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

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

伪伪May Exceed the Plan for FY3/17 with Steady Progressof Medium-Term Management Plan Challenge 1500
Sun-Wa Technos Corporation <8137> (hereinafter, also “the Company”) is an independent trading
company that specializes in technology products. One of the strengths of the Company is that it
has three business divisions of electrical machinery, electronics, and general machinery. Anotherstrength is the Company’s two-way trade in which it sells equipment and materials for manufacturers’
production lines and then buys and sells the products made by these manufacturers to othercompanies. By utilizing these strengths, Sun-Wa Technos has expanded its businesses.
Sun-Wa Technos aims to strengthen and expand engineering and global SCM (supply chain
management) solutions businesses under its current Challenge 1500 medium-term management
plan. Both businesses have made steady progress so far since the implementation of Challenge
1500. In engineering business, the Company has established an integrated solutions structure tosupply design, production, installation, and maintenance, including through use of business allianceswith other firms. It steadily accumulated results with organic EL lines and other facilities in 1H FY3/17.
In global SCM solutions business, the Company is making inroads, mainly at important customers,
and increasing transaction value.
Profits surpassed the forecast in 1H FY3/17. While Sun-Wa Technos made downward revision to
the forecast at the 1Q announcement, the 1H results ended up at around initial profit estimates. This
happened because business conditions varied significantly between 1Q and 2Q. Demand recovered
sharply for smartphone-related business in China and semiconductor-related business in China andSouth Korea in 2Q, driving the Company’s growth.
Sun-Wa Technos is maintaining its revised FY3/17 forecast from the 1Q announcement. However,we see a solid possibility of profits surpassing the revised forecast and reaching initial forecastin light of recent 2Q result, the prospect of steady business conditions in 2H, and the cautious¥100/$ assumption used for 2H. We cannot rule out uncertainty in 4Q activity in the current
volatile environment, but expect the engineering business, a key component of the medium-term
management plan, to demonstrate its value in such conditions.
Sun-Wa Technos is promoting the New Life project as a new initiative. This effort aims to expand
opportunities for female employees and sell products leveraging the vantage point and ideas ofwomen, thereby spurring earnings growth. The New Life Promotion Office, a sales team that mainly
consists of women, is currently engaged in selling AEDs, LED lighting, and other products. While theinitiative does not have much direct impact on earnings at this point, the switch to a corporate culturethat gives women, who comprise about 40% of all employees, more opportunity should inspire male
employees as well and help raise earnings over the longer term.

伪伪Check Point• Sales and profits fell in 1H FY3/17, though profit items exceeded the downward-revised
forecast• Focus on engineering business and global SCM solutions business• FY3/17 forecast for lower profits on increased sales, but profits could rise due to recovery
in Chinese capital investment demand and gain from forex rate difference

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

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8137 Tokyo Stock ExchangeFirst Section

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㻝㻜㻡㻘㻣㻠㻤FISCO Ltd. Analyst
Hiroyuki Asakawa

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Important disclosuresand disclaimers appear
at the end of this document.

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伪伪Details of 1H FY3/17 Results
Sales and profits fell in 1H FY3/17, though profit items
exceeded the downward-revised forecast
Sun-Wa Technos reported 1H FY3/17 results with lower sales and profits at ¥50,006mn in net sales(down 8.2% YoY), ¥1,082mn in operating income (down 23.6%), ¥1,102mn in ordinary income (down
28.7%), and ¥763mn in net income attributable to owners of the parent (down 26.1%). It reduced
1H and FY3/17 full year forecast at the 1Q announcement, and 1H results surpassed the revised
forecast for each profit item under operating income.
Review of 1H FY3/17 Results
1H FY3/16
Results

Forecasts

Net sales
54,45755,000Gross profit
6,748
Gross profit margin
12.4%
SG&A expenses
5,331
SG&A expenses ratio
9.8%
Operating income
1,417
1,050
Operating income margin
2.6%
1.9%
Ordinary income
1,545
1,150
Net income attributable to
1,033
800
owners of the parent
Source: Prepared by FISCO from Company materials

Revisedforecasts
51,000
800
1.6%
850
600

(¥mn)

1H FY3/17
50,006
6,331
12.7%
5,249
10.5%
1,082
2.2%
1,102

-8.2%
-6.2%
-1.5%
-23.6%-28.7%

Vs. revised
forecasts
-1.9%
35.3%
29.7%

763

-26.1%

27.3%

Results

YoY change

Sales and profits fell in 1H FY3/17, but we think results content contained many positive aspects.
One is earnings momentum. Quarterly breakdown of 1H shows large differences between 1Q and
2Q, particularly in earnings. Operating income declined 89.7% YoY in 1Q due to heavy impact fromthe forex rate’s shift toward yen's appreciation and tougher slowdown in China and other emerging
economies than anticipated. These conditions spurred the Company’s decision to make downward
revision to the results forecast at the 1Q announcement.
In 2Q, however, demand for the Company’s core factory automation products rapidly recovered
thanks to pick-up in capital investment by smartphone manufacturers in China and stronger activity
in the semiconductor industry in China and South Korea. Operating income hence significantly
regained momentum to a decline of just 0.6% YoY. We think 1Q FY3/17 was the earnings bottom
because demand recovery that started in 2Q has been continuing in 3Q.
Yen’s appreciation caused estimated setbacks of about ¥3,000mn in net sales and ¥270mn inordinary income (including forex loss from non-operating income) in 2Q.

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

■■Details of 1H FY3/17 Results㻽㼡㼍㼞㼠㼑㼞㼘㼥㻌㻾㼑㼟㼡㼘㼠㼟㻌㼀㼞㼑㼚㼐㼟㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㼅㼛㼅㻌㼏㼔㼍㼚㼓㼑㻌㼕㼚㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

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8137 Tokyo Stock ExchangeFirst Section

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13-Jan.-17

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

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Source: Prepared by FISCO from Company materials

Sun-Wa Technos has three business divisions of electrical machinery, electronics, and generalmachinery, and trends in these divisions are reviewed below.
Electrical machinery sales dropped 9.8% YoY to ¥9,115mn. The main source of sales decline wascontrol equipment for solar power systems. Increased sales of servo motors and other products
for the industrial machinery industry, meanwhile, offer a positive sign. For servo motors, a leading
product in this business, the Company delivers YASKAWA Electric Corporation’s (6506) servo motors
to Chinese machinery firms that insert the motors into production equipment used in production lines
of local smartphone and semiconductor firms.
Electronics sales declined 9.3% YoY to ¥36,704mn, primarily because of weaker sales of electronic
components for amusement products. Yet the Company steadily expanded sales of electronic
components to the automotive industry and showcase LED lighting to retail stores. We think growthin electronic components for automotive use deserves attention. Sun-Wa Technos newly established“automotive sales department” to cover the automotive industry in April 2016 and is positioning thisas a priority area. It is positive to see clear results from these efforts. While the business is still small,it has substantial room to grow.
General machinery sales climbed 7.9% YoY to ¥4,186mn. Higher sales of production facilities to LCD
and industrial machinery industries fueled sales growth. Sun-Wa Technos is working to strengthen
engineering business (as explained below), and this involves proposal sales of systems that combine
products from the three core divisions. An example is sales related to production equipment fororganic EL devices. These new efforts also helped boost division sales.

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

■■Details of 1H FY3/17 Results

Sales Trends by Business Segment

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

FY3/16
1Q
2Q
1H
3Q
Electrical machinery
4,664
5,443 10,108
3,880
YOY
8.6%
-9.9%
-2.2% -25.3%
Electronics
19,609 20,859 40,469 16,937
YOY
13.8%
8.6%
11.0% -16.7%
General machinery
1,204
2,676
3,880
1,935
YOY
-32.6%
20.8%
-3.1%
38.9%
Total net sales
25,478 28,979 54,457 22,754
YOY
9.3%
5.5%
7.2% -15.5%
Source: Prepared by FISCO from Company materials

4Q
Full year
1Q
5,080 19,069
3,857-28.8% -15.8% -17.3%
20,186 77,593 17,128-14.8%-3.6% -12.7%
3,269
9,084
1,667
19.1%
11.6%
38.5%
28,537 105,748 22,654-15.0%-5.0% -11.1%

FY3/17
2Q
5,258
-3.4%
19,575
-6.2%
2,518
-5.9%
27,352
-5.6%

(¥mn)
1H
9,115
-9.8%
36,704
-9.3%
4,186
7.9%
50,006-8.2%

Sales increased (YoY) in Japan and Europe/US from a regional segment perspective. Asia, whichmainly consists of emerging countries such as China, incurred steep sales and profit setbacks with
net sales down 27.5% to ¥11,843mn and operating income down 38.2% to ¥308mn.
At the quarterly level, we think significant improvement in income for the mainstay Japan segment in
2Q is notable. Sales climbed 29.0% in 2Q compared to 1Q and operating income returned to a profit
in 2Q. While income normally expands in 2Q compared to 1Q for seasonal factors, the 2Q outcome
still indicates a recovery trend.
Results Trend by Geographical Market
FY3/16
1H
3Q
40,093 17,896
1.2%
-5.5%
925
34
-5.0% -91.0%

Japan

1Q
2Q
Net sales
18,570 21,523
YOY
1.7%
0.8%
Operating income
93
832
YOY
-54.6%
8.2%
Operating income
0.5%
3.9%
2.3%
0.2%
marginNet sales
7,816
8,520 16,336
6,384
YOY
32.7%
21.3%
26.5% -27.8%
Operating income
257
242
500
142
YOY
16.3% -26.8%-9.7% -48.9%
Operating income
3.3%
2.8%
3.1%
2.2%
marginNet sales
837
888
1,726
722
YOY
8.7%
26.0%
17.0%
-3.7%
Operating income
22
-14
7
-7
YOY
37.5%
- -79.1%
Operating income
2.6%
-1.6%
0.4%
-1.0%
marginSource: Prepared by FISCO from Company materials

4Q
Full year
22,005 79,995
-5.1%
-2.1%
620
1,580
-19.9% -25.8%

1Q
17,931-3.4%-85-

FY3/17
2Q
23,136
7.5%
837
0.6%

(¥mn)
1H
41,0682.4%
751-18.8%

Asia

2.8%

2.0%

-0.5%

3.6%

1.8%

7,376
-34.5%
210-51.0%

30,097-8.8%
853-32.3%

5,774-26.1%
141-45.1%

6,068-28.8%
167-31.2%

11,843-27.5%
308-38.2%

Europe/US

2.8%

2.8%

2.4%

2.8%

2.6%

1,236
2.6%
2
-94.3%

3,685
7.4%
2
-96.6%

1,044
24.7%
-14
-

847
-4.6%
31
-

1,892
9.7%
16
122.4%

0.2%

0.1%

-1.3%

3.7%

0.8%

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

伪伪Progress with the Challenge 1500 medium-term
management plan
Focus on engineering business and global SCM solutions
business

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawa(1) Overview of Challenge 1500
Sun-Wa Technos is currently implementing the Challenge 1500 three-year medium-term management
plan that covers FY3/17-19. The plan’s content continues and builds upon the previous JUMP 1200
medium-term management plan that ended in FY3/16, and it is close enough to view the two plans
jointly as a “six-year” initiative. The Company solidified the organization and operations for realizing
its vision during JUMP 1200 and is seeking achievement of the goals utilizing the organization andoperations in Challenge 1500.
The Challenge 1500 medium-term management plan lists four items as the basic policies. It
highlights “systems, equipment, and parts/components sales business,” “engineering business,” and“global SCM solutions business” in the business strategy to achieve plan goals. In particular, SunWa Technos focuses on the engineering business and the global SCM solutions business in its
current medium-term management plan. Fuller descriptions of progress in these areas are given
below. Reinforcement of “systems, equipment, and parts/components sales business” overlaps withbolstering sales in three existing business divisions, and we think the perspective is roughly the sameas the “engineering business.”
Four Basic Policies and Three Business Strategies in Challenge 1500
Basic policies in Challenge 1500
Contribute to customers’ product manufacturing with our core businesses ofelectrical machinery, electronics, and general machinery
Provide unique high value-added solutions
Provide the latest technology information as a technology trading company
Strengthen group capabilities by enhancing the global network

Three business strategies
Systems/equipment and parts/components sales businessEngineering business
Global SCM solutions business
Source: Prepared by FISCO from Company materials

Sun-Wa Technos sets business goals of ¥137,000mn in net sales, ¥4,300mn in operating income, and¥4,500mn in ordinary income for FY3/19 in Challenge 1500. While targets in FY3/17 forecast differ
considerably with these goals, the main reason is disparity in the forex assumption. The Company
utilized the ¥117/$ rate from when it formulated the plan. It is important to recognize the possibility of
Sun-Wa Technos making flexible revisions depending on changes in the external environment, suchas the forex rate, in FY3/17 and also subsequent fiscal years.
Business Goals in Challenge 1500
FY3/16 results
Net sales
105,748
Operating income
2,444
Operating income margin
2.3%
Ordinary income
2,645
Ordinary income margin
2.5%
Source: Prepared by FISCO from Company materials(¥mn)
Challenge 1500 medium-term management plan
FY3/17 goals
FY3/18 goals
FY3/19 goals
117,000
126,000
137,000
2,800
3,500
4,300
2.4%
2.8%
3.1%
3,000
3,700
4,500
2.6%
2.9%
3.3%

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

■■Progress with the Challenge 1500 medium-term management plan

Priority business issues from the previous medium-term
management plan vital to growth as a solutions provider(2) Progress in the engineering business

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Hiroyuki Asakawaa) Business overview
Engineering business at Sun-Wa Technos is a sales approach for “proposing products from the threebusiness divisions of electrical machinery, electronics, and general machinery as system solutions,rather than standalone items.” We can use the example of a food supermarket to help explain thepositioning of engineering business. Up to now, the Company has been selling ingredients, suchas meat, fish, and vegetables, to customers. Engineering business, meanwhile, involves preparing
these individual ingredients for delivery to customers. The extent of processing can vary from sellinga prepared item to selling a meal box. The Company does not book sales as the engineering businessand related income is allocated to the electrical machinery, electronics, and general machinery
divisions.
Sun-Wa Technos has consistently addressed engineering business as a top priority since theprevious medium-term management plan, JUMP 1200, period. This is because expansion ofengineering business is equivalent to moving beyond positioning as a sales agent and becoming
a solutions provider. The Company can pursue higher profitability than is possible in sales agent
business for products from other companies to the extent that it earns margin equal to the added
value from “solutions.”
We have asserted that the Company’s efforts to strengthen engineering business clearly head in theright direction and are sufficiently meaningful in terms of feasibility and contributions to corporate
earnings. They offer genuine potential. We base this view on a number of reasons. The Company’sengineering business corresponds to areas that its procurement sources and sales destinations want
to “unload to realize smooth operations.” In other words, it involves “recruitment of outsourcing needs.”
Additionally, it reflects the close trust relationships between the Company and major procurement
sources and sales destinations. The third reason is that Sun-Wa Technos Asia (Thailand) has beenbuilding a track record, including trial-and-error activities, since the JUMP 1200 period, and rollout ofengineering business in the domestic market is continuing in Challenge 1500.
b) Progress status
Sun-Wa Technos restructured in April 2015 and established the FA system sales department,
industrial solutions department, and engineering department. It also utilized the headquarters moveas an opportunity to integrate the electrical machinery, electronics, and general machinery divisionsat headquarters from January 2016 and has promoted integrated machinery and electronics sales
covering these three divisions since then. The Company brought the engineering department into theheadquarters too from October 2016 and established operations for leveraging overall capabilities
and aggressively promoting the unique engineering business.
Sun-Wa Technos has been achieving solid results from these initiatives. One example is a production
line for organic EL displays. While it previously delivered robots, control consoles, and otherequipment on a standalone basis, it handles the system, installation, and maintenance altogether inthe latest deal. In the US too, the Company is currently making progress with a solutions proposal
built around a control console for a machine tool manufacturer.
However, it is difficult to obtain detailed information on the engineering business because many
projects are still in discussions and require confidentiality. The engineering business currently mainly
involves the addition of a system (software) portion to products handled by electrical machinery andgeneral machinery divisions. Using an analogy of a curry dish, products from the electrical machineryand general machinery divisions represent the meat and vegetables and system integration (SI) is
the sauce. SI procurement value totaled about ¥1.4bn in 1H FY3/17, and we expect the engineeringbusiness (sauce portion) to reach roughly ¥3bn in FY3/17.

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

■■Progress with the Challenge 1500 medium-term management plan㻿㻵㻌㻼㼞㼛㼏㼡㼞㼑㼙㼑㼚㼠㻌㼂㼍㼘㼡㼑㻌(¥100bn)㻝㻚㻢

About ¥1.4bn
About ¥1.3bn

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8137 Tokyo Stock ExchangeFirst Section㻜㻚㻤

About ¥1.1bn

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

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Source: Prepared by FISCO from Company materials

We think the roughly ¥3bn scale in engineering business as the first fiscal year of the medium-term
management plan is reasonable. However, the reality that much of the “sauce” (mentioned above)
consists of SI procured from other firms is an issue because of the small amount of actual profit in
the case of procurement from external sources. We expect higher profit margin than now and a large
contribution toward improved overall profitability if Sun-Wa Technos can handle this portion internally.
We also see a solid chance of engineering business scale growing to around ¥10bn by the final fiscal
year of the current medium-term management plan.
One reason for this outlook is the Company’s progress in “deals targeting growth markets,” afocus area, in 1H FY3/17. The value of deals currently being discussed has climbed sharply toabout ¥21.9bn in FY3/17. “Energy saving” projects are the main driver looking at the content. Thisis an excellent fit with the Company’s engineering business, and it is also the market targeted incollaboration with Fujipream Corporation (4237) described below. The roughly ¥13.9bn in FY3/17
deals appears to include multiple engineering business deals, and these conditions should support
future growth.
Value of Transactions Negotiated in Four Growth Markets
Markets

FY3/14 results

FY3/15 results

New energy
About ¥4.5bn
About ¥7.8bn
Energy savings
About ¥1.7bn
About ¥3.0bn
Nursing care and medical
About ¥0.3bn
About ¥1.1bn
Social infrastructure
About ¥0.1bn
About ¥0.8bn
Total
About ¥6.6bn
About ¥12.7bn
Source: Prepared by FISCO from Company materials

FY3/16 results
About ¥4.5bn
About ¥6.6bn
About ¥1.4bn
About ¥1.0bn
About ¥13.5bn

Deals in progress
during FY3/17(as of 2Q)
About ¥3.4bn
About ¥13.9bn
About ¥2.3bn
About ¥2.3bn
About ¥21.9bn

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

■■Progress with the Challenge 1500 medium-term management planc) Alliance with Fujipream
We are focusing on the business alliance with Fujipream as an important advance in the engineeringbusiness. The two companies concluded a business alliance contract on April 5, 2016. Fujipream
possesses precision lamination as a core technology and handles equipment design, production,
installation, and maintenance on an integrated basis for display and LED production lines that require
this technology.

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

The alliance covers automation systems utilizing robots with Fujipream’s mechatronics divisionin charge of production aspects, including proposals, designs, production, installation, and test
operation, and Sun-Wa Technos leveraging its marketing and sales capabilities to expand business
opportunities. Orders have already been received for the automation systems related to the alliance,
and we expect further acceleration.
Our interest in the alliance with Fujipream is not just the direct economic effect from the collaboration,
but also the alliance’s suggestion of where Sun-Wa Technos’s business is headed in the future. SunWa Technos disbanded subsidiary Sun-Wa Tescom Corporation that handled design, production,and sales of control equipment in December 2015, and it assigned personnel absorbed from former
Sun-Wa Tescom in parent operations to positions that reinforce sales and proposal capabilities. SunWa Technos is steadily moving production and installation activities outside of the Company, as seenin the alliance with Fujipream, though not always to the extent of an official business alliance. We
think it is enhancing capabilities and operations as a “coordinator” and expect accelerated expansionof engineering business in the current medium-term management plan period.

Business started in FY3/17, though is making inroads with
¥2.5bn in requests in a half year and further growth potential(3) Progress in the global SCM solutions businessa) Business overview
While Sun-Wa Technos started the global SCM solutions business as part of the current mediumterm management plan, its roots go back to the previous plan period. The JUMP 1200 cited“expansion and reinforcement of global logistics capabilities” as a priority measure. This businessaims to utilize logistics warehouses held by Sun-Wa Technos’s 13 overseas local entities and theirrespective knowhow regarding warehousing and logistics to generate income by providing paid
services to customers and also expand business opportunities. We think the global SCM solutions
business can be implemented in a variety of ways. One example is described here. The Company
delivers other items required by the customer at the same time, unrelated to whether they are SunWa Technos’s catalog products or not, in addition to the ordered product when delivering products
based on an order from the customer. The Company intends to operate this service as an incomeearning business, obtaining margin on each of the products.

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

■■Progress with the Challenge 1500 medium-term management plan

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

Important disclosuresand disclaimers appear
at the end of this document.

b) Status on progress
A half year has passed since the Company launched global SCM solutions business, and emphasis
has been given to spreading awareness of the service to customers. These efforts have achieved
considerable inroads in making the presence of this business and service known primarily to major
customers, such as YASKAWA Electric and Omron Corporation (6645). Requests appear to havetotaled around ¥2.5bn in 1H FY3/17. We think products covered by this service are mainly electronicparts given the nature of the business.
Sun-Wa Technos is not satisfied with the current state of the business at this point, despite steadyprogress in transaction value, and explains that it has significant room for improvement. Theinternational sales division at headquarters currently controls the business from item procurement
through to actual logistics. Yet the ideal format for global SCM solutions business would beestablishment of operations in which each of the overseas locations leads the service and capitalizes
on knowhow of local characteristics and logistics. The present state in which the international sales
team makes decisions is still distant from the ideal format, and the Company believes that it needs toexpand human resources and knowhow and accumulate a business manual.
We think the Company’s transaction value during 1H FY3/17 offers a solid start and income potentialfrom global SCM solutions business might have to be larger than initially anticipated. Global SCM
solutions business fundamentally accommodates customer outsourcing needs, similar to theengineering business, and it is easier to utilize and place orders with global SCM solutions businessfrom a customer perspective as a logistics and parts/materials procurement service (compared to theengineering business that requires a review each time). We will be closely monitoring its future growth.

FISCO Ltd. Analyst
Hiroyuki Asakawa

伪伪“New Life” Project Initiative
Launched the New Life Promotion Office (sales team of mainly
women) with the aim of leveraging female employees toimprove earnings
The New Life project is a new initiative that deserves notice. Sun-Wa Technos started this effort
in April 2015 to contribute to realization of a “society in which women shine.” It aims to create
opportunities for women to flourish at the Company while it secures diversity in how women work,
such as achieving work-life balance and contributing to earnings.
The project’s beginning goes back to a person from the general affairs section becoming involvedin sales of LED lighting, one of the products handled by the Company. A lead obtained from ageneral affairs contact at another company in an exchange of information regarding the Company’s
conversion to LED lighting resulted in winning a deal in 2013, and this success led to the generalaffairs person taking on a joint role as an LED sales person. The Company subsequently added
automated external defibrillators (AEDs) to handled products. At the same time, Sun-Wa Technos,
which has a roughly 40% ratio of female employees, was seeking ways to expand opportunities for
women on the basis that improving their role would raise motivation throughout the entire company,
including among male employees. Given this background, an idea emerged to capitalize on thefemale vantage point in sales of LED lighting and AED, and Sun-Wa Technos launched the New Life
Promotion Office from the general affairs division and as a sales team with a majority of women in
April 2016.

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

■■“New Life” Project Initiative

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

The New Life Promotion Office frequently holds rescue training seminars using AEDs. It is not justselling AEDs as a device, but promoting understanding of how to use an AED and its value. This
AED sales style frequently attracts additional inquiries about LED lighting and other products, andthe New Life Promotion Office is steadily growing income. The sales style of integrated selling ofsoftware (usage knowhow) and hardware (AEDs) has similarities with the Company’s efforts toward
strengthening the engineering business described above. We think Sun-Wa Technos has robust
potential if these activities by the New Life Promotion Office are symbolic of sales innovations
spreading throughout the entire company.
Another benefit of the New Life project is the possibility of reforms in corporate culture and discoveryof vibrant human resources from among female employees. Administrative employees are likely to be
the main component of the New Life Promotion Office as a sales team from the general affairs divisionbecause some women at the Company, a technology-centric trading firm, graduated from university
science departments. The New Life Promotion Office’s activities could boost earnings over the longer
term by having a positive impact on these employees and contributing to recruitment of talented
women, including new hires. We do not see much direct earnings impact from the New Life project in
the near term and think it should be viewed from a long-term perspective given these aspects.

伪伪Performance Outlook
FY3/17 forecast for lower profits on increased sales,
but profits could rise due to recovery in Chinese capital
investment demand and gain from forex rate difference(1) Results outlook for FY3/17
The Company forecast for ¥110,000mn in net sales (up 5.0% YoY), ¥2,250mn in operating income(down 8.0%), ¥2,450mn in ordinary income (down 7.4%), and ¥1,650mn in net income attributableto owners of the parent (down 2.4%) in FY3/17, projecting lower profits on increased sales. It madedownward revision to the full year results forecast at the 1Q announcement (as noted above). While
2Q earnings surpassed the revised forecast, Sun-Wa Technos is maintaining its revised FY3/17
forecast levels from the 1Q announcement.
Overview of FY3/17 Forecasts

1H

FY3/162H

Full year

1H

Results

Results

Results

Results

Net sales
54,45751,291 105,748
Operating income
1,417
1,027
2,444
Operating income
2.6%
2.0%
2.3%
marginOrdinary income
1,545
1,100
2,645
Net income attributable
1,033
657
1,690
to owners of the parent
Source: Prepared by FISCO from Company materials

50,006
1,082

(¥mn)

FY3/172H
Full year
Revised
Revised
Forecasts
forecasts
forecasts
60,994 114,500 111,000
1,168
2,500
2,250

YoY
5.0%
-8.0%

2.2%

1.9%

2.2%

2.0%

-

1,102

1,348

2,700

2,450

-7.4%

763

887

1,800

1,650

-2.4%

We see a possibility of FY3/17 results surpassing revised forecast and reaching levels from the initial
forecast. We base this view on the following two factors.

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

■■Performance Outlook

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

The first reason is fundamentals. Capital investment demand recovery in China and other countries
seen since 2Q is continuing. Business conditions can be confirmed in trends at other companies
in related industries. The 2Q FY3/17 results reported by key customers YASKAWA Electric andOmron demonstrate demand recovery in the full range of markets, including Japan and otherdeveloped country markets, not only China. Current robust trends are likely to continue in 2H aswell. Furthermore, semiconductor production equipment firms raised forecast thanks to removalof yen’s appreciation headwind, and these results fit with the Company’s outlook for recovery insemiconductor investments. We thus believe the 2H business environment envisioned by Sun-Wa
Technos is reliable given evidence from trends at other firms.
The second reason is the forex rate. There is a possibility of the forex rate, which weighed on
2Q results, serving as a positive factor in 2H. Sun-Wa Technos lowered the 2H forex assumption
from ¥110/$ to ¥100 when it revised forecast. Current conditions with the rate approaching ¥105
mean that forex discrepancy is helping earnings. While it is obviously important to exercise caution
because of strong volatility in the forex rate, we think the ¥100 level is the most conservative levelwithin a realistic range and the Company has little risk of a negative impact from this factor.
Sun-Wa Technos cited uncertainty in 4Q as the reason for postponing revisions to FY3/17 forecast
despite upside in 2Q earnings. We agree that this point should be considered, particularly givena lack of visibility related to the impact of a US policy rate hike anticipated as soon as December
and the impact of the US presidential election. However, we retain expectations for the engineeringbusiness, where the Company is focusing efforts, even if these risks surface. We think the value of
the Company’s engineering business, which involves integrating excellent products into a systemand conducting sales as a solution, should make a difference in this type of difficult environment.

Advances in automotive electronics and organic EL display
and semiconductor production line capital investment likely toboost earnings(2) View from FY3/18
We think the Company’s view of earnings prospects in FY3/18 and FY3/19 from the Challenge
1500 medium-term management plan is reasonable. While weak demand continued from 4Q FY3/16
into 1Q FY3/17, conditions recovered sharply from 2Q and momentum returned to the plan and
expectations.
Healthy advances by automotive electronics (particularly driverless cars) and strong capital
investments in organic EL display and semiconductor production lines are likely to continue in FY3/18
as business conditions pertaining to the Company. Significant demand also exists for investments inenergy and labor savings in all industries. Sun-Wa Technos has presented measures in engineeringbusiness and global SCM solutions business as explained above, and bolstered its response,
including operations. FY3/18 might be the year in which it realizes benefits from improved external
conditions thanks to success with these efforts.
The forex rate is a risk for the Company’s goals in the current medium-term management plan
because it uses a rate assumption of ¥117/$. Investors should be aware of the possibility of earnings
coming in below medium-term management plan goals from FY3/18 too, depending on the rate levelat that point.

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

■■Performance Outlook

Summary Income Statement and Major Indicators

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

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

FY3/172H E
60,994
18.9%
-

(¥mn)

FY3/14

FY3/15

FY3/16

Net sales
YoY
Gross profit
Gross profit margin
SG&A expenses
YoY
Ratio of SG&A
expenses to sales
Operating income
YoY
Operating income margin
Ordinary income
YoY
Net income attributable toowners of the parent
YoY

101,378
14.9%
12,680
12.5%
9,469
8.9%

111,276
9.8%
13,98812.6%
10,516
11.1%

105,748-5.0%
13,256
12.5%
10,8122.8%

1H results
50,006
-8.2%
6,331
12.7%
5,249
-1.5%

9.3%

9.5%

10.2%

10.5%

-

-

3,211
41.5%
3.2%
3,438
36.5%

3,471
8.1%
3.1%
3,761
9.4%

2,444
-29.6%
2.3%
2,645-29.7%

1,082-23.6%
2.2%
1,102-28.7%

1,168
13.7%
1.9%
1,348
22.5%

2,250
-8.0%
2.0%
2,450
-7.4%

2,168

2,466

1,690

763

887

1,650

42.6%

13.7%

-31.5%-26.1%

35.0%

-2.4%

EPS (¥)
Dividend (¥)

162.9822.00

171.8326.00

117.76
28.00

54.47
14.00

63.18
14.00

117.6528.00

Full year E
111,000
5.0%-

Summary Balance Sheet

Current assets
Cash and deposits
Notes and accounts
receivable
Non-current assets
Tangible fixed assets
Intangible fixed assets
Investments and otherassetsTotal assets
Current liabilities
Notes and accounts
payable - trade
Short-term loans payable,
etc.
Non-current liabilities
Long-term loans payable
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Accumulated othercomprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets(¥mn)
End-FY3/16 End-1H FY3/17
46,85746,517
6,359
5,990

End-FY3/13
39,758
7,433

End-FY3/14
45,3296,937

End-FY3/15
49,2397,584

27,86633,07534,41933,00630,026

7,497
4,074
42

8,369
4,038
76

9,509
3,879
243

8,581
3,788
240

8,596
3,683
215

3,381

4,254

5,386

4,553

4,696

47,25628,64853,69830,73558,74832,37055,43928,691

55,11328,397

24,78425,91727,496

24,732

24,983

2,250

2,528

2,782

2,317

1,612

4,258
2,486
13,6601,935
1,341
10,437
-53

4,309
2,205
16,8072,553
1,958
12,350
-53

4,426
2,100
18,9292,553
1,958
14,472
-54

4,484
2,400
20,217
2,553
1,958
15,761
-54

5,076
3,000
20,4082,553
1,958
16,324
-427

646

1,847

3,022

2,045

1,232

41
14,34947,256

18,65453,69821,951
58,74822,26355,43921,64055,113

Cash Flow Statement

3,652
-110
-415

-1,374
-127
769

1,353
-444
-470

-60
-384
-654

(¥mn)
End-1HFY3/17
812
38
647

135

236

209

-125

-571

3,262

-496

647

-1,225

-368

3,687

6,949

6,453

7,100

5,875

6,949

6,453

7,100

5,875

5,506

FY3/13
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financial activities
Effect of exchange rate change on
cash and cash equivalents
Net change in cash and cash
equivalents
Balance of cash and cash equivalents
at beginning of period
Balance of cash and cash equivalents
at end of period

FY3/14

FY3/15

FY3/16

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

伪伪Shareholder Return Policy
Targeting a ¥28 dividend for FY3/17, unchanged from theprevious year

SUN-WA TECHNOSCORPORATION
8137 Tokyo Stock ExchangeFirst Section

13-Jan.-17

The Company’s basic policy is to provide returns to shareholders in the form of dividends.
Management prioritizes providing stable, continuous dividends, as demonstrated in its track record to
date. While remaining very aware of the need for stable dividends, the Company has also increased
them in keeping with earnings growth.
The Company disclosed a target of ¥28 for FY3/17, unchanged from the previous year, with ¥14 eachas the interim and period-end dividends. Although Sun-Wa Technos modestly lowered FY3/17 results
forecast at the 1Q announcement (as noted above), it kept the dividend target at ¥28. While 2Q’s
earnings upside is lifting expectations for beating full-year profit forecast too, we think it is safest to
expect the Company to pay a ¥28 dividend as initially planned. We expect the Company to increase
the dividend in accordance with earnings growth, as seen in past years, over the medium term.

Important disclosuresand disclaimers appear
at the end of this document.

㻺㼑㼠㻌㻼㼞㼛㼒㼕㼠㻌㻼㼑㼞㻌㻿㼔㼍㼞㼑㻘㻌㻰㼕㼢㼕㼐㼑㼚㼐㻘㻌㼍㼚㼐㻌㻰㼕㼢㼕㼐㼑㼚㼐㻌㻼㼍㼥㼛㼡㼠㻌㻾㼍㼠㼕㼛㻱㻼㻿㻌㻔㼘㼑㼒㼠㻌㼟㼏㼍㼘㼑㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻌㼟㼏㼍㼘㼑㻕

(¥)

（㻑）

㻰㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻌㼟㼏㼍㼘㼑㻕㻞㻜㻜㻚㻜㻜FISCO Ltd. Analyst
Hiroyuki Asakawa

㻟㻜㻚㻜
㻞㻟㻚㻤

㻞㻟㻚㻤

㻝㻢㻜㻚㻜㻜
㻝㻞㻜㻚㻜㻜㻞㻠㻚㻜㻝㻢㻚㻤㻝㻣㻝㻚㻤㻟

㻝㻢㻞㻚㻥㻤

㻤㻜㻚㻜㻜

㻝㻞㻚㻜

㻝㻝㻤㻚㻣㻝
㻠㻜㻚㻜㻜

㻝㻤㻚㻜

㻝㻡㻚㻝

㻝㻟㻚㻡

㻝㻝㻣㻚㻣㻢

㻞㻜㻚㻜

㻞㻞㻚㻜

㻞㻢㻚㻜

㻲㼅㻟㻛㻝㻟

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻝㻝㻣㻚㻢㻡㻞㻤㻚㻜㻞㻤㻚㻜㻲㼅㻟㻛㻝㻢

㻲㼅㻟㻛㻝㻣㻌㻱

㻜㻚㻜㻜

㻢㻚㻜
㻜㻚㻜

Source: Prepared by FISCO from Company materials

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
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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
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This report was prepared at the request of its subject company using information provided
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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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