COMPANY RESEARCH AND ANALYSIS REPORT

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

23-Jan.-2020
FISCO Ltd. Analyst

Noboru Terashima

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

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. In 1H FY3/20, net sales increased 13.8% YoY and operating income exceeding ¥3.0bn............................
2. Promoting the targets in “Century 2025” Phase 2, the medium-term management plan. ............................
3. FY3/20 forecast...........................................................................................................................................

01
01
01

4. Annual dividend increased to ¥70, and Company announces a buyback of 2mn treasury
shares during FY3/20............................ ......................................................................................................

02■Company outline--------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company outline.................................... ......................................................................................................
2. History................................................... ......................................................................................................

03
03■Business description---------------------------------------------------------------------------------------------------------------------------------------------- 04
1. Outline of business by segment............. ......................................................................................................
2. Strengths, distinguishing traits, and competitors. ........................................................................................
3. Main competitors.........................................................................................................................................
4. Trend in orders received and the economic environment. ............................................................................

04
05
05
05

■Business trends----------------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. 1H FY3/20 results overview................... ......................................................................................................
2. Financial condition................................. ......................................................................................................
3. Cash flow conditions.. ..................................................................................................................................
4. Completion of STeP Project................... ......................................................................................................

06
09
10
11

■Medium-term management plan----------------------------------------------------------------------------------------------------------------- 11
1. “Century 2025” Plan: from Phase 1 to Phase 2............................................................................................
2. Phase 2: The basic policies are a continuation of Phase 1...........................................................................
3. Phase 2: Strengthen core businesses..........................................................................................................
4. Phase 2: Initiatives to promote growth strategy. ..........................................................................................
5. Phase 2: Initiatives to enhance the Sanki Brand. .........................................................................................
6. Phase 2: Financial and capital policies.. .......................................................................................................
7. Phase 2: ESG policies. . ................................................................................................................................
8. Phase 2: Strengthen the ability to communicate information. ......................................................................

11
12
12
13
13
14
14
15

9. Financial performance targets: Management targets now being disclosed along with financial
performance targets....................................................................................................................................

15■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 16• FY3/20 outlook...................................... ......................................................................................................

16■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 18

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

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/██Summary
A comprehensive engineering company conducting facilities
construction work and plant work with strengths of advanced
technology and credibility cultivated over a long history
Sanki Engineering Co., Ltd. <1961> (hereafter, “the Company”) is an engineering company whose main businessis the planning, design, manufacture, supervision, installation, sale and consultation of systems and equipment for
construction and plant facilities, in office buildings, schools, hospitals, shopping centers, industrial plants, R&D
centers and other facilities. The Company’s strengths include comprehensive engineering capabilities across adiverse range of business operations, combined with advanced technology and credibility accumulated over a
history of more than 90 years.
1. In 1H FY3/20, net sales increased 13.8% YoY and operating income exceeding ¥3.0bn
In the 1H FY3/20 results, orders received were ¥100,901mn (down 2.8% year-on-year (YoY)), net sales were
¥91,845mn (up 13.8%), gross profit was ¥13,168mn (up 22.3%), operating income was ¥3,191mn (up 183.3%),
ordinary income was ¥3,503mn (up 127.5%), and profit attributable to owners of parent was ¥2,485mn (up 212.0%).
The balance carried forward was ¥158,885mn (down 5.3% from the end of the previous fiscal year), a slight YoY
decline but it remained at a high level. The gross profit margin increased by 1.0 percentage point (pp) YoY to14.3%, including because of the ongoing favorable business environment and as the Company continued to work
to thoroughly manage costs prices and strengthen the site support system.
2. Promoting the targets in “Century 2025” Phase 2, the medium-term management plan
In March 2016, the Company announced “Century 2025” as its long-term version as a10-year goal toward the 100th
anniversary of its foundation. It has positioned the first three years of this plan as “Century 2025” Phase 1, and for
FY3/19, which is the final fiscal year of Phase 1, the Company have achieved the numerical targets it had set, which
was net sales of ¥195bn and operating income of ¥7.5bn, but it has already achieved these targets. Following on
from this, it has announced Phase 2, and while the three key initiatives are a continuation of Phase 1, it has added“Disclose financial & capital policies and ESG policies” and “Reinforce Information Transmission.” It has also set
management targets in addition to financial performance targets in its quantitative targets for FY3/22, including an
ordinary profit margin of 5.0% or above, an annual dividend of ¥60 or above, the acquisition of 5mn or more treasury
shares (three years from FY3/20), a ratio of the total return of profits of 70% or above, and ROE of 8.0% or above.
3. FY3/20 forecast
Based on the strong 1H results, the Company upwardly revised forecasts for FY3/20. It is forecasting orders receivedof ¥200,000mn (down 7.9% YoY), net sales of ¥210,000mn (down 1.1%), operating income of ¥9,800mn (down
7.9%), ordinary income of ¥10,000mn (down 10.7%), and profit attributable to owners of parent of ¥7,000mn(down 22.6%). The FY3/19 results were at an outstanding level, so profits are forecast to decrease YoY. But theforecasts are in line with the targets in the medium-term management plan “Century 2025” and this is not a cause forconcern. Given that there is plentiful construction work at hand and the building construction industry surrounding
the Company remains active, it is fully possible it will achieve its targets. The Company may even revise the forecast
for profit items upward if the construction works in the current fiscal year progress favorably.

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

01 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Summary

4. Annual dividend increased to ¥70, and Company announces a buyback of 2mn treasury shares during
FY3/20.
Up to the present time, the Company has actively returned profits to shareholders through not only stably paying
dividends and increasing the dividend in recent years, but also by buying back treasury shares. In FY3/19, it paid
an annual dividend of ¥60 (¥20 of which was a special dividend, for a dividend payout ratio of 40.0%), and initiallyforecast an annual dividend of greater than ¥60 for FY3/20 as well; due to its strong financial performance in the
1H, however, it subsequently announced an annual dividend of ¥70 (¥35 interim, ¥35 year-end). The Company has
already retired 2mn treasury shares in the 1H, and has announced it will acquire an additional 2mn shares during
FY3/20 (of which 1mn shares have already been acquired). As a result, the Company expects its forecasted total
return ratio to exceed 100%, and can be lauded for its proactive approach to shareholder returns.
Key Points
Mitsui-affiliated, domestically-leading facilities construction company that is currently implementing measures
to improve the profit margin• Profits are forecast to decline in FY3/20, but the forecasts are in line with the targets in the medium-term
management plan and this is not a cause for concern.
• Actively returns profits to shareholders. Annual dividend increased to ¥70, and Company announces a buybackof 2mn treasury shares during FY3/20.
•

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㻠㻜㻘㻜㻜㻜

㻞㻝㻞㻘㻟㻝㻠

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㻥㻘㻤㻜㻜㻝㻡㻜㻘㻜㻜㻜

㻥㻘㻜㻜㻜
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㻢㻘㻡㻜㻥㻥㻜㻘㻜㻜㻜

㻢㻘㻜㻝㻞

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㻢㻘㻡㻥㻟

㻠㻘㻡㻜㻜

㻢㻜㻘㻜㻜㻜
㻟㻜㻘㻜㻜㻜

㻔¥㼙㼚㻕

㻟㻘㻜㻜㻜
㻞㻘㻥㻡㻝

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㻜

㻜
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

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 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/██Company outline
One of the largest facilities construction company in Japan. As a
Mitsui-affiliate, it has a history of nearly 100 years.
1. Company outline
Sanki Engineering is a facilities construction company that was established in 1925 as a spin-off of the machinery
division of the former Mitsui & Co., Ltd. The first large projects for the Company were the Shiga manufacturing plantof Toyo Rayon (currently Toray Industries, Inc. <3402>), and a 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 andinstallation as its main operations.
The Company’s capital exceeded ¥1,000mn in 1958. In subsequent years, the Company participated in projects
undertaken in preparation to host the Tokyo Olympic Games in 1964, and grew in tandem with the expansion of theJapanese economy. The Company diversified from the facilities construction business, such as heating, ventilation,
air-conditioning (HVAC), plumbing, and electrical systems into other types of facilities, such as transport equipment,
conveyance systems, water treatment facilities and waste treatment facilities. Today, it is a leading domestic facilities
construction company. The Company’s shares were listed on the Tokyo Stock Exchange in 1950.
2. History
In FY3/16, prior to the 90th anniversary of its establishment in FY3/16, the Company appointed Mr. Tsutomu
Hasegawa as President and Representative Director. Subsequently, it announced “Century 2025” in March 2016as its long-term vision toward the 100th anniversary of its establishment in 2025, which adds President Hasegawa’s
new strategy to the policy it has taken.
History
1925

Sanki Engineering Co., Ltd. established as a spin-off of the machinery division of the former Mitsui & Co., Ltd.

1935

10th anniversary of its establishment. Had 5 branches, 6 sub-branch offices, 3 affiliated companies, and around 300 employees

1958

Capital exceeded ¥1,000mn

1963Completed the Sagami Plant (currently, the Yamato Plant)

1964

Participated in projects relating to the Tokyo Olympic Games, including the Yoyogi National Gymnasium, and the NHK Broadcast Center

1982

Newly established Technical R&D Institute in Yamato City, Kanagawa Prefecture, equipped with facilities for basic research and for largescale experiments

2000

Opened the Shonan Training Center (Yokosuka City, Kanagawa Prefecture) and strengthened human resource development

2011

Relocated its head office to the current location in the Tsukiji area of Tokyo

2015

90th anniversary of its establishment. Announced its long-term vision “Century 2025”

2018

Opened Sanki Techno Center, a comprehensive training and research facility (Yamato City, Kanagawa Prefecture)

2019

Opened the Yamato Product Center, and completed the STeP (Sanki Techno Park) project

Source: Prepared by FISCO from the Company’s website, etc.

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

03 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/██Business description
4 main segments, with a focus on the Facilities Construction
Business
1. Outline of business by segment
The Company’s main operations are divided into four business segments: three facility business segments ofFacilities Construction, Machinery Systems, Environmental Systems, and Real Estate. An overview of each segment
is set out below.
(1) Facilities Construction Business
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. The scope of activities handled by this business is extensive and can be further divided into
the following sub-segments.
a) HVAC and plumbing for buildings
The HVAC and plumbing for buildings business provide HVAC, water supply and wastewater systems, plumbing,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.
b) Industrial HVAC
The industrial HVAC business provides HVAC for factories and research facilities of all industries, especially clean
room systems for semiconductor plants and food processing plants, which are areas of strength for the Company,
as well as special air-conditioning systems and appurtenances for manufacturers of medical systems, and thelike; in addition to environmental control systems and so forth for automobile manufacturers.
c) Electrical systems
The electrical systems business provides electrical systems, communications-related systems, electrical civil
works, and so forth.
d) Facility systems
The facility systems business offers project management and other services for the construction or relocationof 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.
(2) Machinery Systems Business
The Machinery Systems Business supplies materials handling systems, including various transportation equipment(conveyors, sorting systems, etc.), and conveyance systems for factories and automated warehouses.
(3) Environmental Systems Business
The Environmental Systems Business provides facilities such as water treatment facilities (including facilities totreat drinking water and dispose of sewage, facilities for the disposal of industrial wastewater, and facilities forthe treatment or incineration of sludge), facilities for the treatment of waste (including waste incineration facilities,
landfill wastewater treatment facilities), and others.

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

04 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Business description(4) Real Estate Business
The Real Estate Business utilizes vacant land, such as former factory sites, and manages real estate lease businessand building management business.
Sanki Engineering’s main business is the provision of the facilities and solutions as described above. The Company
obtains about half of its orders directly from facility owner clients and half indirectly through general contractors.
Just as the size of the orders varies widely from a few million yen to a few billion yen, the order completion timevaries from a few weeks to a few years for longer orders. The profitability of an order varies and may differ fromthe originally planned profitability depending on factors such as labor and material costs and the management
construction schedule. Some orders end up more profitable than originally planned, and some are less profitable.
2. Strengths, distinguishing traits, and competitors(1) Broad business domain and one-stop shop solutions
It’s no exaggeration to say that there are countless companies in Japan providing the same kind of construction
and facilities as Sanki Engineering. The Company’s strength lies in the wide range of its businesses, which includes
HVAC for building, plumbing, industrial HVAC, electrical systems, facility systems, automated control systems
for buildings, transportation systems, and water treatment facilities. The Company can provide services for many
types of facilities and solutions covering all phases from planning and design, to installation, maintenance, repair,and replacement, depending on the life cycle of the building. This capability allows its customers to place one-stop
shop orders to resolve their problems. By making use of “total engineering” and “life-cycle engineering,” which
combines a wide variety of businesses horizontally, the Company can provide optimal systems with high added
value, and this comprises the Company’s strength.
(2) 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, Sanki Engineering 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 Olympic Gamesof 1964, have enabled it to obtain orders for recent large projects, such as the ABENO HARUKAS in Osaka andTokyo Midtown Hibiya.
3. Main competitors
Sanki Engineering’s competitors vary by project, but its main competitors among the comprehensive facility construction companies 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 strengths lie in its broad business domain and its superiority in industrial HVAC systems, suchas clean rooms.
4. Trend in orders received and the economic environment
Given the nature of Sanki Engineering’s businesses, orders received are the most important factor affecting theCompany’s performance. Annual orders received are greatly affected by the overall Japanese market, or theJapanese macro-economy. As the Company’s main business is facilities construction, it is influenced by the macro
indicator of private sector, non-residential construction investment. The correlation between orders received andprivate sector, non-residential construction investment is arguably very high.

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

05 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Business description㻻㼞㼐㼑㼞㼟㻌㼞㼑㼏㼑㼕㼢㼑㼐㻌㼢 㼑㼞㼟㼡㼟㻌㻼㼞㼕㼢㼍㼠㼑㻘㻌㼚㼛㼚㻙㼞㼑㼟㼕㼐㼑㼚㼠㼕㼍㼘㻌㼏㼛㼚㼟㼠㼞㼡㼏㼠㼕㼛㼚㻌㼕㼚㼢㼑㼟㼠㼙㼑㼚㼠㻔¥㼎㼚㻕㻻㼞㼐㼑㼞㼟㻌㼞㼑㼏㼑㼕㼢㼑㼐㻌㻔㼘㼑㼒㼠㻕㻼㼞㼕㼢㼍㼠㼑㻘㻌㼚㼛㼚㻙㼞㼑㼟㼕㼐㼑㼚㼠㼕㼍㼘㻌㼏㼛㼚㼟㼠㼞㼡㼏㼠㼕㼛㼚㻌㼕㼚㼢㼑㼟㼠㼙㼑㼚㼠㻌㻔㼞㼕㼓㼔㼠㻕
㻔¥㼠㼚㻕

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㻝㻞㻌
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㻞㻜㻜㻤

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Source: Prepared by FISCO based on materials from the Ministry of Land, Infrastructure, Transport and Tourism, etc.

██Business trends
Operating income increased 183.3% YoY in 1H FY3/20.
Balance carried forward will maintain high level of ¥158bn
1. 1H FY3/20 results overview(1) Earnings
In the 1H FY3/20 results, orders received were ¥100,901mn (up 2.8% year-on-year (YoY)), net sales were
¥91,845mn (up 13.8%), gross profit was ¥13,168mn (up 22.3%), operating income was ¥3,191mn (up 183.3%),
ordinary income was ¥3,503mn (up 127.5%), and profit attributable to owners of parent was ¥2,485mn (up212.0%),In addition to continued strong business conditions, ongoing rigorous cost controls, a strengthened system forfront-line support and other moves saw gross profit margin rise by 1.0pp YoY to 14.3%. At the same time, SG&A
expenses stayed at ¥9,976mn (up 3.4%, or ¥331mn, YoY), declining to 10.9% as a percentage of net sales from
11.9% in the same period of the previous year. As a result, operating income increased significantly YoY.
Orders received for facilities construction fell slightly YoY, but remained at a high level in absolute terms. In orders
received for the Plant & Machinery Systems Business, the Machinery Systems Business declined YoY, but theEnvironmental Systems Business saw orders received increase significantly by 70.1% YoY thanks to orders forlarge-scale projects. As a result, total orders received fell by 2.8% YoY, but remained at a high level. With this,balance carried forward declined by 5.3% YoY to ¥158,885mn, and the Company continues to have plentiful
work on hand.

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

06 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Business trends

1H FY3/20 results(¥mn, %)
1H FY3/19
Amount1H FY3/20
YoY change% change

Orders received

103,819-

100,901--2,918-2.8

Balance carried forward

167,809-

158,885--8,924-5.3

Net sales

80,723100.0

91,845100.0

11,12213.8

Gross profit

10,771

13.3

13,168

14.3

2,396

22.3

SG&A expenses

9,644

11.9

9,976

10.9

331

3.4

Operating income

1,126

1.4

3,191

3.5

2,065

183.3

Ordinary income

1,540

1.9

3,503

3.8

1,963

127.5

796

1.0

2,485

2.7

1,688

212.0

Profit attributable toowners of parent

Ratio

AmountRatio

Source: Prepared by FISCO from the Company’s Summary of Financial Results(2) Earnings by segment
Net sales and gross profit by segment(¥mn, %)
1H FY3/19

1H FY3/20

AmountRatio

AmountRatio

80,723100.0

91,845100.0

11,122

13.8

HVAC and plumbing for buildings

27,111

33.6

32,580

35.5

5,468

20.2

Industrial HVAC

29,77436.8

30,849

33.6

1,075

3.6

Electrical systems

8,647

10.7

9,845

10.7

1,197

13.9

Net sales

YoY change% change

4,460

5.5

4,962

5.4

502

11.3

Facilities Construction Business

69,993

86.7

78,237

85.2

8,244

11.8

Machinery Systems Business

4,377

5.4

5,294

5.8

916

20.9

Environmental Systems Business

6,132

7.6

7,413

8.1

1,281

20.9

Real Estate Business

923

1.1

1,050

1.1

126

13.7

Others

295

0.4

443

0.5

147

50.1

Adjustments

-998

-

-593

-

404

-

10,771

13.3

13,168

14.3

2,396

22.3

8,529

-

10,565

-

2,035

23.9

641

-

824

-

182

28.5

Facilities Construction Business

9,171

-

11,390

-

2,218

24.2

Machinery Systems Business

798

-

998

-

200

25.0

Environmental Systems Business

713

-

386

-

-327

-45.9

Real Estate Business

287

-

318

-

31

10.9

Others

96

-

124

-

27

28.3

-296

-

-49

-

247

-

Facility systems

Gross profit
Building HVAC, industrial HVAC,
electrical systems
Facility systems

Adjustments

Note: From FY3/20, segment profits are disclosed as gross profit
Source: Prepared by FISCO from the Company’s Summary of Financial Results

In the Facilities Construction Business, net sales were ¥78,237mn (up 11.8% YoY). By sub-segment, in HVAC
and plumbing for buildings, net sales increased 20.2% YoY to ¥32,580mn. The balance of orders received inindustrial HVAC, an area of specialty for the Company, saw high levels primarily in semiconductors and othersin the electrical industry, driving net sales of ¥30,849mn (up 3.6% YoY). Electrical systems also maintained its
strength, rising 13.9% YoY to ¥9,845mn. Facilities systems were up 11.3% YoY to ¥4,962mn.
In the Plant & Machinery Systems Business, total net sales increased 20.9% YoY to ¥12,707mn. Machinery
Systems Business net sales were ¥5,294mn (up 20.9%) and Environmental Systems Business net sales were
¥7,413mn (up 20.9%). Other than these facilities work segments, net sales in the Real Estate Business increased
13.7% YoY to ¥1,050mn due to factors including the start of leasing of part of the former Yamato Plant site to
Nippon Life Insurance Company. As a result of the above, sales increased in every segment and sub-segment.

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

07 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Business trends

Beginning in FY3/20, profits by segment are being disclosed as gross profit. This amounted to ¥11,390mn for
the Facilities Construction Business (up 24.2% YoY), breaking down into ¥10,565mn (up 23.9% YoY) for building
HVAC and plumbing, industrial HVAC and electrical systems, and ¥824mn (up 28.5% YoY) for facilities systems.
In the Plant & Machinery Systems, the Machinery Systems Business reached ¥998mn (up 25.0% YoY), with theEnvironmental Systems Business at ¥386mn (down 45.9% YoY). In the Real Estate Business and Others, grossprofits were ¥318mn (up 10.9% YoY) and ¥124mn (up 28.3% YoY), respectively.
(3) Orders received by segment
Orders received by segment(¥mn, %)
1H FY3/19

1H FY3/20

AmountRatio

AmountRatio

103,819100.0

100,901

100.0-2,918HVAC and plumbing for buildings

32,38531.2

32,810

32.5

425

1.3

Industrial HVAC

38,49537.1

28,741

28.5-9,753-25.3

Electrical systems

12,013

11.6

12,198

12.1

185

1.5

Facility systems

5,350

5.2

5,905

5.9

555

10.4

Facilities Construction Business

88,24485.0

79,656

78.9-8,587-9.7

Machinery Systems Business

6,536

6.3

5,479

5.4

-1,057-16.2

Environmental Systems BusinessNet sales

YoY change% change
-2.8

8,776

8.5

14,933

14.8

6,156

70.1

Real Estate Business

923

0.9

1,050

1.0

126

13.7

Others

320

0.3

324

0.3

4

1.3

Adjustments

-982

-

-543

-

438

-

Source: Prepared by FISCO from the Company’s Summary of Financial Results

Orders received for the Facilities Construction Business overall reached ¥79,656mn (down 9.7% YoY), a year-onyear decline, but this was because of an outstanding level of orders in the previous year, and levels remain high inabsolute terms. By sub-segment, HVAC and plumbing for buildings was up 1.3% YoY to ¥32,810mn, exceeding
the previous year. Industrial HVAC fell by 25.3% YoY to ¥28,741mn. While this represented a negative YoY result
due to a large-scale semiconductor project obtained in FY3/19, the level is high and exceeds that of 1H FY3/18(¥27,060mn). Electrical systems maintained its level on a YoY basis at ¥12,198mn (up 1.5%), while facility systems
were also strong at ¥5,905 (up 10.4% YoY).
In the Plant & Machinery Systems Business, orders received for the Machinery Systems Business reached¥5,479mn (down 16.2% YoY), but these are relatively strong results considering that the high levels in FY3/19
and FY3/18 reflected orders for large-scale projects. Meanwhile, the Environmental Systems Business capturedorders for two large-scale projects, resulting in a significant increase to ¥14,933mn (up 70.1% YoY). As a result,orders received in the Plant & Machinery Systems Business totaled ¥20,413mn (up 33.3% YoY), and together with
the Facilities Construction Business, orders received for the facilities work segments overall reached ¥100,070mn(down 3.4% YoY).
In areas other than facilities work segments, orders received in the Real Estate Business totaled ¥1,050mn (up13.7%), and in Others totaled ¥324mn (up 1.3%). Total orders received in 1H FY3/20 (including adjusted amounts)was ¥100,901mn (down 2.8%), a slight YoY decline but still a high level. As a result, the balance carried forward
at the end of 1 H FY3/20 was ¥158,885mn (down 5.3%), staying at a high level.
There was a total of seven orders for large-scale projects (those exceeding ¥1,000mn), worth ¥18,952mn. On a
YoY basis, the number of such orders fell, but the total value rose (1H FY3/19: 9 orders, ¥15,873mn; 1H FY3/18:
8 orders, ¥19,052mn). Future results for the Environmental Systems Business in particular will likely be driven bylarge-scale projects that differ in type from waste and water and sewage treatment plants.

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

08 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Business trends

Breakdown of large-scale projects with orders exceeding ¥1,000mn(projects)
1H FY3/18

1H FY3/19

1H FY3/20

Offices11-Hotels-1-

Factories2

52

Research and institutes

1

-

-

Logistics Center

-

1

-

Hospitals-

11

Others1-

2

Railway and airport facilitie

1

-

-

Waste processing facilities

2

-

1
1

Water treatment plants and sewage plants

-

-

Total

8

9

7

19,052

15,873

18,952

Total (¥mn)

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

㻸㼍 㼞㼓㼑㻙㼟㼏㼍㼘㼑㻌㼜㼞㼛㼖㼑㼏㼠㼟㻌㼣㼕㼠㼔㻌㼛㼞㼐㼑㼞㼟㻌㼑㼤㼏㼑㼑㼐㼕㼚㼓㻌¥㻝㻘㻜㻜㻜㼙㼚㻔¥㼙㼚㻕㻝㻥㻘㻜㻡㻞

㻝㻤㻘㻥㻡㻞
㻝㻡㻘㻤㻣㻟㻤㻥㻣㻔㼜㼞㼛㼖㼑㼏㼠㼟㻕㻔㼜㼞㼛㼖㼑㼏㼠㼟㻕㻔㼜㼞㼛㼖㼑㼏㼠㼟㻕㻝㻴㻌㻲㼅㻟㻛㻝㻤㻝㻴㻌㻲㼅㻟㻛㻝㻥㻝㻴㻌㻲㼅㻟㻛㻞㻜

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

2. Financial condition
The financial condition at the end of 1H FY3/20 was that current assets were ¥115,368mn (down ¥25,973mn YoY),
which was due to factors including a ¥28,929mn decrease in notes and accounts receivable on completed construction contracts and others. Noncurrent assets were ¥53,235mn (down ¥744mn), which was primarily becauseof a decrease in investments and other assets of ¥748mn, while an increase in tangible noncurrent assets havesettled down following the completion of the Yamato sites and other factors. As a result, total assets at the end of
1H FY3/20 were ¥168,603mn (up ¥26,717mn).

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

09 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Business trends

Current liabilities were ¥64,503mn (down ¥26,814mn), mainly due to a ¥23,551mn decrease in notes and accounts
payable on construction contracts and others. Noncurrent liabilities were ¥13,951mn (down ¥280mn), with the main
factors including a decrease of ¥695mn in long-term loans and an increase of ¥149mn in liability for retirement
benefits. As a result, total liabilities at the end of 1H FY3/20 were ¥78,454mn (up ¥27,094mn). Total net assets were¥90,149 (up ¥377mn). This was mainly due to factors including a ¥2,100mn decrease in retained earnings from thepayment of dividends and a ¥2,413mn decrease from the retirement of treasury shares.
Condensed balance sheet(¥mn)
FY3/191H FY3/20

ChangeCash and deposits

42,612

41,865-746

Notes and accounts receivable on completed construction
contracts and others

85,24356,314-28,928

141,342

115,368-25,973

Tangible noncurrent assets

14,32914,328-1

Intangible noncurrent assets

688

693

5

Investments and other assets

38,961

38,213-748

Current assets

Noncurrent assets

53,97953,235-744

Total assets

195,321

168,603-26,717

Notes and accounts payable on construction contracts and others

68,28644,735-23,550

Short-term loans

6,874

6,875

0

Payments received for work in progress

3,395

6,221

2,825

91,31764,503-26,814Long-term loans

5,220

4,525

-695

Liability for retirement benefits

3,120

3,269

149

Noncurrent liabilities

14,232

13,951-280

Total liabilities

105,549

78,454-27,094

Total net assets

89,772

90,149377

Current liabilities

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

3. Cash flow conditions
In 1H FY3/20, cash flow provided by operating activities was ¥5,369mn, with the main cash inflow items being
profit before income taxes, etc., of ¥3,613mn, and an ¥29,496 decrease in trade receivables, and the main cash
outflow item being a ¥23,810mn decrease in trade payables. Cash flow used in investing activities was ¥584mn,
due mainly to ¥1,375mn in purchase of property, plant and equipment. Cash flow used in financing activities was¥3,184mn, with the main cash outflow items including ¥695mn in net decrease in short- and long-term borrowingsand ¥2,383mn in dividends paid.
As a result, the balance of cash and cash equivalents at the end of 1H FY3/20 had increased ¥1,554mn from theend of the previous fiscal year to ¥44,865mn.

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

10 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Business trends

Condensed statement of cash flows(¥mn)
Cash flows from operating activities

1H FY3/19

1H FY3/20

1,434

5,369

Profit before income taxes

1,389

3,613

Change in trade notes and accounts receivable (- indicates increase)

10,40929,496

Change in trade notes and accounts payable (- indicates decrease)-6,014-23,810

Cash flows from investment activities
Purchase of property, plant and equipment
Cash flows from financing activities
Change in short- and long-term borrowings (- indicates decrease)
Dividends paid

-2,051-584-2,002-1,375-2,007-3,184-713-695-1,211-2,383

Change in cash and cash equivalents (- indicates decrease)-2,671

1,554

Cash and cash equivalents at end of period

42,19544,865

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

4. Completion of STeP Project
Since FY3/17, the Company has been implementing the redevelopment of its land and buildings into STeP (Sanki
Techno Park), primarily the property it owns at the Sanki Yamato Site (including the Sanki Yamato Site building andthe former Yamato Engineering Center). This project was completed in 1H FY3/20.
In May 2018, the Company began leasing part of the land at the former Yamato Engineering Center to the Nippon
Life Insurance Company; by October 2019, it had begun leasing the entire property (40,000 m2). In October 2018,
the Sanki Techno Center was completed and is currently operating. In September 2019, the Yamato Product Center
began full-scale operations, marking the completion of the STeP project. Use of these facilities going forward is
expected to improve gross profit margins through improved productivity while increasing net sales in the Real EstateBusiness.

██Medium-term management plan
Century 2025 Plan, Phase 2 from FY3/20
1. “Century 2025” Plan: from Phase 1 to Phase 2
The Company has announced a 10-year long-term vision “Century 2025” that covers from FY3/17 to FY3/26, the100th anniversary of its establishment. The ultimate goal of this long-term vision is to be “The Company of Choice.”
The Company has divided the 10 years into three phases described below in order to achieve this goal and theCompany’s policy is to implement business strategies promoted in each phase of medium-term management plan.

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

11 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Medium-term management planLong-term vision “Century 2025”
We will strive over the next 10 years to become the company of choice for customers
by further enhancing the quality and reliability we provide.

Source: From the Company’s materials

The Company has already achieved the quantitative targets for Phase 1 of the medium-term management plan,
which were net sales of ¥195bn and operating income of ¥7.5bn in FY3/19.
2. Phase 2: The basic policies are a continuation of Phase 1“Century 2025” has entered Phase 2 from FY3/20, but since the initiatives in Phase 1 are already steadily showing
their effects, the Company has set the basic policies for Phase 2 as(1) continue to pursue further quality for technologies and people from the initiatives in Phase 1, and continue to
implement the key initiatives from Phase 1, of “Strengthen Core Businesses,” “Promote Growth Strategies,”and “Enhance the Sanki Brand.”(2) and in addition, promote understanding of the Company by "Disclosing financial and capital policies and the
ESG policy" and "Strengthening the ability to communicate information."
By working on these initiatives, it is aiming to increase “reliability” to become “The Company of Choice” fromthe next phase, Phase 3.
3. Phase 2: Strengthen core businesses
It will implement initiatives to “Improve component technologies and achieve stable growth.” From FY3/20, theFacility Systems Business will be separated from the Facilities Construction Business segment and become oneof core businesses.

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12 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Medium-term management plan

Improve component technologies and achieve stable growth
Segment

Initiative
Improving productivity and maintaining high profitability by establishing company-wide organizational
construction system, including subcontractors, and utilizing the “Sanki Techno Center”

Facilities Construction Business

Improving construction quality through the use of digital tools such as ICT and BIM
Improving quality of sales and design by revitalizing internal communication
Facility Systems Business

Providing new consulting services

Machinery Systems Business

Expanding hybrid system products and services to meet the labor reduction and automation needs
Establishing production management systems and improving productivity at the new “Yamato ProductCenter” plant
Proactively receive orders for infrastructure facilities corresponded to changes in society and environment,such as the declining population

Environmental Systems Business

Developing energy saving and energy creating fields such as biomass gasification power generation facilities
Source: Prepared by FISCO from the Company's materials

4. Phase 2: Initiatives to promote growth strategy
Implement initiatives to pursue future growth in the areas of technology and business.
Pursue future growth in the areas of technology and business
Item

Initiatives

Developing next-generation
technologies through the R&D Center

Developing technology in digital fields such as ICT, AI, and cloud computing using open innovation

Further catering to labor reduction
and automation needs

Creating next-generation technology at the new “Yamato Product Center” plant

Steadily development of overseas
business

Rebuilding foundations for local systems with an eye to business tie-ups and M&A

Rebuilding the food service
equipment business

Utilizing the food service equipment plans and management knowhow accumulated by the Company

Promoting stock-based businesses
for the future

Proactively receiving orders for new large-scale construction projects and DBO projects to expand LCE
projects

Source: Prepared by FISCO from the Company's materials

5. Phase 2: Initiatives to enhance the Sanki Brand
Implement initiatives to Develop human resources that possess the Sanki spirit and contribute to society.
Develop human resources that possess the Sanki spirit and contribute to society
Item
Enhancing quality of humanresources and technology

Initiatives
Utilizing the “Sanki Techno Center” to provide through education and training on topics such as technology,
safety, ethics, management, and manners for everyone from new employees to veteran employees, including
subcontractors
Establishing better frameworks relating to HR, salaries, and welfare, etc. through communication
Developing a healthy workforce and enabling the coexistence of a diverse workforce through the “Smile
Work Guidelines”*

Social contribution activities

Contributing to the resolution of global environmental problems through business activities
Proactively support culture and sports activities, starting with environmental activities*: The Company's own guidelines which provide tips on how to promote diverse work styles
Source: Prepared by FISCO from the Company's materials

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

13 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Medium-term management plan

6. Phase 2: Financial and capital policies
Establish financial and capital policies to rise medium- to long-term corporate value.
Raising medium- and long-term corporate value

Source: Prepared by FISCO from the Company's materials

7. Phase 2: ESG policies
Implement initiatives to create sustainable social value.
ESG Policies
Item
E (Environment)

Initiatives
Contributed to global environmental problems through business activities by decarbonization, saving energy
and creating energy
Continue with “SANKI YOU Eco Contribution Points”
Continue to participate in cultivating “Sanki Forest” and the afforestation projects

S (Society)Pursue workstyle reforms by continuing with the “Smile Project” and “Smile Site Plan”
Carry out measures to improve communication
Proactively carry out cultural and sports support, starting with environmental activities

G (Governance)Continue with initiatives aimed at achieving better governance, based on “Sanki Engineering’s Corporate
Governance Guidelines”

Source: Prepared by FISCO from the Company's materials

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

14 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Medium-term management plan

8. Phase 2: Strengthen the ability to communicate information
The Company is actively communicating information by implementing initiatives to further spread awareness of the
Sanki brand both internally and externally.
Proactive transmission of information
Item

Initiatives
Disclose basic policies for financial & capital policies

Augment IR activities

Continue to create opportunities for dialogue with shareholders and investors (such as implementation of
corporate tours)
Continue to participate in exhibitions for individual investors
Augment the integrated corporate report, “SANKI REPORT”
Continue to participate in exhibitions that have a high marketing effectPromoting understanding of the Company through corporate messaging and advertising

Expand PR activities

Appeal to a wide range of customers using a wide variety of media
Source: Prepared by FISCO from the Company's materials

9. Financial performance targets: Management targets now being disclosed along with financial
performance targets
Financial performance targets(¥bn , %)Phase 1

Phase 2

FY3/17

FY3/18

FY3/19FY3/20FY3/21

FY3/22

Net sales

1,685

1,701

2,123

2,000

2,000

2,000

Gross profit

225

250

316

300

310

320

13.4

14.7

14.9

15.0

15.5

16.0

68

74

112

90

95

100

4.1

4.4

5.3

4.5

4.8

5.0

Gross profit margin
Ordinary income
Ordinary income margin

Source: Prepared by FISCO from the Company's materials

In consideration of the external environment and the promotion of employees’ work-style reforms, it is targeting
total net sales for the three years of ¥200bn, while targeting gross profit margin, which the Company holds in thehighest importance, of 16.0% and an ordinary profit margin of 5.0% for FY3/22.
However, forecast net sales and ordinary income for FY3/20 have already been revised to ¥210bn and ¥10bn,
respectively, exceeding the planned numbers for “Century 2025” Phase 2.

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

15 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

Medium-term management plan㻻㼞 㼐㼕㼚㼍㼞㼥㻌㻵㼚㼏㼛㼙㼑㻌㻾㼑㼟㼡㼘㼠㼟㻌㼍㼚㼐㻌㻲㼛㼞㼑㼏㼍㼟㼠㼟㻾㼑㼟㼡㼘㼠㼟㻌㼍㼚㼐㻌㼒㼛㼞㼑㼏㼍㼟㼠㻔¥㼎㼚㻕㻵㼚㼕㼠㼕㼍㼘㻌㼜㼘㼍㼚

㻝㻞㻚㻜
㻝㻜㻌

㻝㻜㻚㻜
㻤㻚㻜

㻣㻚㻜㻌

㻥㻚㻜㻌

㻤㻚㻜㻌

㻣㻚㻡㻌

㻢㻚㻜

㻝㻝㻚㻞㻌

㻠㻚㻜

㻢㻚㻤㻌

㻣㻚㻠㻌

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻝㻜㻚㻜㻌

㻝㻜㻚㻜㻌

㻥㻚㻡㻌

㻝㻜㻚㻜㻌

㻲㼅㻟㻛㻞㻜㻌㻱

㻲㼅㻟㻛㻞㻝㻱

㻲㼅㻟㻛㻞㻞㻌㻱

㻞㻚㻜㻜㻚㻜㻲㼅㻟㻛㻝㻥

Source: Prepared by FISCO from the Company's materialsManagement Targets
Phase 2 Management targets
Ordinary profit margin

5.0% and higher (final fiscal year)

Dividends

Annual dividends per share of ¥60 and higher

Acquisition of treasury stock

About 5 million shares

Total return ratio

70% or higher

ROE

8.0% or higher

Source: Prepared by FISCO from the Company's materials██Outlook
Decline in profit forecasted, though an upward revision from initial
forecast• FY3/20 outlook
For the FY3/20 full year results, the Company is forecasting net sales of ¥210,000mn (down 1.1%), operating incomeof ¥9,800mn (down 7.9%), ordinary income of ¥10,000mn (down 10.7%), and profit attributable to owners of parentof ¥7,000mn (down 22.6%). Earnings are projected to decrease compared to FY3/19, however, the forecast has
been revised upward from the initial forecast which was ¥8,800 (down 17.3% YoY) in operating income. These
forecasts assume orders received of ¥200,000mn (down 7.9%) and balance carried forward of ¥139,829mn (down
12.0% from the end of the previous fiscal year).

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16 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Outlook

Breaking down net sales, in the Facilities Construction Business, they are forecast to be ¥171,000mn (down 4.6%
YoY). By sub-segment, sales are expected to be ¥71,000mn (down 0.8%), basically unchanged YoY, for HVAC
and plumbing for buildings. Sales are expected to be ¥65,000mn (down 11.6%) for industrial HVAC due to theoutstanding results achieved in FY3/19. Sales of electrical systems are forecast to be slightly increased YoY at¥24,000mn (up 3.4%), and those of facility systems to increase to ¥11,000mn (down 0.3%). In the Plant & Machinery
Systems Business, net sales for Machinery Systems are forecast to increase slightly to ¥12,000mn (up 1.8%), while
Environmental Systems is projected to increase significantly to ¥25,000mn (up 22.1%) from construction work at
hand.
In the mainstay Facilities Construction business, orders received are forecast to be ¥163,000mn due to the favorable performance in FY3/19. By sub-segment, in HVAC and plumbing for buildings, orders are expected to be¥67,000mn, in industrial HVAC, ¥61,000mn due to the rebound from having received a large-scale project obtainedin FY3/19, in electrical systems, ¥23,000mn, and in facility systems, ¥12,000mn (up 10.9%). In the Plant & Machinery
Systems Business, orders are expected to be ¥12,000mn for Machinery Systems and ¥23,000mn for Environmental
Systems, both mostly unchanged YoY. As a result, overall orders received including Real Estate Business and Others
are forecast to be ¥200,000mn.
FY3/20 forecast(¥mn, %)
FY3/19FY3/20 E

AmountRatio

AmountRatio

217,096100.0

200,000

100.0-17,096

HVAC and plumbing for buildings

65,63930.2

67,000

33.5

1,361

2.1

Industrial HVAC

82,72938.1

61,00030.5-21,729-26.3

Electrical systems

23,34210.8

23,000

11.5

-342

-1.5

Facility systems

10,821

5.0

12,000

6.0

1,179

10.9

Facilities Construction Business

182,53384.1

163,000

81.5-19,533-10.7

Machinery Systems Business

12,0495.6

12,000

6.0

-49

-0.4

Environmental Systems Business

21,70510.0

23,000

11.5

1,295

6.0

Real Estate Business

1,926

0.9

2,000

1.0

74

3.8

960

0.4

600

0.3

-360

-37.5

Orders received

OthersYoY change% change-7.9-2,078

-

-600

-

1,478

-

212,314100.0

210,000

100.0-2,314-1.1

HVAC and plumbing for buildings

71,55833.7

71,000

33.8

-558

-0.8

Industrial HVAC

73,49334.6

65,00031.0-8,493-11.6

Electrical systems

23,21410.9

24,000

11.4

786

3.4

Facility systems

11,033

5.2

11,000

5.2

-33

-0.3

Facilities Construction Business

179,300

84.5

171,000

81.4-8,300-4.6

Machinery Systems Business

11,791

5.6

12,000

5.7

209

1.8

Environmental Systems Business

20,471

9.6

25,000

11.9

4,529

22.1

Real Estate Business

1,926

0.9

2,000

1.0

74

3.8

718

0.3

600

0.3

-118

-16.4

Adjustments
Net sales

Others-1,893

-

-600

-

1,293

-

Gross profit

31,68414.9

32,000

15.2

316

1.0

SG&A expenses

21,046

9.9

22,200

10.6

1,154

5.5

Operating income

10,637

5.0

9,800

4.7

-837

-7.9

Ordinary income

11,204

5.3

10,0004.8-1,204-10.7

Profit attributable to owners of parent

9,046

4.3

7,000

3.3

-2,046-22.6

Adjustments

Source: Prepared by FISCO from the Company’s financial results supplementary materials

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

17 19

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

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

23-Jan.-2020
http://www.sanki.co.jp/en/ir/

OutlookGiven that currently there is ample work in hand, we feel there is every likelihood that the Company will achieve
the above targets. Going forward, the point to pay attention to is avoiding unexpectedly unprofitable projects byrigorous progress management. In respect of orders also, the environment surrounding the construction and HVAC
industries is good, 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 their target for orders received.
Gross profit margins were high (14.9%) in the previous year, but the Company plans to exceed that figure to secure amargin of 15.2% by enacting a variety of profit improvement measures, including continuing to establish and enhancevarious front-line support systems; enhancing the ability of the Procurement Division to negotiate in procuring
materials; and continuing to support front-line purchasing operations through collective management. Through thesemeasures, the Company projects ¥32,000mn (up 1.0% YoY) in gross profit if the net sales target is achieved asplanned. Meanwhile, SG&A expenses are expected to increase 5.5% YoY to ¥22,200mn, and as a result, operating
income is forecast to fall 7.9% YoY to ¥9,800mn. That said, given a breather in the rise in extraordinary expenses(human resource investments, pay revisions, etc.), SG&A expenses may not rise as much as expected, and if net
sales and gross margins perform to plan, operating income going forward may be revised upward.

██Shareholder return policy
The Company has expressed a shareholder return policy calling fora total return ratio of 70% or greater and an annual dividend of atleast ¥60. Increased dividend, acquisition and retirement of treasury
shares represents an active approach to shareholder returns.
The Company actively returns profits to shareholders. While its basic annual dividend was ¥15 through FY3/14, achange in profit structure prompted a dividend increase beginning in FY3/15. Due to strong results in FY3/19, theCompany implemented a special year-end dividend of ¥20 in addition to the normal ¥40 dividend, for a total annual
dividend of ¥60 (a dividend payout ratio of 40.0%). Further, while the Company had initially called for an annual
dividend of at least ¥60 for FY3/20, strong results in 1H FY3/20 led it to announce an increase to ¥70 (interim ¥35,
year-end ¥35).
Also, as part of its measures to return profits to shareholders, the Company has actively acquired its treasury shareson the stock market and retired them. In 1H of FY3/20, it retired 2mn of its treasury shares, and plans to acquire
another 2mn shares during the fiscal year (of which 1mn have already been acquired).
Looking at the Company’s buy-backs of treasury shares and the dividend amounts from FY3/14 to FY3/19, we
see that the total amount was ¥20,678mn, and the ratio of this amount to the total profit attributable to owners ofparent during this period, or in other words, the ratio of the total return of profits (weighted average), was 76.0%. In
the three years from FY3/20, it intends to acquire around 5mn treasury shares, and combined with the dividend, toachieve a ratio of the total return of profits of 70% or above. In such ways, we can highly evaluate the Company’s
positive approach to returning profits to shareholders, and moreover the fact that it has clarified its specific policies
for returning profits to shareholders in Phase 2 of the medium-term management plan.

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

18 19

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

Sanki Engineering Co., Ltd.

23-Jan.-2020

1961 Tokyo Stock Exchange First Section

http://www.sanki.co.jp/en/ir/

Shareholder return policy

Shareholder returns
Sale of treasury stock
No. of shares

Amount (¥mn) (A)Dividend amount (B)Amount of shareholder
returns (C) = (A) + (B)Profit attributable toowners of parent

FY3/191,000,000

1,191

3,595

4,786

9,046

FY3/183,000,000

3,679

2,136

5,815

3,906

FY3/17

0

0

1,906

1,906

4,698

FY3/16

0

0

1,906

1,906

5,327

FY3/152,000,000

1,604

1,270

2,874

2,461

FY3/144,000,000

2,408

983

3,391

1,763

20,67827,201

Total
Total return ratio (weighted average)
Source: Prepared by FISCO from the Company's financial results and results briefing materials

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

19 19

76.0%

Disclaimer
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◾ 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