻤㻞㻤

㻟㻘㻝㻠㻝

㻟㻘㻟㻥㻟

㻠㻘㻟㻜㻞

㻟㻘㻣㻜㻜

㻜

㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜㻌㻱

Source: Prepared by FISCO from the Company's results briefing materials(2) The main product and business areas
Information on specific customers and products is essential to make decisions about future growth potential, but
the Company is restricted on disclosing such information, such as by confidentiality contracts with customers, andit does not disclose any details. What it currently publishes for automotive (on-board products) is information onelectronic parts related to so-called driving-assist systems, including automated breaks and collision-prevention
devices.
Looking at the extent of the dissemination of these various driving-assist systems, as of 2016, the percentageof new cars installed with automated breaks (breaking to mitigate collision damage) had risen to 66.2%. But
conversely, the percentage of new vehicles installed with adaptive cruise control (ACC, a device that automaticallycontrols the speed and the distance to the vehicle in front on a highway, etc.) was 38.7%. Lane keep assist (adevice for automatically controlling driving to keep close to the center of a lane on a highway, etc.) was 13.7%.

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

16 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼞㼍㼠㼑㼟㻌㼛㼒㻌㼕㼚㼟㼠㼍㼘㼘㼍㼠㼕㼛㼚㻌㼛㼒㻌㼐㼞㼕㼢㼕㼚㼓㻙㼍㼟㼟㼕㼟㼠㻌㼟㼥㼟㼠㼑㼙㼟㻌㼕㼚㻌㼚㼑㼣㻌㼢 㼑㼔㼕㼏㼘㼑㼟㻭㼡㼠㼛㼙㼍㼠㼑㼐㻌㼎㼞㼍㼗㼑㼟㻸㼍㼚㼑㻌㼗㼑㼑㼜㻌㼍㼟㼟㼕㼟㼠㻭㼐㼍㼜㼠㼕㼢㼑㻌㼏㼞㼡㼕㼟㼑㻌㼏㼛㼚㼠㼞㼛㼘

㻣㻜㻚㻜㻑
㻢㻜㻚㻜㻑
㻡㻜㻚㻜㻑
㻠㻜㻚㻜㻑
㻟㻜㻚㻜㻑
㻞㻜㻚㻜㻑
㻝㻜㻚㻜㻑
㻜㻚㻜㻑
㻞㻜㻚㻝㻞

㻞㻜㻚㻝㻟

㻞㻜㻚㻝㻠

㻞㻜㻚㻝㻡

㻞㻜㻚㻝㻢

Source: prepared by FISCO from the Ministry of Land, Infrastructure and Transport’s Evolution and Dissemination of DrivingAssist Technologies and Automated-Driving Technologies

Speaking for the first time on this situation, there remains plenty of room for growth for the rates of installation ofthese systems in new vehicles. Driving-assist systems are essential to improve the marketability of vehicles, andexcept for a few types of vehicles like economy cars, it is possible that they will substantively be installed in 100%of vehicles. One more aspect is the transition to high functionality for the various devices. The current driving-assist
systems are not themselves the ultimate goal, and rather it seems that they are being positioned as the transition
period toward completely automated driving. The government and others have set targets for the present time
toward realizing completely automated driving by 2025. But toward achieving these targets, the impression has
not been eradicated that driving-assist systems still lack accuracy. The strengthening of their functions will alsomean the strengthening of the functions of the various electronic parts that constitute them, which in turn will leadto the higher prices of these parts. It is considered that this will increase business opportunities for the Company,
which handles these parts.
(3) The medium- to long-term direction
It is unclear whether the Company has positioned the automotive business as the second business pillar after thebusiness for factory automation and industrial equipment, or alternatively, whether the large-scale demand, of thedemand relating to driving-assist systems, is a temporary phenomenon that it will capture only at the present time.
Or in other words, we do not know if the Company’s stance for the automotive business is proactive or passive.

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

17 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Medium- to long- term growth strategy and its progress

Centered on the automotive industry, it is said that “vehicles are being electrified” alongside the appearanceof EV (electric vehicles), while memories are still fresh of the many new entrants other than from the traditional
automotive industry. Currently, CASE (acronym of Connected, Autonomous, Shared & Services, Electric) has
become a keyword in the strategic direction being taken by the automotive industry. The current expansion of
the Company’s automotive business is also a part of this development, and at FISCO, we estimate that its stancefor the automotive business is naturally a proactive one. But on the other hand, it has not indicated any clear
strategy for business expansion in the medium- to long-term, such as launching the next product to follow-on
from the demand from driving-assist systems. This does not mean that the Company is taking a passive stance,
but instead it is highly likely that it is progressing business talks below the surface (as was the case with the
projects for driving-assist systems) toward launching the next business. Up to the present time, at FISCO, we havefrequently conducted analysis on the Company and taken approaches by looking at how its capital investment istrending, and going forward, we think it will be necessary for it to be analyzed from the automotive angle as well.

██Outlook
While results seemed to have hit bottom in FY3/20 1H, the outlook is
for their fully-fledged recovery from FY3/21 onwards
For the FY3/20 full year, the Company is forecasting ¥140,000mn in net sales (-3.7% YoY), ¥1,600mn in operating
income (-53.1%), ¥1,900mn in ordinary income (-47.6%), and ¥1,400mn in net income attributable to owners of
the parent (-46.7%).
The Company significantly made downward revision to the full fiscal year results forecasts when it announced the
1Q results in July 2019, and it again revised the full fiscal year forecasts, based on the results up to that time, when
it announced the 2Q results. Comparing the most recent forecasts of October 2019 to the July 2019 forecasts, thenet sales forecast is unchanged, but the forecasts for respective income items including operating income havebeen upwardly revised.
Overview of the FY3/20 forecasts(¥mn)
FY3/19FY3/202H

Full year

1H

2H

Full year

1H

Initialforecast

July
forecast

October
forecast

Initialforecast

July
forecast

October
forecast

Net sales

72,16473,246

145,410

67,60876,00076,00072,392150,000

140,000

140,000

Operating income

2,129

1,281

3,410

909

1,600

900

691

3,100

1,200

1,600

3.0%

1.7%

2.3%

1.3%

2.1%

1.2%

1.0%

2.1%

0.9%

1.1%

Ordinary income

2,312

1,315

3,627

1,036

1,700

1,000

864

3,300

1,400

1,900

Net income attributableto owners of the parent

1,651

977

2,628

689

1,250

650

711

2,400

1,000

1,400

Operating margin

Source: Prepared by FISCO from the Company's financial results

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

18 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Outlook

To be honest, it is quite difficult to evaluate the Company’s full fiscal year forecasts. After it announced the initial
forecasts, it revised the full fiscal year forecasts at the end of July 2019 (when it announced the 1Q results) and thenagain at the end of October 2019 (when it announced the 2Q results). As a result, the 2H operating income forecast
has been downwardly revised from the July forecast of ¥900mn to the October forecast of ¥691mn. On this point,
it seems that for the 2H forecasts, the October 2019 forecasts are more accurate than the July 2019 forecasts.
Although the Company’s explanation itself is persuasive to a certain extent, there is a feeling of puzzlement about theconsistency of the operating income forecast with the net sales forecast, which is that net sales in the 2H will exceed
net sales in the 1H. On this point, it is considered that there are a number of profit-decrease factors in the 2H, suchas the incorporation of costs that were not in the 1H and a lower profit margin due to the deterioration of the productmix. So rather than one factor, it seems that there are a number of overlapping factors that led to the forecast that
operating income will decrease in the 2H compared to in the 1H, which is the opposite to the net sales forecast.
Conversely, some positive signs are starting to appear for FY3/21 and beyond. As already stated, the Company’s
mainstay businesses are targeting the factory automation and industrial equipment industries. For the distribution
channels, it is focusing on delivering parts to industrial equipment manufacturers (set manufacturers). As waspreviously explained, set manufacturers exist between the Company and the final customers, which means that theCompany’s earnings tend to fluctuate up and down more than actual demand for capital investment.
Changes are appearing on this point at the present time. As stated above, in the 1H, set manufacturers conductedin-house inventory adjustments, which caused the number of orders to the Company for parts to decrease. As aresult, in the Company’s results, the extents of the declines in sales and profits were higher than the actual change
in demand. But since then, the set manufacturers have completed the inventory adjustments, and while the levelhas not yet returned to that during the previous economic boom period, the situation seems to be that the Company
is receiving orders reflecting the trend in actual demand.
It is unclear to what extent the Company has incorporated this completion of inventory adjustments by the set
manufacturers into the results forecasts. At FISCO, we believe it is reasonable to assume that it has incorporated it
into the part that “the October 2019 forecasts are highly accurate compared to the July 2019 forecasts.” Therefore,
we think it would be excessive to expect that the 2H results will exceed the Company’s current forecasts.
However, on entering FY3/21, although it will depend on the situation at that time, such as the state of the US-China
trade friction, it is considered that actual demand for capital investment will further strengthen and that this will bereflected in the production activities of set manufacturers. At this time, at FISCO we think it is possible that orders to
the Company for parts will be above the actual demand trend, as has been seen in the past. While there is also the
aspect that Chinese companies are catching up, it is thought that the Company intends to establish a system able
to respond immediately to demand from Japanese set manufacturers. In this case, we consider it highly likely thata behavior will repeat itself among customers, of pushing forward orders for parts to facilitate deliveries of productson the shortest delivery times. This can be expected to have a significantly positive effect on the Company’s results.
At FISCO, we think that 2H FY3/20 is a period to ascertain whether or not the “signs” of a results recovery are leading
to a “genuine” recovery ”in FY3/21, and also, on entering this recovery phase, to solidify foundations that will leadto the Company’s earnings growth through steadily capturing demand. If speaking on what is specifically meantby “solidifying foundations,” it means nothing more than steadily implementing the fundamental polices and priority
measures set out in the new medium-term management plan. As stated above, the Company has made steadyprogress for the most part up to 2Q, but we believe that whether the Company will be able to maintain this progressin the 2H is a more important point for evaluation than focusing on the numerical value of performance results.

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

19 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

17-Jan.-2020
http://www.sunwa.co.jp/ir/index.html

Outlook

Summary income statement(¥mn)
FY3/20FY3/16

FY3/17

FY3/18

FY3/191H

Full year E

Net sales

105,748

116,611

146,759

145,410

67,608140,000

YoY

-5.0%

10.3%

25.9%

-0.9%

-6.3%

-3.7%

Gross profit

13,256

14,255

16,883

16,3186,984-

Gross margin

12.5%

12.2%

11.5%

11.2%

10.3%

-

SG&A expenses

10,812

11,24012,747

12,908

6,075

-

YoY

2.8%

4.0%

13.4%

1.3%

-6.2%

-

SG&A expenses ratio

10.2%

9.6%

8.7%

8.9%

9.0%

-

2,444

3,014

4,135

3,410

909

1,600

-29.6%

23.3%

37.2%

-17.5%-57.3%-53.1%

2.3%

2.6%

2.8%

2.3%

1.3%

1.1%

2,645

3,215

4,349

3,627

1,036

1,900

-29.7%

21.6%

35.3%

-16.6%-55.2%-47.6%

1,690

1,584

3,085

2,628

689

1,400

YoY

-31.5%

-6.3%

94.8%

-14.8%-58.3%-46.7%EPS (¥)

117.76113.64222.65164.08

42.97

87.27

Dividend (¥)

28.00

28.00

30.00

34.00

17.00

34.00

Operating income
YoY
Operating margin
Ordinary income
YoY
Net income attributable to owners of the parent

Source: Prepared by FISCO from the Company's financial results

Summary balance sheet(¥mn)
End of FY3/16

End of FY3/17

End of FY3/18

End of FY3/19

End of 1H
FY3/2046,85755,50765,85264,20961,840Cash and deposits

6,359

6,759

8,596

10,005

12,768Notes and accounts receivable

34,554

41,16846,07742,25637,807

8,581

9,309

11,401

9,905

10,195

3,788

3,056

3,005

2,861

2,799

240

222

168

143

149

4,553

6,030

8,227

6,900

7,247

Total assets

55,43964,816

77,254

74,11472,036

Current liabilities

28,691

36,596

43,077

37,19934,617

Notes and accounts payable - trade

24,732

31,182

34,29831,42728,015

Short-term loans payable, etc.

2,317

2,489

5,722

3,805

3,803

4,484

4,581

6,182

4,970

5,033

2,400

2,300

3,500

2,900

2,900

Shareholders' equity

20,217

21,03423,731

29,05629,473

Capital stock

2,553

2,553

2,553

3,727

3,727

Capital surplus

1,958

1,958

1,958

3,548

3,548

Retained earnings

15,761

16,95019,647

21,781

22,198Current assets

Non-current assets
Property, plant and equipment
Intangible assets
Investments and other assets

Non-current liabilities
Long-term loans payable

-54

-427

-428

-

-

Total accumulated other comprehensive income

2,045

2,603

4,262

2,888

2,912

Net assets

22,26323,63727,993

31,94432,385

Total liabilities and net assets

55,43964,816

77,254

74,11472,036

Treasury shares

Source: Prepared by FISCO from the Company's financial results

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

20 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION

17-Jan.-2020

8137 Tokyo Stock Exchange First Section

http://www.sunwa.co.jp/ir/index.html

OutlookCash flow statement(¥mn)
FY3/16

FY3/17

FY3/18

FY3/191H FY3/20

Cash flow from operating activities

-60

1,679

-2,221

1,636

3,251

Cash flow from investing activities

-384

-235

29

-153

-74

Cash flow from financing activities

-654

-818

3,962

28

-308

-125

-224

66

-103

-103

Net increase (decrease) in cash and cash equivalents-1,225

400

1,837

1,408

2,763

Cash and cash equivalents at beginning of period

7,100

5,875

6,275

8,112

9,521

Cash and cash equivalents at end of period

5,875

6,275

8,112

9,521

12,284

Effect of exchange rate change on cash and cash equivalents

Source: Prepared by FISCO from the Company's financial results██Shareholder return policy
The FY3/20 dividend forecast is unchanged YoY at ¥34
The Company’s basic policy is to provide returns to shareholders in the form of dividends. Management prioritizes
providing stable, continuous dividends, as demonstrated in its track record to date. While the Company does not
sharply raise dividends in response to temporary rapid profit expansion, it has steadily increased them in keepingwith earnings growth.
In FY3/19, the Company increased the dividend by ¥4 YoY to ¥34 (interim dividend of ¥17 and a period-end dividendof ¥17), for a dividend payout ratio of 20.7%. Based on this, for FY3/20 it initially announced a dividend forecast of¥34 (an interim dividend of ¥17 and a period-end dividend of ¥17), which is unchanged YoY. As explained above,
subsequently it downwardly revised the FY3/20 results forecast, but it maintained the initial dividend forecast
unchanged at ¥34. In the most recent forecasts, the forecast earnings per share (EPS) is ¥87.27, which means theforecast dividend payout ratio is 39.0%.
We think that the Company decided to maintain the forecast of a YoY unchanged dividend because of its stance ofprioritizing dividend stability, despite the fact the profits are expected to decline. The forecast dividend payout ratio
is higher than previously, but on considering factors such as that it is still below 40% and the appearance of signs
that results have bottomed-out, at FISCO, we consider this decision to be a sufficiently reasonable one.

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

21 22

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

SUN-WA TECHNOS CORPORATION

17-Jan.-2020

8137 Tokyo Stock Exchange First Section

http://www.sunwa.co.jp/ir/index.html

Shareholder return policy㻱㼍 㼞㼚㼕㼚㼓㼟㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻘㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼍 㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻱㼍㼞㼚㼕㼚㼓㼟㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻕㻔¥㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕㻟㻥㻚㻜㻑㻞㻡㻜㻚㻜㻜

㻞㻞㻞㻚㻢㻡

㻞㻜㻜㻚㻜㻜

㻟㻞㻚㻜㻑
㻞㻟㻚㻤㻑

㻝㻢㻠㻚㻜㻤

㻞㻠㻚㻢㻑㻝㻡㻜㻚㻜㻜

㻞㻠㻚㻜㻑

㻞㻜㻚㻣㻑
㻝㻝㻣㻚㻣㻢

㻝㻝㻟㻚㻢㻠
㻝㻟㻚㻡㻑㻝㻜㻜㻚㻜㻜

㻡㻜㻚㻜㻜

㻠㻜㻚㻜㻑

㻞㻤㻚㻜㻜

㻞㻤㻚㻜㻜

㻟㻜㻚㻜㻜

㻤㻣㻚㻞㻣

㻟㻠㻚㻜㻜

㻝㻢㻚㻜㻑

㻟㻠㻚㻜㻜

㻜㻚㻜㻜

㻤㻚㻜㻑

㻜㻚㻜㻑
㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜㻌㻱

Source: Prepared by FISCO from the Company's financial results

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

22 22

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
and the like, belong to FISCO, and any revision, reprocessing, reproduction, transmission,
distribution or the like of this report and any duplicate hereof without the permission of FISCO
is strictly prohibited.
FISCO and its affiliated companies, as well as the directors, officers and employees thereof,
may currently or in the future trade or hold the financial instruments or the securities of issuersthat are mentioned in this report.
Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp