COMPANY RESEARCH AND ANALYSIS REPORT

SUN-WA TECHNOS CORPORATION
8137
Tokyo Stock Exchange First Section

14-Jul.-2021
FISCO Ltd. Analyst

Yuzuru SatoFISCO Ltd.
https://www.fisco.co.jp

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. In FY3/21, profits increased by double digits from the recoveries in the factory automation andindustrial equipment fields and the effects of reducing SG&A expenses. ....................................................

01

2. In FY3/22, profits are forecast to increase significantly due to the growth of capital investmentin the semiconductor and automotive industries. ........................................................................................

01

3. Is progressing the fundamental policies in NEXT 1800, the medium-term management plan,and taking on the challenge of achieving a great recovery. .........................................................................

02■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. FY3/21 results overview......................... ......................................................................................................

03

2. Segment, industry and regional trends.. . ......................................................................................................

04

3. Outlook for FY3/22 results..................... ......................................................................................................

07■Progress of the medium-term management plan----------------------------------------------------------------------- 09
1. Medium-term management plan NEXT 1800...............................................................................................

09

2. State of progress of the fundamental policies in the medium-term management plan.................................

11■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html█ SummaryCurrently orders continue to be strong, mainly for semiconductors
and EV-related, and profits are set to increase significantly in FY3/22
SUN-WA TECHNOS CORPORATION <8137> (hereinafter, “the Company”) is an independent trading company
that specializes in technology products. Approximately 40% of its sales are to the factory automation and industrial
equipment industries, which are its mainstay fields. The Company has steadily expanded its businesses by leveraging
coverage of three major areas (electrical machinery, electronics, and general machinery) and two-way trade in which
it sells equipment and materials for manufacturers’ production lines and then procures the products made by thesemanufacturers. In recent years, it has been focusing on the engineering business and global SCM solutions.
1. In FY3/21, profits increased by double digits from the recoveries in the factory automation and industrial
equipment fields and the effects of reducing SG&A expenses
In the FY3/21 consolidated results, sales decreased, with net sales declining 2.3% year-on-year (YoY) to ¥134,769mn,
but profits increased for the first time in three fiscal years, with ordinary profit rising 19.7% to ¥2,567mn. Dueto the impact of the novel coronavirus pandemic (hereafter, COVID-19), capital investment by companies in the
manufacturing industries cooled down, and therefore net sales decreased. However, when examined by fiscal
quarter, sales trends changed direction and increased from the 3Q onward. This was due to a recovery in demandfor electrical machinery and electronic parts related to factory automation and industrial equipment that resulted
from more active capital investment, particularly in China, as well as improved demand for automotive electronicparts. In particular, orders received in the 4Q grew greatly compared to the same fiscal year in the previous fiscal
year, increasing 23.2% to ¥43,643mn, and the recovery, mainly for China, was remarkable. Although it appears that
the Company’s orders include those pushed forward due to the effects of the semiconductor shortage, even after
subtracting these, the current ordering environment appears excellent. The main reasons why profits increased eventhough sales decreased were the improvement to the gross profit margin, and also decreases of ¥502mn YoY in
SG&A expenses as a result of actively utilizing online tools under a teleworking system.
2. In FY3/22, profits are forecast to increase significantly due to the growth of capital investment in thesemiconductor and automotive industries
The outlook for the FY3/22 consolidated results is for net sales to increase 0.8% YoY to ¥135,800mn and ordinary
profit to rise 36.3% to ¥3,500mn. For net sales, paid-for supplied products, whose sales were previously indicatedin automotive electronic equipment, will change from FY3/22 to being indicated in the net amount that does notinclude sales, which will have the effect of reducing sales by ¥15,500mn. However, if viewed in comparison to theprevious standard, the sales-increase rate will be 12.3%, and capital investment in the semiconductor industry andthe automotive industry, centered on electric vehicles (EV), will increase even further, mainly in Asia. Also, the forecast
is that installation projects for local 5G at factories will increase in Japan. The gross profit margin will rise due toimproved product mix, while the Company will continue to work to keep down SG&A expenses, and therefore theoutlook is for ordinary profit margin to increase from 1.9% in FY3/21 to 2.6%.

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01 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Summary

3. Is progressing the fundamental policies in NEXT 1800, the medium-term management plan, and taking on
the challenge of achieving a great recovery
Looking at the progress made for NEXT 1800, which is the three-year medium-term management plan started in
FY3/20, the numerical results are being impacted by COVID-19, so it is highly likely that the FY3/22 numerical targets(net sales of ¥180bn and ordinary profit of ¥5bn) will not be achieved. However, the Company is making steadyprogress in implementing the fundamental policies (“Contributing to customers’ manufacturing by enhancing corebusinesses,” “Expanding global business and supporting marketdemand,” “Rising to the challenge of new businessfields and accelerating sustainable growth,” and “Initiatives to realize a sustainable society”). In particular, in FY3/22
as new attempts toward a great recovery, it is working on “Overcome COVID-19 and acquire share of the ‘newnormal’ market,” “Build a strategy that utilizes DX and complete its implementation system,” and “Output reliable
results through deepening existing businesses, developing new businesses, and reviewing the business portfolio,”
and its policy is to aim for a further leap forward.
Key Points
In FY3/21, orders recovered from the 3Q and profits increased by double digits even while sales decreased,
including due to the reduction of SG&A expenses• Orders are strong, mainly for the semiconductor and automotive industries, and profits are forecast to increasesignificantly in FY3/22• Toward realizing a decarbonized society, the policy is to strengthen businesses in the environment-related field•Results trends
Net sales (left)

Operating profit (right)(¥mn)
160,000

(¥mn)
4,800

4,135

140,000

4,200
3,430

3,410

120,000
100,000
80,000

3,600
3,000

2,152
146,759

145,4101,846

60,00040,000137,943

2,400
135,800

1,800
1,200

134,769

20,000600

00FY3/18

FY3/19FY3/20FY3/21

FY3/22 (E)Source: Prepared by FISCO from the Company’s financial results

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02 18

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

SUN-WA TECHNOS CORPORATION

14-Jul.-2021

8137 Tokyo Stock Exchange First Section

https://www.sunwa.co.jp/en/ir/index.html█ Results trends
In FY3/21, orders recovered from the 3Q and profits increased
by double digits even while sales decreased, due in part to the
reduction of SG&A expenses
1. FY3/21 results overview
In the FY3/21 consolidated results, net sales decreased 2.3% YoY to ¥134,769mn, operating profit increased 16.5%
to ¥2,152mn, ordinary profit rose 19.7% to ¥2,567mn, and profit attributable to owners of parent grew 33.2% to¥1,786mn. Although sales decreased, each profit item increased for the first time in three fiscal years, while theresults were also above the Company forecasts.
FY3/21 results (consolidated)(¥mn)
FY3/20Results

FY3/21% of sales

Company
forecast

Results% of sales

YoY

vs. forecast

Net sales

137,943-

130,000

134,769

-

-2.3%

3.7%

Gross profit

14,421

10.5%-

14,224

10.6%

-1.4%

-

Selling, general andadministrative expenses

12,5749.1%-

12,071

9.0%

-4.0%

-

Operating profit

1,846

1.3%

1,800

2,152

1.6%

16.5%

19.6%

Ordinary profit

2,144

1.6%

2,100

2,567

1.9%

19.7%

22.2%

Profit attributable toowners of parent

1,341

1.0%

1,400

1,786

1.3%

33.2%

27.6%

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

Due to the impact of COVID-19, operations declined at the factories of manufacturing-industry companies andthere was a movement toward postponing capital investment. Therefore, in factory automation and industrial
equipment-related business, sales slumped of electrical machinery and electronic parts up to the 2Q. In addition,
sales fell greatly of automotive electronic equipment and electronic parts for the amusement industry, and these werethe main factors behind the decline in sales. However, since the 3Q, sales have recovered for factory automationand industrial equipment-related business, mainly in China, and sales increased on a fiscal quarterly basis. Looking
at how orders trended by fiscal quarter, in the 4Q they increased 23.2% compared to the same fiscal year in theprevious fiscal year to ¥43,643mn, recovering to exceed the ¥40bn level for the first time in three years. It appears
that the Company’s orders include those pushed forward due to the effects of the shortage of semiconductors, buteven after subtracting these, currently the ordering environment appears excellent.

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

SUN-WA TECHNOS CORPORATION

14-Jul.-2021

8137 Tokyo Stock Exchange First Section

https://www.sunwa.co.jp/en/ir/index.html

Results trends

Orders and net sales by fiscal quarter
Net sales (left)(¥mn)

Orders received (right)(¥mn)

50,00050,00043,64342,58039,02840,000 35,984

36,78736,36435,93530,00020,00035,99342,70736,70431,35534,81635,42034,391
34,28136,30629,27433,371 33,163
30,26237,872

34,292

37,23136,01540,00030,00036,316

31,292

10,00040,585 20,000
33,89338,07732,25832,371
27,92010,00000
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY3/18

FY3/19FY3/20FY3/21

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

The main reasons why profits increased even though sales decreased were that the gross profit margin improved
0.1 of a percentage point YoY, and also that SG&A expenses decreased ¥502mn YoY as a result of actively utilizing
online tools under the teleworking system since April 2020. Transportation expenses, including overseas business trip
expenses, declined. Advertising and publicity expenses also declined due to the cancellations of various exhibitions.
Gross profit decreased ¥197mn YoY. Breaking this down, the decrease in gross profit due to the decline in net sales
was ¥333mn and the increase from the improvement to the gross profit margin was ¥134mn. Also, non-operating
profit rose ¥120mn YoY, mainly due to the improvement to foreign exchange losses because the yen weakened
over the end of the period.

By region, the recovery has been the fastest in China, while byindustry, there were recoveries in the 2H for factory automationand industrial equipment, automotive electronic equipment, andinformation / communications
2. Segment, industry and regional trends
The Company discloses net sales after breaking them down into the three business segments of electrical machinery,electronics, and general machinery, according to the products handled. In addition, the Company discloses net
sales and operating profit as segment information by region, and discloses the sales composition ratio by industry
and trend fluctuations as reference information.
(1) Trends in net sales by business segments
The main products in the electrical machinery segment include servo motors, motion controllers, programmablecontrollers, inverters, and power conditioners. Net sales increased for the first time in three fiscal years, rising 9.6%
YoY to ¥23,157mn. This was due to the increases in sales for the industrial machinery industry and semiconductor
industry in Japan, and for the industrial machinery industry in China.

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Results trends

The main products in the electronics segment are wide ranging, including general electronic parts such as
capacitors, connectors, relays and switches, as well as fan motors, stepping motors, LEDs, power supplies, andheat sinks. Net sales decreased 3.5% YoY to ¥102,657mn. The main factors were the significant decrease insales to the amusement industry due to a major decline in capital investment in the casino industry because of
the COVID-19 pandemic, which outweighed the increases in sales for industrial machinery in Japan and China.
Sales for automotive (on-board products) had slumped up to the 2Q due to production adjustments, but they
recovered from the 2H of FY3/21 and for the full fiscal year, they had returned to around the same level as in theprevious fiscal year.
The main products in the general machinery segment include robots for Yaskawa Electric Corporation <6506>,
as well as conveyors and reduction gears. Net sales decreased 13.9% YoY to ¥8,955mn following the end of alarge-scale project in Japan for the industrial machinery industry, which had contributed to sales domestically in
FY3/20.
Net sales by business segments(¥mn)
FY3/20FY3/21

1H

2H

Full year

1H

2H

Full year

10,565

10,572

21,137

10,79312,364

23,157

YoY-20.8%-5.9%-14.0%

2.2%

17.0%

9.6%

Electronics

52,47053,930106,400

46,24956,408102,657

YoY

-2.0%

-3.4%

-2.7%

-11.9%

4.6%

-3.5%

4,571

5,833

10,404

4,770

4,185

8,955

-13.4%

-5.8%

-9.3%

4.3%

-28.3%-13.9%

67,60870,335

137,943

61,813

72,956

134,769

-6.3%

-4.0%

-5.1%

-8.6%

3.7%

-2.3%

Electrical machinery

General machinery
YoY
Total net sales
YoY

Source: Prepared by FISCO from the Company’s financial results(2) Sales trends by industry
Looking at how sales trended by industry on a half-year basis, in 1H FY3/21, sales decreased compared to thesame fiscal year in the previous fiscal year in practically all industries. But in the 2H, sales increased mainly forthe factory automation and industrial equipment industry, and for automotive (on-board products), information /communications, and medical equipment. The main factors were active investment in China in areas includingEV, semiconductors, and base stations for the “5G” high-speed communication standard, and also a recovery inorders for factory automation and industrial equipment. In Japan as well, where capital investment had slumped,a movement began to restart capital investment, mainly in the automotive and semiconductor industries. Looking
at the full fiscal year, sales for information / communications increased by approximately 20%, but it seems thatsales for the mainstay factory automation and industrial equipment and automotive (on-board products) industries
were basically unchanged, and that sales for semiconductors and LCD-related declined by a single digit.
Conversely, the industries that continued to slump even in 2H FY3/21 were the amusement, food, and security-related industries. In the amusement industry, the slump of the casino market has become prolonged due to
COVID-19, and it seems sales declined by slightly more than 50% YoY for the full fiscal year. For the food industry
as well, there was a decline as a reaction to the completion of large-scale project that contributed in the previous
fiscal year.

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Results trends

Increase-decrease trends in net sales by industry

Source: The Company’s results briefing materials(3) Trends in sales and profits by segment
In Japan, net sales declined 1.9% YoY to ¥108,252mn and operating profit decreased 6.9% to ¥1,197mn, so
the declines in sales and profits continued. Sales of electronic machinery increased for the industrial machineryindustry and the semiconductor industry, while sales of electronic parts rose for the industrial machinery industry.
However, net sales declined mainly because of the decreases in sales of electronic parts for the amusement
industry and equipment for the industrial machinery industry.
In Asia, net sales increased 3.0% YoY to ¥35,492mn and operating profit rose 54.9% to ¥917mn, and sales andprofits both grew for the first time in three fiscal years. This was because although sales of electronic parts to theamusement industry decreased, sales of electrical machinery and electronic parts for the industrial machineryindustry increased. In particular, sales for China, which provides more than 70% of total sales, benefitted from thegrowth of capital investment for the automotive, semiconductor, and solar cell industries, resulting in an increaseof sales and profit.
In Europe and the US, net sales decreased 26.4% YoY to ¥4,711mn and the operating loss was ¥1mn (a lossof ¥84mn in the previous fiscal year). Due to the cooling-down of the casino market, sales of electronic parts tothe amusement industry fell significantly. However, the extent of the operating loss was reduced through efforts
to keep down costs.

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

SUN-WA TECHNOS CORPORATION

14-Jul.-2021

8137 Tokyo Stock Exchange First Section

https://www.sunwa.co.jp/en/ir/index.html

Results trends

Net sales by segment(¥mn)
FY3/18

FY3/19FY3/20FY3/21

YoY

Japan

115,002

115,993

110,335

108,252

-1.9%

Asia

39,491

37,18834,45435,492

3.0%

Europe/US

8,865

8,084

6,398

4,711

-26.4%-33.3%

1,506

1,733

1,396

931

Adjustment amount-18,106-17,589-14,641-14,617-

Total

146,759

145,410

137,943

134,769

-2.3%

YoY

Other

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

Operating profit by segment(¥mn)
FY3/18

FY3/19FY3/20FY3/21

Japan

2,333

1,939

1,285

1,197

-6.9%

Asia

1,489

1,208

592

917

54.9%

Europe/US

310

254

-84

-1

-

Other

-20

3

7

16

118.7%

Adjustment amount
Total

22

4

46

23

-

4,135

3,410

1,846

2,152

16.5%

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

Profits forecast to increase significantly in FY3/22 through strong
orders, particularly for the semiconductor and automotive industries
3. Outlook for FY3/22 results
The outlook for the FY3/22 results is for sales and profits to increase, with net sales to rise 0.8% YoY to ¥135,800mn,
operating profit to grow 59.4% to ¥3,430mn, ordinary profit to increase 36.3% to ¥3,500mn, and profit attributableto owners of parent to rise 26.0% to ¥2,250mn. The end of the COVID-19 pandemic is not yet in sight, so there
remains a strong sense of uncertainty about future economic conditions. But results will benefit from the growthin capital investment in EV and in the semiconductor industry in China, where the steady economic recovery is
continuing. In the domestic market as well, the desire to conduct capital investment is recovering in the automotive
and semiconductor industries, while demand is also expected to increase given factors such as the movement
to work on creating smart factories in factories utilizing “local 5G,” and automated transportation robots as aninvestment in saving labor power.
FY3/22 consolidated results forecast(¥mn)
FY3/21

FY3/22% of sales

Company
forecast% of sales

134,769-

135,800

-

0.8%

-

-

151,300-

12.3%

Operating profit

2,152

1.6%

3,430

2.5%

59.4%

Ordinary profit

2,567

1.9%

3,500

2.6%

36.3%

Profit attributable to owners of parent

1,786

1.3%

2,250

1.7%

26.0%

Results
Net sales(Net sales based on former standards)

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

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YoY

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Results trends

The reason for the low growth rate of net sales is that following a change of accounting standards relating torecognizing earnings from FY3/22, automotive (on-board products) paid-for supplied products, which were previously
recorded in net sales, have been removed, which is considered by the Company to have a negative impact of¥15,500mn on net sales. When compared to the previous standard, the outlook is for net sales to increase 12.3%
YoY to ¥151,300mn.
The main factors behind the increase in the operating profit include a rise in gross profit margin resulting from improved
product mix and curtailment of SG&A expenses, which the Company has been working on since the previous fiscal
year. Although there will be increases in personnel costs due to the rise in the number of personnel and in advertisingcosts, including to exhibit in exhibitions, costs will continue to be kept down under the teleworking system.
Assuming an exchange rate of ¥104 to US$1 (¥110 to US$1 in the previous period), overseas net sales (on alocal-corporation basis) will increase 11.6% YoY to ¥45,580mn, and their sales composition ratio will be 33.6%(30.3% in the previous period). Sales are forecast to increase not only in China but in all regions, including other partsof Asia and Europe and the US. In China, demand continues to grow for factory automation and industrial equipment
for the automotive and semiconductor industries, while in other parts of Asia, sales of global SCM solutions are
increasing. In, Europe and the US, the forecast is that demand for capital investment-related will recover as the
COVID-19 pandemic approaches its end. Sales for overseas are mainly denominated in US$, and it seems that theamounts that results will be positively affected by the weakening of the yen to the US$ are approximately ¥400mn
for net sales and in a range of tens of millions of yen for gross profit. Also, the fiscal year for all of the 13 overseas
subsidiaries ends in December, so these subsidiaries’ January-to-March 2021 results will be reflected in the 1Q
FY3/22 consolidated results.
The anticipated risk factors are that the COVID-19 pandemic will further worsen and that global economic conditions
will once again cool down. However, progress is being made with distributing the various vaccines, particularly inEurope, the US, and China, and therefore at FISCO we think that this risk is only small at the present time. Other
than this, should there be a situation of a shortage of the supply of semiconductors installed in factory automationand industrial equipment due to the impact of the fire at the Renesas Electronics factory, this may temporarily havea negative impact.

Overseas net sales (on a local-corporation basis)
China

(¥mn)

Other Asian countries

North America

Europe50,00040,00030,000

2,173
4,346

4,352

2,843

4,352

6,160

8,704

1,217
5,272

9,951
8,921

1,633
2,858

1,823
3,646

10,939

9,391

6,882
20,00030,94810,00023,18028,43025,141

26,53929,171

FY3/20FY3/21

FY3/22 (E)0
FY3/17

FY3/18

FY3/19Source: Prepared by FISCO from the Company’s results briefing materials

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html█ Progress of the medium-term

management plan

Progressing new measures toward a great recovery
1. Medium-term management plan NEXT 1800
(1) Overview of the medium-term management plan
In May 2019, the Company announced NEXT 1800, its three-year medium-term management plan with FY3/22 asits final fiscal year. It has positioned this three-year fiscal year as the fiscal year to build a structure toward realizing“Sun-Wa Vision 2025” *, which is the Company’s long-term management vision. The plan has four fundamental
policies, including “Contributing to customers’ manufacturing by enhancing core businesses,” and it is working
on priority measures based on each of these basic policies.
*	In “Sun-Wa Vision 2025,” the Company calls for “strengthening core businesses to build operations that contribute toadvances in industrial activity in local societies as a total coordinator of production sites and distribution and help in attaining
the goal of ¥250bn in consolidated net sales in FY3/26.”

In the core portion of income growth, the Company hopes to make improvements and achieve further advances
versus Challenge 1500, the previous medium-term management plan, and realize a growth strategy with evenhigher certainty, while also carrying out initiatives for new business creation that lay the groundwork for growth overa longer term as a new initiative. It is also working on workstyle reforms to increase productivity through utilizing
ITC in the form of responding to societal changes, on realizing a corporate culture that provides work satisfaction,and on contributing to SDGs (Sustainable Development Goals). Particularly in relation to the utilization of ICT,the Company is being required to respond to the new normal social style during the COVID-19 pandemic. But inthis situation, even by 2019 it had already introduced and completed a working environment ahead of its peers,
including introducing online communication tools, and it rapidly transitioned to a teleworking system without any
decline in work productivity. This has also been a factor behind it achieving an early earnings recovery.
Fundamental policies in NEXT 1800
Contribute to customer production activities by strengthening core businesses★ Strengthen core businesses★ Promote collaboration with business partners to bolster solution proposals
Expand global business capabilities to support market demand★ Strengthen hiring of overseas local employees and organizational capabilities★ Consider establishment of new locations
Pursue new business fields to accelerate sustainable growth★ Strengthen investments in new business creation★ Cultivate managerial personnel by adopting an intrapreneurship program★ Create new value through SCM improvements
Initiatives to realize a sustainable society★ Foster a corporate culture that stimulates interest in work by boosting employee engagement★ Implement work style reforms that “enhance productivity” utilizing ICT★ Conduct initiatives that contribute to SDGs
★ Fulfill corporate social responsibility (promote CSR and compliance)
Source: Prepared by FISCO from the Company’s results briefing materials

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

(2) The NEXT 1800 numerical management targets and taking on new challenges toward a great recovery
The NEXT 1800 numerical management targets for FY3/22, the plan’s final fiscal year, are net sales of ¥180,000mn,
operating profit of ¥4,800mn, and ordinary profit of ¥5,000mn. In terms of the market environment, a severe
environment continued after the plan was formulated, including the impact of the prolonging of trade friction
between the US and China and the deterioration of the global economy due to COVID-19. Therefore, results
up to FY3/21 were below the initial numerical targets, while it is also highly possible that the FY3/22 results will
not achieve the initial targets. However, the sense is that the Company is responding to this situation throughits fundamental-policy measures, and it intends to steadily implement them in FY3/22 as well. Moreover, as newchallenges toward a great recovery in FY3/22, it intends to focus on the following three points.
a) Overcome COVID-19 and acquire share of the ‘new normal’ marketb) Build a strategy that utilizes DX and complete its implementation systemc) O utput reliable results through deepening existing businesses, developing new businesses, and reviewing
the business portfolio
From a medium- to long-term perspective, capital investment is expanding alongside economic growth while
tracking the positive and negative economic cycles. It seems that the Company’s results over the years since
FY3/22 have also trended similarly. In terms of the average annual growth rate over the 21 years from FY3/00 to
FY3/21, net sales have grown at an average annual rate of 4.7%, while operating profit has grown at an averageannual rate of 4.0%. In the 18-year fiscal year up to FY3/18, which represents the most recent peak in results, net
sales grew by an average of 6.0% per year, and operating profit grew at an average of 8.6% per year. In order toachieve the target in the long-term vision of net sales of ¥250bn in FY3/26, it will be necessary to accelerate thespeed of growth more than up to the present time. But if the Company can deepen its existing businesses anddevelop new businesses through implementing the priority measures it is working on in NEXT 1800, at FISCO we
think it is fully capable of accelerating growth.

Medium-to long-term results
Net sales (left)(¥mn)
150,000

Operating profit (right)

(¥mn)
6,000

125,000

5,000

100,000

4,000

75,0003,000

50,0002,000

25,000

1,000

0

0

-25,000-1,000
FY3/00

FY3/05

FY3/10FY3/15

FY3/20Source: Prepared by FISCO from the Company’s financial results

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

10 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

Policy is to strengthen businesses in the environment-related field
toward realizing a decarbonized society
2. State of progress of the fundamental policies in the medium-term management plan
(1) Progress for “contribute to customer production activities by strengthening core businesses”
Among the four fundamental policies set out in the medium-term management plan, the theme of “contribute tocustomer production activities by strengthening core businesses” is the most important within the Company’s
growth strategy. Within this fundamental policy, the Company is focusing especially on the engineering businessand the global SCM solutions business. Both of these businesses still only have annual sales of roughly ¥10bn,
but these are seen as important businesses for realizing sales growth and improved profitability going forward.
The progress made on each business is described below.
a) Engineering business
The engineering business sells to customers what the Company itself combines and systemizes from the products
previously sold individually that are handled in each of the three respective business segments of electricalmachinery, electronics, and general machinery. In other words, the engineering business is not some sort ofseparate, new business, but it is a sales method in the trading company function. The underlying reasons forfocusing on this business include the advancing functions of factory-automation equipment such as industrial
robots, and diversification in response to customer demands, which cannot be met by stand-alone sales ofindividual products. The Company’s view is that it will be possible to increase profitability through the added valueof engineering while expanding the scale of orders per project.
Overview of engineering business

Source: The Company’s website

In the engineering business in FY3/21, net sales were approximately ¥9.5bn, down from around ¥12bn in theprevious period, including due to the impact of COVID-19. However, the gross profit margin steadily rose from
13.1% in the previous fiscal year to 14.3%. In order-related results, there were orders for conveyors for the FPD
industry and for assembly robots for the industrial machinery industry. As measures to save labor in the future,
demand is expected to increase including for introductions of automated transportation robots and of equipment
to respond to smart factories that utilize IoT / local 5G technology. In particular, the latter will require advanced
engineering technologies through systemization, which at FISCO we think is an excellent opportunity to increase
orders.

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11 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

Trend in net sales and gross margin in the engineering businessNet sales (left)
Gross margin (right)
Companywide gross margin (right)

(¥bn)
150

14.3%
12.0%

120

12.5%

12.8%

13.4%

13.1%
12.2%

12.0%
12.2%

11.5%

11.2%

90

60

About
¥11.5bn

15.0%

About
¥13.5bn

About¥12.6bn

About¥12.4bn

10.5%

About
¥12.0bn

10.6%
9.0%

About
¥9.5bn

30

6.0%

3.0%

0

0.0%
FY3/16

FY3/17

FY3/18

FY3/19FY3/20FY3/21

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

The Company’s FY3/21 gross profit margin was 10.6% on a company-wide basis, but it was approximately 12% if
excluding the effects of paid-for supplied products for the automotive (on-board products) industry. Therefore, theadded-value of the engineering business is still no more than around 2%. The initial target for this business was agross profit margin of 25% to 30%, but at the current time, the gap to this target remains large. This is considered
to be because there are still few projects proposed to customers that utilize the knowledge and experience that
the Company has acquired in the past, and instead that the majority of projects are in the form of orders from
customers, so it is unable to acquire sufficient compensation for the inherent value-added portion.
The Company’s engineering business has been described by comparing it to curry. That is to say, previously it soldthe meat, vegetables, and rice individually as the ingredients (an agency business). In contrast, the engineeringbusiness tries to use each of these ingredients to make and to sell curry rice, and the work to produce the curryroux and flavor the curry rice is the Company’s expertise and is what provides the value added. However, in thecurrent situation, the Company is not making and providing the curry using its own recipe, but rather it is making
curry each time based on the customers’ preferences, making it difficult to receive compensation for the costs
involved and suppressing the profit margin.
In order to break-out of this situation, in FY3/20 the Company began revising the business model of the engineering business and has changed to a sales policy of not accepting orders for projects in which past findings cannot
be utilized and of prioritizing profitability. It can be said that this is the reason for increase in the profit margin
despite lower net sales, and the Company thinks there still is plenty of room for improvement.

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12 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

However, to improve the profit margin even further, the key will be whether it can build a structure to provide
customers with services in which, in some way, the expertise that the Company has accumulated up to the present
time has been standardized. As previous stated, in the future alongside the further progress made in shifting tosmart factories, it is expected that needs will further increase for overall optimization from systemization andthat opportunities to acquire customers will widen. If the Company can satisfy customer needs and also provide
services in which they can sense cost benefits, then it will become possible to increase sales for the engineeringbusiness while simultaneously improving profitability. In particular, if orders increase for large-scale projects thatcan be expected to be highly profitable, it is likely that it will have in sight achieving a gross margin of 25% to 30%.
The Company has approximately 50 engineers working in this business, and for the time being the Company’splan is to expand the business with this team of engineers.
b) Global SCM solutions business
The global SCM solutions business is rooted in the services that the Company has provided since the distant pastof services such as procurement agent, logistics agent, and delivery management services. The various manufacturing companies that are the Company’s main customers are pursing efficiency improvements to the samelevel as major companies, and they are conducting streamlining under the name of business structural reforms.
In this process, they have targeted reducing personnel and bases in areas such as global logistics, inventory
management, and materials procurement, so the reality is that they currently have shortages of personnel. The
Company’s global SCM solutions business captures the outsourcing needs that arise due to these shortages. By
consolidating the functions that customer companies have so far procured independently from various suppliers,
such as electronic parts and equipment, into the Company, these customers can enjoy benefits including reduced
procurement costs and shortened lead times.
Using the moving business as an example, conventional procurement agent and logistics agent services justmoving a person’s items from the former home to the new home. In global SCM solutions business, meanwhile,the service also extends to setting up televisions and PCs for immediate use after the move and procuring andinstalling antennas and Wi-Fi equipment. Engineering business corresponds to selection and procurement ofantennas and Wi-Fi equipment suited to the new area and wiring installation. The move might lead to morebusiness too if an order is received for landscaping and softscaping work. The Company strengths include theexpertise it has accumulated over its long history as a technologies trading company and its expansive overseas
network (28 bases around the world). It is aiming to utilize these strengths to respond to customers’ outsourcing
needs and to grow the scale of the global SCM solutions business.
In FY3/21, net sales increased 10% YoY to approximately ¥9.5bn, while in FY3/22, they are forecast to rise 21% toaround ¥11.5bn. This will be mainly due to the steady progress made in acquiring customers at the local Japanesecompanies advancing into Southeast Asia. Examples of sales discussions leading to orders include acquisitionsof an order for overseas export agency work from a harness processing manufacturer, and also orders for an
SCM project for the Chinese factory of a FPD manufacturing-equipment manufacturer and a project to transfer
the production of security cameras (transfer from China to Vietnam). In terms of sales strategy, the previous sales
style was passive, and consisted of simply waiting for requests from customers. When the global SCM solutions
business was launched in April 2019, it prioritized increasing sales and it actively worked to acquire orders, andprofitability declined as a result. Therefore, it is currently conducting sales activities that prioritize profitability.

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13 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

Even so, at FISCO we think that global SCM outsourcing will grow in the future. This is because, due to theintensification of the trade friction between the US and China, a movement has started to transfer some factories
from China to South East Asia, Latin America, or Japan. Also, due to the risk relating to parts procurement once
again appearing because of COVID-19 and a fire at a semiconductor factory, the importance of SCM functions
is being reviewed once again. Rather than building a stand-alone supply chain, customer companies can aim
to reduce business risk by outsourcing SCM functions to specialist businesses, which also has an advantage interms of costs. In this business, this trend is leading not only to the growth in the scale of transactions with existingcustomers, but also to opportunities to acquire new customers. In order to strengthen the competitiveness of
SCM services, the Company is reviewing the global logistics infrastructure at the same time as establishing abusiness division, and is starting improvement activities. As one part of this, it has begun fully fledged operationsof Warehouse Management System (WMS), and it is aiming to improve profitability by making visible the logistics
costs of each project.

Trends in net sales in the global SCM solutions business

(¥bn)

140
About ¥11.5bn

120
About ¥9.5bn

About ¥9.2bn

100

About ¥8.6bn

80

About ¥6.7bn

60
40

About ¥3.8bn

200
FY3/17

FY3/18

FY3/19FY3/20FY3/21

FY3/22 (E)Source: Prepared by FISCO from the Company’s results briefing materials(2) Progress made in “Expanding global business and supporting market demand”
For this theme, the Company established a business base in Ho Chi Minh City, Vietnam, in August 2019, while
in Japan, it has worked to strengthen the sales system through a two-base structure. However, no significant
progress was made in 2020, mainly due to the impact of COVID-19. Conversely, since 2019 it has been operating
smart sales offices as a new measure in Japan.

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14 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

The smart sales office refers to a small-sized sales office comprised of only sales staff (around two people) thatis opened to cover regional medium- and small-sized cities. For in-office work without clerical staff, the costs
incurred by the sales office in order to support branch offices in remote locations and the personnel costs forthe staff working in the office can be kept down. Among the Company’s customers, there are many excellent
customers in regional medium- and small-sized cities, and the aim is to have closer contact with these customers
and deepen transactions with them, while also aiming to acquire new customers. During the COVID-19 pandemic,
cases of online sales discussions are increasing, and in the B-to-B market, such as factory automation andindustrial equipment, customers’ requests are diverse and, in many cases, listening to what they have to say indirect discussions leads to building relations of trust with them and new sales discussions. In fact, at the Shikoku
Sales Office (Niihama, Ehime), which was the first smart sales office opened in 2019, and the Nagaoka Sales
Office (Nagaoka, Niigata) and the Kofu Sales Office (Kofu, Yamanashi), which were newly opened in FY3/21,
the numbers of sales discussions with customers are increasing, which is expected to lead to the growth oftransactions in the future.
The Company has three conditions to open a smart sales office: that it opens it at a site exclusively for offices,
not also for housing; that it has two or more sales staff; and that when opening the sales office, the person
who wants to open the office prepares the planning document. At the stage when these three conditions are
satisfied, it opens the smart sales office. Overseas also, it newly opened sales offices with local staff in Penang,
Malaysia, in January 2021, and in Xiamen, China, in May 2021, with the aim of deepening transactions with thelocal companies of Japanese customer companies. In Japan as well, it is considering new openings at locations
including Kanazawa City and the Tohoku region. The Company has 26 bases in Japan. In Tohoku, it has only
1 sales office in Sendai (Sendai, Miyagi), resulting in a situation where 4 or 5 sales staff cover the entire Tohoku
area. There are many manufacturing-industry factories in Tohoku, and the fact is that it cannot fully cover them
all under its current structure. However, it is expected that opening smart sales offices will advance acquisitionsof excellent customers in regions that it cannot fully cover. Similarly, the Company currently has no sales basesin Hokkaido, so it may open smart sales offices there in the future, and as one strategy for sales growth, we shallbe paying attention to developments in the future.
(3) Progress for “pursue new business fields to accelerate sustainable growth”
In order to “pursue new business fields to accelerate sustainable growth,” the Company is aware that training
human resources is an important issue, and it is strengthening measures for this. In particular, to train managementhuman resources, it holds training events including the Global Next Leader Training, Discussion Panel Depicting
100 Years in the Future, and the Vision and Medium-term Management Plan Formulation Committee. Additionally,in order to grow the global business, the overseas bases are advancing measures to train and appoint local staff
to be management human resources and to strengthen organizational capabilities.

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15 18

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

SUN-WA TECHNOS CORPORATION
8137 Tokyo Stock Exchange First Section

14-Jul.-2021
https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

Currently, because the majority of the customers of the overseas local corporations, which operate 28 bases in 13
countries, are Japanese companies, Japanese employees are involved in their management. However, to realize
further growth, it is considered important to strengthen organizational capabilities even more by appointing local
staff as managers. The number of consolidated employees has grown to approximately 1,000 people, of who,around 400 are foreign (non-Japanese) nationals (of who, around half are Chinese). As it is very costly to recruit
human resources with management skills from outside the Group, the policy is to conduct training within theGroup, and the training of management candidates starts in Japan. If the globalization of management humanresources continues, we at FISCO anticipate that the Company will progress customer acquisition of foreigncompanies, which currently provide only around 10% of total sales (around 35% in the Chinese market), and that
this will lead to the further growth of overseas sales. In particular, in the Chinese market the government’s policy
going forward is to develop industries, including the semiconductor and EV industries, and capital investment
is expected to grow in the medium- to long-term. Therefore, if the Company can capture many excellent local
customers in these industries, this would contribute to its growth.
(4) Progress for “Conduct initiatives to realize a sustainable society”
For workstyle reforms that utilize ICT, as previously stated, during the COVID-19 pandemic, the Company is
responding flexibly with new normal workstyle reforms, including transitioning quickly to a teleworking system. For
SDGs as well, it is working on awareness-raising activities, including appointing SDGs ambassadors within the
Company to raise the awareness of employees. For the business aspect, it is once again extracting businesseson the theme of the environment, including renewable energy such as solar panels, as a measure toward realizing
a decarbonized society, and on EV-related, and its policy is to further strengthen sales activities in the future.
As one initiative to strengthen the corporate governance system, in June 2021 the Company plans to transition
from being “a company with audit and supervisory board” to being “a company with audit and supervisorycommittee and other committees.”
Simplified income statement and main indicators(¥mn)
FY3/18

FY3/19FY3/20FY3/21

FY3/22 (E)Net sales

146,759

145,410

137,943

134,769

135,800

YoY

25.9%

-0.9%

-5.1%

-2.3%

0.8%

Gross profit

16,883

16,31814,421

14,224

-

11.5%

11.2%

10.5%

10.6%

-

12,747

12,908

12,574

12,071

-

8.7%

8.9%

9.1%

9.0%

-

4,135

3,410

1,846

2,152

3,430

YoY

37.2%

-17.5%-45.8%

16.5%

59.4%

Operating profit margin

2.8%

2.3%

1.3%

1.6%

2.5%

4,349

3,627

2,144

2,567

3,500

35.3%

-16.6%-40.9%

19.7%

36.3%

3,085

2,628

1,341

1,786

2,250

YoY

94.8%

-14.8%-49.0%

33.2%

26.0%

EPS (¥)

222.65164.0884.11

113.23142.62

Dividend (¥)

30.00

34.00

34.00

34.00

34.00

Gross profit margin
Selling, general and administrative expenses
Selling, general and administrative expenses ratio
Operating profit

Ordinary profit
YoY
Profit attributable to owners of parent

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

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

16 18

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

SUN-WA TECHNOS CORPORATION

14-Jul.-2021

8137 Tokyo Stock Exchange First Section

https://www.sunwa.co.jp/en/ir/index.html

Progress of the medium-term management plan

Simplified balance sheet(¥mn)
FY3/18

FY3/19FY3/20FY3/21

Changeamount66,23164,20962,71364,430

1,717

Cash and deposits

8,596

10,005

12,052

13,113

1,061

Trade receivables

46,07742,256

39,83842,453

2,615

Non-current assets

11,381

9,905

9,024

11,951

2,927

3,005

2,861

2,759

2,590

-169

168

143

193

170

-23

8,207

6,900

6,072

9,190

3,118

Total assets

77,613

74,11471,73876,381

4,643

Current liabilities

43,077

37,19935,40236,372970

34,29831,427

29,10829,455347

Non-current liabilities

6,542

4,970

4,608

4,978

370

Total liabilities

49,61942,16940,011

41,350

1,339

Current assets

Total property, plant and equipment
Intangible assets
Total investments and other assets

Payment obligations

9,222

6,705

6,709

7,048

339

23,731

29,05629,55230,802

1,250

Interest-bearing debt
Shareholders’ equity
Accumulated other comprehensive income

4,262

2,888

2,174

4,228

2,054

Total net assets

27,993

31,94431,72635,0303,304

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

Statements of Cash Flows(¥mn)
FY3/18

FY3/19FY3/20FY3/21

Cash flows from operating activities-2,221

1,636

3,238

1,589

Cash flows from investing activities

29

-153

-200

-141

Cash flows from financing activities

3,962

28

-945

-309

Cash and cash equivalents at end of period

8,112

9,521

11,568

12,629Source: Prepared by FISCO from the Company’s financial results

Management indicators(¥mn)
FY3/18

FY3/19FY3/20FY3/21Equity ratio

36.2%

43.1%

44.2%

45.9%

Interest-bearing debt ratio

32.9%

21.0%

21.1%

20.1%

ROE

12.0%

8.8%

4.2%

5.4%

-626

3,300

5,343

6,065

Net cash

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

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

17 18

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

SUN-WA TECHNOS CORPORATION

14-Jul.-2021

8137 Tokyo Stock Exchange First Section

https://www.sunwa.co.jp/en/ir/index.html█ Shareholder return policy
Plans for FY3/22 dividend to be ¥34 per share, the same as theprevious year
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 it did not increase thedividend significantly due to temporary, rapid results growth, it did steadily increase the dividend in response toprofit growth. Conversely, from FY3/19 it maintained dividend payments even during a phase of two consecutive
fiscal years of declining profits. Therefore, in FY3/22, it plans to pay a dividend per share of ¥34.0 (dividend payout
ratio of 23.8%), which is unchanged YoY. However, it seems that the Company’s policy is to consider increasing thedividend if it appears that results will steadily grow and the dividend payout ratio will fall to a low level.

Dividend per share and dividend payout ratio
Dividend (left)

Dividend payout ratio (right)

（¥）
50.0

50.0%
40.4%

40.0

40.0%
34.0

34.0

34.0

34.0

30.0
30.0
30.0%

20.7%
20.0

23.8%

30.0%

20.0%

13.5%

10.0

10.0%

0.0

0.0%
FY3/18

FY3/19FY3/20FY3/21

FY3/22 (E)Source: Prepared by FISCO from the Company’s financial results

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

18 18

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

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp