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

Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

伪伪Growth in all profit categories through rigorous costmanagement
Sanki Engineering Co., Ltd. <1961> (hereafter, “the Company”) is an engineering company whose
main business is the planning, design, installation, maintenance, repair, sale and consultation for
office buildings, schools, hospitals, shopping centers, industrial plants, R&D centers and otherfacilities. The Company’s strengths include comprehensive inter-disciplinary engineering capabilities
across a diverse range of business operations, combined with advanced technology and credibility
accumulated over its 90-year history.
FY3/16 results (Apr 2015-Mar 2016) show orders received of ¥183,270mn (+5.7% y-o-y), net sales of¥178,901mn (-0.4% y-o-y), gross profit of ¥22,929mn (+27.6% y-o-y), operating income of ¥6,509mn(+120.6% y-o-y), ordinary income of ¥8,135mn (+113.6% y-o-y) and profit attributable to owners ofparent of ¥5,327mn (+116.4% y-o-y). In addition to rigorous cost management, there was significant
earnings growth in all profit categories as profit margins improved sharply due to improved work
efficiency and other factors.
FY3/17 results anticipate orders received of ¥183,000mn (-0.1% y-o-y), net sales of ¥185,000mn(+3.4% y-o-y), operating income of ¥6,500mn (-0.1% y-o-y), ordinary income of ¥7,000mn (-14.0%
y-o-y) and profit attributable to owners of parent of ¥4,900mn (-8.0% y-o-y). Given that improvements
in profitability in the last period were remarkable, this is a conservative forecast, approximately inline with the previous year, however, given. Amongst other things, that there is ample ongoing
construction and the Company continues to promote rigorous cost management, we feel thelikelihood of achieving these targets is high.
As the Company prepares for the 100th anniversary of its establishment, it has announced its longterm vision “Century 2025” with its goals for the next 10 years. The ultimate goal of this plan is tobecome the company more selected by customers, however, in its new medium-term management
plan for the first three years, “Century 2025” Phase 1, it targets net sales of ¥195bn and operating
income of ¥7.5bn in FY3/19. Future measures and progress will be closely followed.
Also, in addition to stable dividends, the Company is proactively implementing shareholder returns
via share buybacks and other initiatives, raising its annual dividend payment from ¥20.0 in theprevious period to ¥30.0 (a payout ratio of 35.8%), with a regular dividend of ¥18.0 and an extra
dividend of ¥12.0. This period the Company is planning to add ¥2.0 to the previous period’s ¥18.0
regular dividend for an annual regular dividend of ¥20.0, however, there may be the possibility ofincreased dividends depending on the level of profits.

伪伪Check Point• Increased orders received for facilities construction overall, with growth in industrial HVAC
which is one of the Company’s fortes• Maintaining revenue growth in FY3/17, with many HVAC and plumbing for buildings projects
carried over at the beginning of the year
• Posting many qualitative goals in addition to the quantitative targets

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

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Sanki Engineering
Co., Ltd.

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9-Aug.-16

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㻲㼅㻟㻛㻝㻞FISCO Ltd. Analyst
Noboru Terashima㻢㻘㻜㻜㻜㻝㻡㻜㻘㻜㻜㻜

1961 Tokyo Stock Exchange First
SectionImportant disclosuresand disclaimers appear
at the end of this document.

(¥mn)
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伪伪Company Outline
4 business segments comprising facilities construction,
machinery systems, environmental systems and real estate(1) Company History
Sanki Engineering is a facilities construction company that was established in 1925 as a spin-off ofthe machinery division of its predecessor, Mitsui & Co., Ltd. The first large projects for the Company
were the Shiga manufacturing plant of Toyo Rayon (currently Toray Industries, Inc. <3402>), anda refrigerated warehouse for Aomori Seihyo. Initially, the Company engaged in heating, plumbing,steel frame construction and the supply of construction materials. It has subsequently branched out
into electrical work, developing integrated plant construction planning, design and installation as its
main operations.
After World War II, the Company operations expanded due to the demand derived from the Korean
War, and in 1958, the Company’s capital exceeded ¥1,000mn. In subsequent years, the Company
participated in projects undertaken in preparation to host the Tokyo Olympics in 1964, and grew intandem with the expansion of the Japanese economy. The Company diversified from the installationof HVAC, plumbing and electrical systems into other types of installation, such as transport
equipment, conveyance systems, water treatment facilities and waste facilities. Today, it is a leading
domestic facilities construction company. The Company’s shares were listed on the Tokyo Stock
Exchange in 1950.
In April 2015, the Company, which welcomed its 90th anniversary, appointed Mr. Tsutomu Hasegawa
as its President. While fundamentally he will be following the path inherited from the previous
President, Mr. Takuichi Kajiura, the Company will add President Hasegawa’s new strategies to thedirection taken to date, with amongst other initiatives, the long-term vision for the 100th anniversary,“Century 2025”, announced at the end of fiscal 2015.
(2) Outline of Businesses
The Company’s main operations may be divided into four segments: facilities construction, machinery
systems, environmental systems, and real estate. An overview of each segment is set out below.
(a) Facilities construction
The facilities construction business engages in activities including planning, design, installation,
maintenance, and repair of facilities including office buildings, schools, hospitals, shopping centers,
factories, R&D centers, and other facilities. This scope of activities handled by this business is
extensive and may be further subdivided into the following businesses.

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Company Outline●HVAC and plumbing for buildings
The HVAC and plumbing for buildings business provides heating, ventilation, air-conditioning(HVAC), water supply and drainage systems, plumbing, cooling and freezing systems, area heating
and cooling systems, kitchen systems, and disaster readiness systems for general buildings andfacilities, such as office buildings, schools, hospitals, department stores, hotels, and warehouses.

Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima●Industrial HVAC
The industrial HVAC business provides HVAC and plumbing for factories and research facilities of
all industries, especially clean room systems for plants requiring high levels of cleanliness, such as
semiconductor plants, food processing plants, and pharmaceutical plants; special air-conditioning
systems and appurtenances for manufacturers of chemicals and medical systems, and the like; andenvironmental control systems and so forth to automobile manufacturers.
●Electrical systems
The electrical systems business provides electrical systems, communications-related systems,
electrical civil works, and so forth.
●Facility systems
The facility systems business offers project management and other services for the construction
or relocation of the offices and dealing rooms of financial institutions and other industries. It also
provides central monitoring and automatic control systems, Internet protocol (IP) solutions, network
solutions, business continuity plan (BCP) solutions and other services for large-scale buildings.
(b) Machinery systems
The machinery systems business supplies materials handling systems, including varioustransportation equipment (conveyors, sorting systems, etc.), and conveyance systems for factories
and automated warehouses.
(c) Environmental systems
The environmental systems business provides facilities such as water treatment facilities (including
facilities to treat drinking water and dispose of sewage, facilities for the disposal of industrial
wastewater, and facilities for the treatment or incineration of sludge), facilities for the treatment ofwaste (including waste incineration facilities, landfill wastewater treatment facilities), and others.
(d) Real estate
The real estate business utilizes vacant land, such as former factory sites, and manages real estatelease business and building management business.
Sanki Engineering’s main business is the provision of the equipment and solutions as describedabove. The Company obtains about half of its orders directly from facility owner clients and halfindirectly through general contractors.
Just as the size of the orders varies widely from a few million yen to a few billion yen, the ordercompletion time varies from a few weeks to a few years for longer orders. The profitability of an ordervaries and may differ from the originally planned profitability depending on factors such as labor andmaterial costs and the management construction schedule. Some orders end up more profitable thanoriginally planned, and some are less profitable.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Company Outline

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Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section㻝㻢㻡㻘㻤㻜㻜
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9-Aug.-16
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Important disclosuresand disclaimers appear
at the end of this document.

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FISCO Ltd. Analyst
Noboru Terashima

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Connecting a wide range of businesses horizontally through"total engineering"(3) Strengths, Distinguishing Traits, and Competitors●Broad business domain and one-stop shop solutions
It’s no exaggeration to say that there are countless companies in Japan providing the same kindof construction and facilities as Sanki Engineering. The Company’s strength lies in the wide rangeof its businesses, which includes HVAC for building, plumbing, industrial HVAC, electrical systems,
automated control systems for buildings, transportation systems, and water treatment facilities. The
Company can provide services for many types of systems and solutions covering all phases fromplanning and design, to installation, maintenance, and repair. This capability allows its customers toplace one-stop shop orders to resolve their problems. By making optimal use of "total engineering,"
which combines a wide variety of businesses horizontally, the Company can provide optimal systems
with high added value.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Company Outline

Sanki Engineering
Co., Ltd.

●Top-class technology and high-quality customer base
One of the Company’s main strengths is the advanced technology it has accumulated since before
World War II. Moreover, this top-class technology spans a wide range of fields. Furthermore, SankiEngineering has earned a reputation for reliability over decades of business, which underpins its
extensive, high-quality customer base. This can also be considered a strength of the Company. In
addition to its prewar achievements, the Company’s involvement in numerous post-war projects,
including the construction of facilities for the Tokyo Olympics of 1964, have enabled it to obtain orders
for recent large projects, such as ABENO HARUKAS in Osaka.

1961 Tokyo Stock Exchange First
Section●Main competitors
Sanki Engineering’s competitors vary by project, but its main competitors are other large companies
such as Takasago Thermal Engineering Co., Ltd. <1969>, Shinryo Corporation (unlisted), Dai-Dan
Co., Ltd. <1980>, and Taikisha Ltd. <1979>. Compared to these competitors, Sanki Engineering’s
strength is its superiority in industrial HVAC systems, such as clean rooms.

9-Aug.-16(4) Orders & Economic Environment

Important disclosuresand disclaimers appear
at the end of this document.

Given the nature of Sanki Engineering’s businesses, orders received are the most important factor
affecting the Company’s performance. Annual orders received are greatly affected by the overall
Japanese market, or the Japanese macro-economy. As the Company’s main business is facilities
construction, it is influenced by the macro indicator of private sector non-residential investment. The
correlation between orders received and private sector non-residential investment is arguably very
high.

FISCO Ltd. Analyst
Noboru Terashima㻻㼞㼐㼑㼞㼟㻌㻾㼑㼏㼑㼕㼢㼑㼐㻌㼢㼑㼞㼟㼡㼟㻌㻼㼞㼕㼢㼍㼠㼑㻌㻺㼛㼚㻙㼞㼑㼟㼕㼐㼑㼚㼠㼕㼍㼘㻌㻵㼚㼢㼑㼟㼠㼙㼑㼚㼠(¥bn)

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Growth in all profit categories through rigorous costmanagement(1) FY3/16 Results Overview●Profits
In FY3/16 results there were orders received of ¥183,270mn (+5.7% y-o-y), net sales of ¥178,901mn(-0.4% y-o-y), gross profit of ¥22,929mn (+27.6% y-o-y), operating income of ¥6,509mn (+120.6%
y-o-y), ordinary income of ¥8,135mn (+113.6% y-o-y) and profit attributable to owners of parentof ¥5,327mn (+116.4% y-o-y). The balance of construction works carried over from the previous
period was ¥106,388mn (+4.3% y-o-y). While net sales were flat with the previous year, there wassignificant earnings growth in all profit categories as profit margins improved sharply.

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

■■Business Trends

FY3/16 Results
FY3/15Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Orders received
Balance carried forward to next year
Net Sales
Gross profit
SG&A expenses
Operating income
Ordinary income
Profit attributable to owners of parent

AmountRatio

Amount173,398
102,019
179,598
17,96615,015
2,951
3,809
2,461

100.0
10.0
8.4
1.6
2.1
1.4

183,270
106,388
178,901
22,92916,419
6,509
8,135
5,327

(Units: ¥mn, %)FY3/16y-o-yRatio% changechange
9,871
5.7
4,368
4.3
100.0
-696
-0.4
12.8
4,963
27.6
9.2
1,404
9.4
3.6
3,558
120.6
4.5
4,325
113.6
3.0
2,866
116.4

The gross profit margin of 12.8% (versus 10.0% in the previous period), improved significantly, withthe main factors behind gross profit margin improvement being those points set out below.
• Rigorous cost management: Higher margins via significant increases in operational efficiency asa result of the measures set out below, in addition to rigorous internal cost management that theCompany has hitherto promoted.
• Reductions in negative margin factors: The environment for orders improved significantly due toan upturn in the operating environment, leading to circumstances where a balance could be struck
between costs and quality. Further, delays in construction progress declined as a result of rigorous
process control, with profitability (margins) in large-scale projects improving in particular.
• Establishment of site support structures: In order to provide operational support at work sites,from April 2015 the Company has engaged in purchasing operations support via the Procurement
Division, work site documentation and other clerical support via the Site-Documentation Support
Center, and quality control via technical experts, with the results of these initiatives now beginning
to merge (in the form of improved operational efficiency).
On the other hand, the actual amount of SG&A rose ¥1,404mn, with its ratio versus net sales risingfrom 8.4% a year earlier to 9.2%, however, this fell within expectations. As a result, given that grossprofit rose significantly, there was also a significant year-on-year rise in operating income, and in linewith this significant rises also in ordinary income and profit attributable to owners of parent.
Looking at quarterly trends in provisioning against losses on construction contracts, in the first half
(to Q2 FY3/16), a profit from a reversal of provisions against losses on construction contracts bookedin the previous period, FY3/15, was recorded. For the full-year also there was a reversal (i.e. profit)
from these provisions of ¥128mn, which contributed significantly to improvement in profit margins.
Quarterly Results

Q1
Gross profit margin
5.2%
Operating income (- indicates loss)- 2,085
Provisions for losses on construction
724
contracts (balance at the end of period)
Provision (or reversal of provision) for
loss (gain) on construction contracts
157(- indicates profit)
Balance carried forward (at the end of
period) subjected to balance (at the
7,329
end of period) for loss on construction
contracts(Units: ¥mn)
FY3/16Q2
Q3
Q4
11.7% 12.9% 15.6%
807
2,259
4,073

FY3/15Q2
Q3
7.6% 10.1%
- 620
1,201

Q4
14.6%
4,456

Q1
9.5%
- 630

1,236

989

1,314

1,045

777

828

1,186

511

- 246

324

- 269

- 267

50

357

8,131

5,376

4,388

2,451

1,661

1,090

6,134

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

■■Business Trends

Consolidated Net Sales & Ordinary Income Segment
FY3/15Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Net Sales
HVAC and plumbing for buildings
Industrial HVACElectrical systems
Facility systems
Facilities construction business
Machinery systems
Environmental systems
Real estate business
OthersAdjustments
Ordinary Income
Facilities construction business
Machinery systems
Environmental systems
Real estate business
OthersAdjustments

AmountRatio

Amount179,598
72,37147,01521,884
9,897
151,169
9,953
17,485
1,285
508
-803
3,809
2,943
105
24
207
48
479

100.0
40.3
26.2
12.2
5.5
84.2
5.5
9.7
0.7
0.3
-0.4
-

178,901
64,492
52,084
22,958
10,416
149,952
9,217
18,734
1,532
542-1,077
8,135
7,698
275
-315
233
52
191

(Units: ¥mn, %)FY3/16y-o-yRatio% changechange
100.0
-696
-0.4
36.0
-7,878
-10.9
29.1
5,069
10.8
12.8
1,073
4.9
5.8
518
5.2
83.8
-1,216
-0.8
5.2
-736
-7.4
10.5
1,248
7.1
0.9
247
19.3
0.3
34
6.7
-0.6
-274
4.5
4,325
113.6
4,755
161.6
170
162.3
-340
25
12.1
3
7.8
-287
-

Net sales in the facilities construction business were ¥149,952mn (-0.8% y-o-y). HVAC and plumbing
for buildings declined 10.9% y-o-y to ¥64,492mn, however, industrial HVAC, which the Company
specializes in, rose 10.8% y-o-y to ¥52,084mn. Machinery systems net sales were ¥9,217mn(-7.4% y-o-y), a significant decline in revenues from the previous period, however, as there waslittle construction work in hand at the beginning of the period, this fell within expectations. On thecontrary, the fact that it was limited to a single-digit decline in revenues may be regarded as agood recovery. Net sales for environmental systems performed relatively soundly at ¥18,734mn(+7.1% y-o-y), with solid performance in subsidiary orders being the main cause. Amounts for otheroperating departments are small, however, results were broadly in line with plans.
Further, in ordinary income by segment ordinary income in the facilities construction business
improved ¥4,755mn from ¥2,943mn in the previous period to ¥7,698mn. Given that overall ordinary
income improvement was ¥4,325mn arguably most of the improvement was contributed by thefacilities construction business.

Growth in all profit categories through rigorous costmanagement
Orders Received by Segment
FY3/15
Orders received
HVAC and plumbing for buildings
Industrial HVACElectrical systems
Facility systems
Facilities construction business
Machinery systems
Environmental systems
Real estate business
OthersAdjustments

AmountRatio

Amount173,398
70,77846,76523,2159,272
150,032
5,716
16,767
1,285
481
-884

100.0
40.8
27.0
13.4
5.3
86.5
3.3
9.7
0.7
0.3
-0.5

183,270
66,172
52,522
22,667
11,070152,432
10,30919,6101,532
524-1,139(Units: ¥mn, %)FY3/16y-o-yRatio% changechange
100.0
9,871
5.7
36.1
-4,605
-6.5
28.7
5,756
12.3
12.4
-548
-2.4
6.0
1,797
19.4
83.2
2,400
1.6
5.6
4,593
80.4
10.7
2,842
17.0
0.8
247
19.3
0.3
42
8.9
-0.6
-254
-

Overall facilities construction business orders received were ¥152,432mn (+1.6% y-o-y). In particular,
there was sound performance in industrial HVAC orders received which were ¥52,522mn (+12.3%
y-o-y) and facilities systems orders received which were ¥11,070mn (+19.4% y-o-y), both of which
are the Company’s fortes. The reason for this was increased plant investment activity domesticallyin the electrical and automobile manufacturing sectors amidst yen depreciation. Also, in plant &machinery systems business orders for both machinery systems and environmental systems
rose, being ¥10,309mn (+80.4% y-o-y and ¥19,610mn (+17.0% y-o-y) respectively. In particular,
in industrial HVAC and machinery systems securing orders for large-scale projects contributed tosignificant increases in orders received.

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

■■Business Trends

Performance in orders for large-scale projects (exceeding ¥1bn) were sound overall, reaching¥31,476mn over 19 projects (versus ¥20,619mn for 12 projects the previous period). By clientindustry also there was a broad range as set out below.



Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section㻸㼍㼞㼓㼑㻙Scale Projects with Orders Exceeding ¥1bn
(Unit: ¥mn)㻟㻝㻘㻠㻣㻢

㻞㻜㻘㻢㻝㻥

9-Aug.-16㻝㻥㻌㻼㼞㼛㼖㼑㼏㼠㼟

㻝㻞㻌㻼㼞㼛㼖㼑㼏㼠㼟

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

Source: Prepared by FISCO from the Company’s results overview

Breakdown of Large-Scale Projects with Orders Exceeding ¥1bn
(Units: project)
FY3/16
Office23Complex building
1
Commercial facility
11Factory
1
5
School1
Hospital2
2
R&D facility
2
1
Government office2
Waste processing facility
3
Water and sewage treatment facility
1
1
Other facilities
1
1
Total
12
19
Source: Prepared by FISCO from the Company’s results overview
FY3/15

Under these circumstances, overall orders received were ¥183,270mn (+5.7% y-o-y), with thebalance of construction work carried over from the end of the period being ¥106,388mn (+4.3%
y-o-y).
●Financial Condition
As regards the financial condition at the end of FY3/16, current assets were ¥115,491mn (a declineof ¥732mn from the previous period-end), however, this was mainly due to declines in cash anddeposits of ¥2,766mn and trade notes and accounts receivable of ¥3,534mn. Noncurrent assets
declined ¥6,226mn from the previous period-end to ¥53,931mn, however, this was due to factors
such as a decline in the market value of investment securities of ¥4,914mn resulting from share pricedeclines. As a result, total assets at the end of the period were ¥169,423mn, a decline of ¥6,958mn
from the previous period-end.
Current liabilities were ¥72,863mn, an increase of ¥757mn from the previous period-end, however,this was mainly the result of declines in trade notes and accounts payable of ¥4,676mn, despite arise of ¥503mn in payments received for work in progress. Noncurrent liabilities were ¥12,001mn, adecline of ¥7,404mn from the previous period-end, however, this was mainly due to factors such as
declines of ¥2,101mn in deferred tax liabilities and ¥3,549mn in obligations for retirement pay. As aresult, total liabilities at the period-end were ¥84,865mn, a decline of ¥6,647mn from the previous
period-end. Also, due to declines in unrealized gains on available-for-sale securities and otherfactors, total net assets declined ¥311mn from the previous period-end to ¥84,557mn.

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

■■Business Trends

Consolidated Balance SheetSanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Cash and deposits
Trade notes and accounts receivable
Current assets
Tangible assets
Intangible assets
Investments and other assets
Noncurrent assets
Total Assets
Trade notes and accounts payable
Short-term borrowings
Payments received for work in progress
Current liabilities
Obligations for retirement pay
Deferred tax liabilities
Noncurrent liabilities
Total liabilities
Total net assets

FY3/1529,26774,781
116,224
9,269
370
50,51760,157
176,382
56,137
5,672
2,636
72,1065,384
6,843
19,406
91,512
84,869FY3/16
26,501
71,246
115,491
8,715
533
44,68253,931
169,423
51,4605,672
3,140
72,863
1,834
4,742
12,001
84,86584,557(Units: ¥mn)
y-o-y change-2,766-3,534
-732
-554
162
-5,834-6,226-6,958-4,676-0503
757-3,549-2,101-7,404-6,647-311●Cash flows
In respect of cash flows in FY3/16, cash flows from operating activities increased ¥5,220mn,
however, this was mainly due to the recording of ¥7,834mn in pretax profits, despite payments for
trade notes and accounts payable exceeding collections of trade notes and accounts receivable.
There was an increase of ¥5,520mn in cash flows from investing activities, however, this was mainly
due to ¥5,600mn in income as a result of withdrawals from time deposits. Cash flows from financing
activities declines ¥1,826mn, however, this was mainly due to dividend payments of ¥1,366mn.
As a result, FY3/16 period-end cash and cash equivalents increased ¥8,833mn compared to theprevious period-end, with the period-end balance standing at ¥32,501mn.
Consolidated Cash Flows Statement

Cash flows from operating activities
Pretax profit (- indicates loss)
Change in trade notes and accounts receivable (- indicates increase)
Change in trade notes and accounts payable (- indicates decrease)
Cash flows from investment activities
Cash flows from financing activities
Change in cash and cash equivalents
Period-end balance of cash and cash equivalents

FY3/15
- 139
3,362
1,041
-1,7663,440- 2,901
156
23,667(Units: ¥mn)
FY3/16
5,220
7,834
1,940
- 4,666
5,520-1,826
8,833
32,501

Maintaining revenue growth in FY3/17, with many HVAC andplumbing for building construction projects carried over at the
beginning of the year
(2) Company Forecast for FY3/17
In FY3/17 the Company forecasts net sales of ¥185,000mn (+3.4% y-o-y), operating income of¥6,500mn (-0.1% y-o-y), ordinary income of ¥7,000mn (-14.0% y-o-y) and profit attributable toowners of parent of ¥4,900mn (-8.0% y-o-y).
In a breakdown of net sales it is expected that facilities construction business will account for¥154,900mn (+3.3% y-o-y). By business line HVAC and plumbing for buildings, as it has ample
work carried over the beginning of the period, will be ¥72,900mn (+13.0% y-o-y), while industrial
HVAC will, partly a reaction to (high levels in the) previous period is expected to be ¥50,000mn(-4.0% y-o-y), with a lull in capital expenditure especially in export related sectors. However, giventhat industrial HVAC has a certain amount of work in hand, there is the potential for it to exceed theforecast. Given that both electrical and facilities systems performed well last period, it is forecast
that net sales will be ¥22,000mn (-4.2% y-o-y) and ¥10,000mn (-4.0% y-o-y) respectively, due to areaction against the (high levels in the) previous period. Net sales for plant & machinery systems
business are expected to be basically in line with the previous period, with machinery systems at¥9,500mn (+3.1% y-o-y), and environmental systems at ¥19,000mn (+1.4% y-o-y).

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

■■Business Trends

Sanki Engineering
Co., Ltd.

Orders received are expected to be ¥149,900mn (-1.7% y-o-y) in the core facilities construction
business. By business line, HVAC and plumbing for buildings is expected to see continuing highorder levels and be ¥68,900mn (+4.1% y-o-y), however, it is expected that industrial HVAC will be¥50,000mn (-4.8% y-o-y), taking the view that there will be a lull in capital expenditure in export
related sectors. It is expected that in respect of electrical and facilities systems there will be minor
declines to ¥21,000mn (-7.4% y-o-y) and ¥10,000mn (-9.7% y-o-y) respectively. In the plant& machinery systems business equipment business, as a reaction against the large-scale order
received in the previous period, machinery systems are only expected to be ¥9,500mn (-7.8% y-o-y),while conversely, due to expectations of large-scale orders, environmental systems are expected toreach ¥22,000mn (+12.2% y-o-y).

1961 Tokyo Stock Exchange First
Section

FY3/17 Results Forecast
FY3/16

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

Orders received
HVAC and plumbing for buildings
Industrial HVACElectrical systems
Facility systems
Facilities construction business
Machinery systems
Environmental systems
Real estate business
OthersAdjustments
Net Sales
HVAC and plumbing for buildings
Industrial HVACElectrical systems
Facility systems
Facilities construction business
Machinery systems
Environmental systems
Real estate business
OthersAdjustments
Gross profit
Operating income
Ordinary income
Profit attributable to owners of parent

AmountRatio

Amount183,270
66,172
52,522
22,667
11,070152,432
10,30919,6101,532
524-1,139178,901
64,492
52,084
22,958
10,416
149,952
9,217
18,734
1,532
542-1,07722,929
6,509
8,135
5,327

100.0
36.1
28.7
12.4
6.0
83.2
5.6
10.7
0.8
0.3
-0.6
100.0
36.0
29.1
12.8
5.8
83.8
5.2
10.5
0.9
0.3
-0.6
12.8
3.6
4.5
3.0

183,000
68,90050,00021,00010,000149,900
9,500
22,000
1,600
500
-500
185,000
72,90050,00022,00010,000154,900
9,500
19,000
1,600
500
-500
23,000
6,500
7,000
4,900

(Units: ¥mn, %)FY3/17Fy-o-yRatio% changechange
100.0
-270
-0.1
37.7
2,728
4.1
27.3
-2,522-4.8
11.5-1,667-7.4
5.5-1,070-9.7
81.9-2,532
-1.7
5.2
-809
-7.8
12.0
2,390
12.2
0.9
68
4.4
0.3
-24
-4.6
-0.3
639
-56.1
100.0
6,099
3.4
39.4
8,408
13.0
27.0
-2,084
-4.0
11.9
-958
-4.2
5.4
-416
-4.0
83.7
4,948
3.3
5.1
283
3.1
10.3
266
1.4
0.9
68
4.4
0.3
-42
-7.7
-0.3
577
-53.6
12.4
71
0.3
3.5
-9
-0.1
3.8
-1,135
-14.0
2.6
-427
-8.0

Overall, given that currently there is ample work in hand, we feel there is every likelihood that theCompany will achieve the above targets. Going forward, the point to pay attention to is avoiding
unexpectedly unprofitable projects by rigorous progress management. In respect of orders also, theenvironment surrounding the construction and HVAC industries is one of flow, and given that there is
expected to be an ample volume of works, it is felt that it is possible for the Company to secure theirtarget for orders received.
In respect of gross profit margin, the Company is cautiously looking for a slight decline to 12.4% fromthe high level of 12.8% in the previous period. However, in practice, in order to secure profits theCompany will continue to further promote work site support structures, and along with further raisingmaterials procurement bargaining power via the Procurement Division, will continue to support worksite purchasing operations through ongoing integrated management. Additionally, it will continue
to provide documentation support for operations such as work site clerical processing via the SiteDocumentation Support Center, by seconding staff from the Center. Through these initiatives, byreducing the burden at the work site, the Company may focus on primary work site management, andin rigorous quality and progress control, by eliminating reworking, downtime and other inefficiencies,
there is room for improving margins. Accordingly, in addition to an upward revision in net sales, there
is also the potential for margins to exceed expectations, and it may be anticipated that operating
income will exceed initial expectations.

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

伪伪Medium-Term Management Plan
Long-Term Vision for the 100th anniversary , initiallydeveloping a three-year Medium-Term Management Plan toraise “Quality”

Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.

(1) Overview of the Long-Term Vision “Century 2025”
The Company has been engaged in its previous medium-term management plan “SANKI VITAL PLAN
90th”, which finished in FY3/16. That plan contained numerical targets for net sales of ¥200,000mn
and ordinary income of ¥10,000mn, however, unfortunately actual results fell slightly short of thesetargets. However, considering amongst other things declines in public works expenditure and declines
in profits in line with the expiration of large-scale rental property contracts in its real estate businessin the period since the plan was drafted, arguably the targets were basically achieved. Further, themedium-term management plan’s targets were not merely the attainment of numerical targets. Apartfrom the quantitative profit targets, the Company put forward numerous qualitative targets, and wedeem that its implementation of initiatives aimed at these targets is a point worthy of recognition.
Additionally, the Company has announced its 10-year long-term vision “Century 2025”, from thisFY3/17 period to FY3/26. The ultimate goal of this long-term vision is to be “The Company of Choice”,
and in order to achieve this goal, the Company’s policy is to promote business strategies for the next
10 years, divided into the three phases set out below.

FISCO Ltd. Analyst
Noboru Terashima(2) Main Initiatives and Financial Performance Targets of the New Medium-Term Management Plan“Century 2025” Phase 1
Key initiatives of the first step, Phase 1, are: (1) strengthening core businesses, (2) promoting growthstrategies and (3) enhancing the Sanki brand, with implementation of the initiatives below mappingout the way forward.
1. Strengthening Core Businesses: improving component technologies to achieve stable growth●Facilities Construction Business• Reduce costs and raise operational efficiency: strengthening procurement capabilities, reducing
work site operational burden, etc.
• Review sales and design structures: promoting ICT usage, restructuring design support system,etc.
• Strengthen Facility Systems Business: strengthening sales and production structures aimed at
operational expansion etc.
●Machinery Systems Business• Market strategies that maximize Company’s strengths: developing material handling systems
incorporating robots, etc.
• Restructure the production system: restructuring production system at the Yamato factory, etc.

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

■■Medium-Term Management Plan

●Environmental Systems Business• Strengthen main businesses: expanding sales of strategic products, developing new strategic
products, enhancing productivity, etc.
• Expand business areas: developing energy saving and energy creation business areas, etc.

Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Noboru Terashima

2. Initiatives for promoting growth strategies: pursuing growth in technologies and business areas
for the future●Redevelop the Yamato site
• Establish new training and research facilities that can enhance technology: renovation of the Sanki
Yamato Building into the “Sanki Techno Center (tentative name)”• Restructure the production facilities: refurbishment of the plants at the Yamato site●Expand business areas as well as challenging new technologies: renovations of the laboratory
seeking to provide a solid response to the advances in next-generation technologies, expansion ofbusiness in the kitchen systems field, steady development of overseas businesses, etc.
●Promote buildings stock-based businesses: promotion of engineering operations that responds
to each stage of a buildings’s life cycle, (new construction→repair and maintenance→renovation→reconstruction)●Expand areas of Facility Systems Business: expand into new business areas such as property
management and strengthen solution sales such as crisis management, security and other areas●Invest in Growth: proactive investment, not only in existing business domains, but also in areas thatcan utilize component technologies, etc.
3. Initiatives for enhancing the Sanki brand: developing human resources that possess the Sanki spirit●Enhance the Sanki spirit of Group employees: develop educational programs that utilize e-learningin addition to classroom-style training, also improve education at each of nationwide bases anddivisions●Create better working conditions: consistently pursue greater fairness in corporate programs, wage
structure, and other systems, promote measures to prevent overly long working hours●Review operational processes: promoting initiatives for lowering the incidence of accidents,
reworking, and problems caused by overstraining or erratic behavior, etc.
●Financial Performance Targets
Financial performance targets in “Century 2025” Phase 1 include FY3/19 net sales of ¥195bn, grossprofit of ¥24bn (representing a margin of 12.3% of net sales).
Considering current levels of net sales and profits, as well as changes in the operating environment
in the lead up to the Tokyo Olympics, these financial performance targets will not be so difficult toachieve. However, in addition to achieving those targets, it is essential to pay attention to how much
the Company’s “quality” can be improved in the three years of this medium-term management plan,
Phase 1.

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

伪伪Shareholder Returns
Proactively buying back and retiring shares from the market
as a shareholder return initiative

Sanki Engineering
Co., Ltd.
1961 Tokyo Stock Exchange First
Section

9-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.

The Company is also proactive in respect of shareholder returns. As an initial shareholder return
initiative it has proactively undertaken share buybacks and retirement from the market. In FY3/14
the Company acquired 4 million shares and retired 4.8 million shares. In FY3/15 Q2 the Company
acquired 2 million shares and retired 3 million shares. Subsequently, in FY3/16 although it did notundertake a large-scale share buyback, there were 66,661,156 shares outstanding and 3,107,491
held as treasury shares (recorded at ¥2,258mn on the balance sheet.)
Further, regarding dividends, the Company has to date continued to pay a stable annual dividendof ¥15, however, (with 90th anniversary commemorative dividend of ¥5) also paid in FY3/15 for anannual dividend of ¥20. In FY3/16, in addition to raising the annual regular dividend to ¥18, due tosound results performance the Company paid an extra dividend of ¥12, and as a result paid a total
annual dividend of ¥30 (or a payout ratio of 35.8%). The dividend for this period is planned to be¥20, however, there is also the possibility of increased dividends depending on results going forward.
We feel that his positive attitude towards shareholder returns should be regarded highly.

FISCO Ltd. Analyst
Noboru Terashima

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

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo 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 theintellectual properties of the Tokyo Stock Exchange, and therefore all rights to them belong
to the Tokyo Stock Exchange.
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
this report and take full responsibility for such use. We shall not be liable for any result of its
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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 informationthat was current at the time the report was produced, but this information and the content
of this report 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 duplicationsof the report, without the express written consent of FISCO, is strictly prohibited. Anytransmission, reproduction, distribution or transfer of the report or its duplications is also
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The final selection of investments and determination of appropriate prices for investment
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FISCO Ltd.