Sodick is a machinery manufacturer that supplies electrical discharge machines (EDMs: machine tools that use electric sparks to machine metals; see box below). In FY12/21, it reported revenue of JPY75.2bn and operating profit before consolidation adjustments of JPY9.3bn. It has four segments: Machine Tool (EDMs and other machinery; 68.5% of total revenue and 77.0% of total profit in FY12/21), Industrial Machinery (injection molding machines and other machinery; 13.8% and 5.4%), Food Machinery (noodle-making machines and sterile-packed cooked-rice production systems; 9.2% and 8.9%), and Other (precision die and mold operations, sales of products manufactured with in-house technology; 8.6% and 8.7%). Overseas operations generate 70.8% of total revenue (value basis), with Asia accounting for 53.0% (Greater China: 42.6%), the Americas 10.0%, and Europe 7.8%.

EDMs have been the core product since the company’s founding in 1976. In FY12/21, they brought in JPY51.5bn or roughly 95% of the revenue generated in the Machine Tool segment (after including repairs, maintenance, and consumables). Sodick has captured a global market share in high-end EDMs of roughly 30%, which puts it in the same league as Mitsubishi Electric (TSE1: 6503) and Switzerland-based GF Machining Solutions (formerly Agie Charmilles). It has pioneered EDMs equipped with numerical control units (NC units) since its early days, and established itself as a leader in the EDM field. Examples of its achievements include the development of the world’s first linear servo motor drive high-speed NC die-sinker EDM in 1998, and the world’s first linear servo motor drive high-speed wire-cut EDM in 1999.

In the 10 years from FY03/12 to FY12/20 (during which the company changed its accounting period), OPM averaged 8.0%. Compared with its rivals, this was below Okuma Corporation (TSE1: 6103; 9.1%), but ahead of DMG Mori Seiki (TSE1: 6141; 5.9%) and Makino Milling Machine (TSE1: 6135: 5.6%). Over the same period, OPM in the company’s Machine Tool segment averaged 13.1%. Shared Research understands the strong segment OPM is attributable to the company’s sizable market share in high-end EDMs (roughly 30%), integrated production achieved through in-house manufacturing of NC units and linear motors, and the use of internally developed ceramics.

* Electrical discharge machine (EDMs): A machine tool to machine metals and other materials through electrical discharge machining.
* Electrical discharge machining: A technology that uses electrical discharges (or sparks) to machine metals and other materials. It involves generating an arc discharge between an electrode and a workpiece (typically a metal) to remove materials from the surface of the workpiece. The electrode does not make physical contact with the workpiece. Instead, the electric energy (discharge) generated in the narrow gap between the electrode and the workpiece performs the function of a conventional cutting tool.
* Non-EDM machining: Conventional machining technologies include cutting (application of cutting tools), grinding (removal of surface materials by applying a grinding stone rotating at a high speed), and polishing (smoothening of surfaces by applying a hard grindstone with high precision).
* Benefits of electrical discharge machining: It is effective in settings that are problematic for conventional machining approaches, such as the machining of ultra-hard metals, locations that require high precision, and intricate shapes. In addition, EDMs equipped with a numerical control unit (NC) do not require the presence of an operator and can therefore be operated at night. However, electrical discharge machining also has some drawbacks. The machining process is slow, making it unsuitable for mass production. It also cannot be used to machine non-conductive materials. Finally, it requires additional costs to manufacture electrodes (if using die-sinker EDMs).
* Linear motor: A motor that produces thrust through magnetic attraction and repulsion. Linear motors outperform conventional ball screws in areas such as high-speed drive, high-precision control, and repeated operation under harsh conditions.

The company mainly provides EDMs to large, mid-sized, and small die/mold manufacturers, which supply their products to the automotive, smartphone, IT equipment, electronic parts, and many other industries. Parts machining is also an essential component of the medical equipment, aerospace, energy, and other industries. In Japan, the company sells its products both directly through its sales division and indirectly via agents. Through this collaborative approach, it aims to meet the specific needs of each region. In China, the largest market for the company, Sodick mainly sells its products directly through sales subsidiaries. In other parts of the world, it sells its product directly in the US, via agents in Europe (excluding Germany), and using different strategies for each region in Asia.

Prices for Sodick’s EDMs range from JPY7–8mn at the low end to roughly JPY60mn at the high end, with the bulk of the orders falling in the JPY10–15mn range. Base models function as platforms that can be upgraded with optional equipment (such as automatic electrode changers), and prices can therefore diverge by as much as several million yen depending on variations in specifications. While selling prices have generally trended down over the last 10 years, Sodick says they turn up in some years due to orders for optional equipment. The lead time between orders and revenue recognition is roughly three months. The company maintains production plans extending four months out, and reviews these plans each month. Based on an analysis of historical order and customer trends, it also produces a certain quantity of EDMs using a make-to-stock approach. It says the EDM replacement cycle is about 10 years, although this varies by customer.

Sodick manufactures EDMs in Japan, Thailand, and China (two production sites), and sells them around the world. In FY12/21, it sold 3,606 EDMs, with Asia accounting for 75.6% (China: 68.4%), Japan for 7.5%, the Americas for 7.1%, and Europe for 9.8%. It sells a large number of EDMs in China because it can take advantage of local production, and because the country is home to many smartphone and IT companies with micromachining needs. Sodick has annual production capacity for some 4,000 EDMs, but it can ramp up production to 5,000 units by adjusting manpower in its assembly processes. By region, it produces about 50% of its EDMs in Thailand, just over 40% in China (two production sites), and under 5% in Japan.

Materials costs (including parts procurement costs) make up some 75% of the company’s manufacturing costs, labor costs about 10%, and outsourcing and other costs roughly 15% (averages estimated by Shared Research, non-consolidated basis). Labor costs are expanding in tandem with an increase in personnel costs overseas. After excluding the procurement of parts, stainless steel and castings are the main component of material costs. Such costs fluctuate based on price negotiations with suppliers, and related impact takes roughly six months to be reflected in operations. Thereafter, these price swings also start showing up partially in the pricing of end products.

The global market for high-end EDMs, in which Sodick controls a high share, is worth around JPY150.0bn. Over the medium term, the company sees the market transitioning from mid-range and low-end models to high-end models (its forte), spurred by trends such as miniaturization, increasing complexity, and integrated production.

In the Industrial Machinery segment (revenue of JPY10.4bn in FY12/21), the second largest business after the Machine Tool segment, the company mainly supplies injection molding machines—a type of equipment that handles all processes involved in injection molding, from melting the plastic resin materials (pellets) to injecting the molten plastic into a mold, cooling, and removing the solidified material. Sodick produces and sells injection molding machines equipped with its proprietary V-LINE® System, which supports improved precision and yields through stable filling volume achieved by separating the processes of plasticization (melting of pellets) and injection of the molten plastic into a mold. The company supplies these machines to the automotive, smartphone, IT equipment, electronic parts, connector, and medical instruments industries.

In the Food Machinery segment (revenue of JPY6.9bn in FY12/21), which was launched in 2007, the company develops, manufactures, and sells noodle-making machines, noodle-making plants, sterile-packed cooked-rice (instant rice) production systems, and production lines. It supplies integrated production lines for sterile-packed cooked-rice that handle all processes from washing, sterilizing, and cooking the rice, inserting it into containers, and packaging the containers. It sells food machinery to major noodle manufacturers, manufacturers that supply noodles to convenience stores and supermarkets, restaurant chains, and confectionary manufacturers. In the Other segment (revenue of JPY6.4bn in FY12/21), the company undertakes contracted development of products such as precision dies and molds and automotive plastic connectors, and also develops, manufactures, and sells ceramic products, linear motors, motor drivers, and LED lighting.

Earnings trends

In FY12/21, revenue was JPY75.2bn (+29.5% YoY), operating profit JPY6.8bn (about 3.7x YoY), recurring profit JPY8.6bn (about 4.2x YoY), and net income of JPY6.6bn attributable to owners of the parent (about 4.9x YoY). Both orders and sales of mainstay EDMs increased YoY, driving earnings recovery for the Machine Tool segment as a whole. The company plans an annual dividend of JPY26.0 per share (year-end dividend of JPY13.0 per share), for a projected payout ratio of 20.6%.

Sodick forecasts FY12/22 revenue of JPY77.9bn (+3.6% YoY), operating profit of JPY7.2bn (+5.7% YoY), recurring profit of JPY7.2bn (-16.2% YoY), and net income of JPY5.7bn attributable to owners of the parent (-13.5% YoY). It targets EPS of JPY108.6 and plans an annual dividend of JPY27.0 per share (versus a projected JPY26.0 per share in FY12/21), for a projected payout ratio of 24.9%. The company expects a decline in recurring profit due to the disappearance of foreign exchange gains recorded in FY12/21 and a drop in net income attributable to owners of the parent due to lower recurring profit and increase in income tax and other tax expenses. The company left its forecast for the full year unchanged at the time of its Q1 earnings announcement.

The company every year releases a medium-term management plan for the following three years. The latest iteration of the rolling plan covers the period from FY12/22 to FY12/24. It calls for FY12/24 revenue of JPY89.6bn (versus JPY75.2bn recorded in FY12/21), operating profit of JPY9.1bn (JPY6.8bn), and an OPM of 10.2% (9.1%). It anticipates an earnings improvement in the core Machine Tool segment (FY12/24 targets: segment profit of JPY8.5bn, OPM of 15.0%) and higher performance in the Industrial Machinery, Food Machinery, and Other segments.

Strengths and weaknesses

Shared Research sees Sodick’s strengths as: 1) its reputation as a pioneer in EDMs and global market share in high-end EDMs of roughly 30% that ranks it among the leaders in the field; 2) its ability to generate higher margins on EDMs than its rivals by manufacturing NC units and linear motors in-house (whereas rivals source a high share of their parts and materials externally) and sell its products at a premium; 3) the potential to benefit from the many advantages offered by EDMs over conventional machine tools, such as superior micromachining capabilities and support for unmanned operation.

We see its weaknesses as: 1) low labor efficiency—an area with much room for improvement; 2) limited potential for growth through market share gains in a stagnant EDM market; and 3) insufficient risk diversification attributable to a concentration of sales and production in specific countries.

Key financial data

Income statement		FY03/14	FY03/15	FY03/16	FY03/17	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21	FY12/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Revenue		56,899	63,090	65,146	61,812	65,604	82,716	67,591	58,030	75,174	77,900
	YoY	3.4%	10.9%	3.3%	-5.1%	-	-	-18.3%	-14.1%	29.5%	3.6%
Gross profit		16,666	20,876	23,777	22,494	23,159	30,227	22,169	18,250	25,713	-
	YoY	-0.4%	25.3%	13.9%	-5.4%	-	-	-26.7%	-17.7%	40.9%	-
	Gross profit margin	29.3%	33.1%	36.5%	36.4%	35.3%	36.5%	32.8%	31.4%	34.2%	-
SG&A expenses		14,014	15,984	17,424	17,257	15,669	20,338	18,747	16,397	18,899	-
	YoY	10.2%	14.1%	9.0%	-1.0%	-	-	-7.8%	-12.5%	15.3%	-
	SG&A ratio	24.6%	25.3%	26.7%	27.9%	23.9%	24.6%	27.7%	28.3%	25.1%	-
Operating profit		2,651	4,891	6,353	5,236	7,490	9,888	3,422	1,852	6,813	7,200
	YoY	-34.1%	84.5%	29.9%	-17.6%	-	-	-65.4%	-45.9%	267.9%	5.7%
	Operating profit margin	4.7%	7.8%	9.8%	8.5%	11.4%	12.0%	5.1%	3.2%	9.1%	9.2%
Recurring profit		3,886	5,647	5,719	4,620	7,910	9,619	3,558	2,046	8,588	7,200
	YoY	-27.4%	45.3%	1.3%	-19.2%	-	-	-63.0%	-42.5%	319.7%	-16.2%
	Recurring profit margin	6.8%	9.0%	8.8%	7.5%	12.1%	11.6%	5.3%	3.5%	11.4%	9.2%
Net income		4,194	3,550	4,167	3,644	5,736	6,462	2,002	1,346	6,591	5,700
	YoY	0.1%	-15.4%	17.4%	-12.6%	-	-	-69.0%	-32.8%	389.7%	-13.5%
	Net margin	7.4%	5.6%	6.4%	5.9%	8.7%	7.8%	3.0%	2.3%	8.8%	7.3%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)		53,433	53,433	53,433	53,437	53,441	53,451	53,451	53,363	58,292	-
EPS (JPY)		83.4	70.6	82.8	76.9	122.2	137.6	42.6	28.6	125.7	108.6
EPS (fully diluted; JPY)		-	-	-	66.1	104.9	118.1	36.6	24.6	-	-
Dividend per share (JPY)		14	20	18	19	22	24	25	25	26	27
Book value per share (JPY)		842.4	981.5	987.0	1,035.2	1,172.1	1,235.5	1,247.1	1,230.5	1,376.3	-
Balance sheet (JPYmn)
	Cash and cash equivalent	24,049	27,767	27,663	36,847	37,014	33,546	33,873	38,920	45,274	-
Total current assets		64,557	71,362	67,846	78,136	87,527	79,946	75,290	77,954	96,377	-
Tangible fixed assets		24,450	24,828	24,336	23,768	26,296	30,912	31,856	30,358	30,217	-
Intangible assets		4,346	3,707	3,463	3,187	2,895	2,544	2,411	2,228	2,273	-
Investments and other assets		5,421	4,268	4,075	4,179	5,096	5,679	5,088	5,575	5,997	-
Total assets		98,776	104,167	99,722	109,271	121,815	119,082	114,647	116,117	134,866	-
	Short-term debt	14,808	16,977	15,086	14,784	13,199	11,883	11,592	17,583	8,909	-
Current liabilities		29,779	34,537	29,656	33,009	36,349	31,804	27,092	32,146	33,705	-
	Long-term debt	24,672	18,779	18,740	26,168	28,503	27,640	27,044	23,801	24,831	-
Fixed liabilities		26,544	20,176	20,306	27,551	30,298	29,148	28,810	25,993	26,722	-
Total liabilities		56,324	54,713	49,963	60,560	66,648	60,953	55,902	58,140	60,428	-
	Shareholders' equity	42,388	49,386	49,664	48,613	55,047	58,033	58,666	57,899	74,386	-
Total net assets		42,451	49,453	49,758	48,710	55,166	58,129	58,745	57,976	74,438	-
Total interest-bearing debt		39,480	35,756	33,826	40,952	41,702	39,523	38,636	41,384	33,740	-
Cash flow statement (JPYmn)
Cash flows from operating activities		5,577	8,298	6,579	8,373	4,522	9,275	8,336	5,270	7,642	-
Cash flows from investing activities		-4,181	-144	-2,773	-2,132	-4,715	-8,188	-5,609	-1,410	-2,203	-
Cash flows from financing activities		-3,696	-5,243	-2,854	3,134	-439	-3,485	-2,228	1,665	-1,932	-
Financial ratio
ROA (RP-based)		4.0%	5.6%	5.6%	4.4%	6.8%	8.0%	3.0%	1.8%	6.8%
ROE		10.7%	7.7%	8.4%	7.4%	11.1%	11.4%	3.4%	2.3%	10.0%
Equity ratio		42.9%	47.4%	49.8%	44.5%	45.2%	48.7%	51.2%	49.9%	55.2%
Capex		3,179	2,232	2,887	2,594	4,588	8,576	6,561	2,448	-
Depreciation		2,559	2,659	2,765	2,697	2,360	3,085	3,664	3,399	-
R&D expenses		2,004	2,494	3,408	3,518	3,344	3,902	3,483	3,220	-

Source: Shared Research based on company data
Note: In 2017, the company changed its fiscal year-end from March 31 to December 31, eliminating the three-month timing difference in the settling of accounts with its Chinese subsidiaries. The company did not disclose YoY changes for FY12/17 as that year was an irregular nine-month period.

Trends and outlook

Quarterly trends and results

Note: Shared Research will update some of the figures in the following tables after the company announces Q1 (January–March) results following the publication of its FY12/21 annual report.

Cumulative		FY12/21				FY12/22				FY12/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		14,317	34,504	53,976	75,174	19,604	-	-	-	25.2%	77,900
	YoY	9.9%	29.2%	32.5%	29.5%	36.9%	-	-	-		3.6%
Gross profit		4,652	11,672	18,572	25,713	6,553	-	-	-
	YoY	14.2%	38.4%	44.4%	40.9%	40.9%	-	-	-
	Gross profit margin	32.5%	33.8%	34.4%	34.2%	33.4%	-	-	-
SG&A expenses		4,227	8,957	13,621	18,899	4,645	-	-	-
	YoY	1.6%	10.8%	13.2%	15.3%	9.9%	-	-	-
	SG&A ratio	29.5%	26.0%	25.2%	25.1%	23.7%	-	-	-
Operating profit		424	2,714	4,950	6,813	1,907	-	-	-	26.5%	7,200
	YoY	-	686.7%	498.5%	267.9%	349.8%	-	-	-		5.7%
	Operating profit margin	3.0%	7.9%	9.2%	9.1%	9.7%	-	-	-		9.2%
Recurring profit		1,176	3,784	6,077	8,588	2,975	-	-	-	41.3%	7,200
	YoY	-	945.3%	580.5%	319.7%	153.0%	-	-	-		-16.2%
	Recurring profit margin	8.2%	11.0%	11.3%	11.4%	15.2%	-	-	-		9.2%
Net income		871	2,648	4,377	6,591	2,113	-	-	-	37.1%	5,700
	YoY	-	2,421.9%	607.1%	389.7%	142.6%	-	-	-		-13.5%
	Net margin	6.1%	7.7%	8.1%	8.8%	10.8%	-	-	-		7.3%
Quarterly		FY12/21				FY12/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		14,317	20,187	19,472	21,198	19,604	-	-	-
	YoY	9.9%	47.7%	38.7%	22.6%	36.9%	-	-	-
Gross profit		4,652	7,020	6,900	7,141	6,553	-	-	-
	YoY	14.2%	61.0%	55.9%	32.5%	40.9%	-	-	-
	Gross profit margin	32.5%	34.8%	35.4%	33.7%	33.4%	-	-	-
SG&A expenses		4,227	4,730	4,664	5,278	4,645	-	-	-
	YoY	1.6%	20.5%	18.2%	20.9%	9.9%	-	-	-
	SG&A ratio	29.5%	23.4%	24.0%	24.9%	23.7%	-	-	-
Operating profit		424	2,290	2,236	1,863	1,907	-	-	-
	YoY	-	428.9%	363.9%	81.8%	349.8%	-	-	-
	Operating profit margin	3.0%	11.3%	11.5%	8.8%	9.7%	-	-	-
Recurring profit		1,176	2,608	2,293	2,511	2,975	-	-	-
	YoY	-	507.9%	331.8%	117.8%	153.0%	-	-	-
	Recurring profit margin	8.2%	12.9%	11.8%	11.8%	15.2%	-	-	-
Net income		871	1,777	1,729	2,214	2,113	-	-	-
	YoY	-	1,344.7%	236.4%	204.5%	142.6%	-	-	-
	Net margin	6.1%	8.8%	8.9%	10.4%	10.8%	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

By application				FY12/21				FY12/22				FY12/22
Cumulative (JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue				14,317	34,504	53,976	75,174	19,604	-	-	-	25.2%	77,900
	YoY			9.9%	29.2%	32.5%	29.5%	36.9%	-	-	-		3.6%
	Machine Tool			10,382	24,145	37,248	51,485	14,096	-	-	-	27.5%	51,200
		YoY		26.0%	41.5%	41.5%	35.4%	35.8%	-	-	-		-0.6%
		% of total		72.5%	70.0%	69.0%	68.5%	71.9%	-	-	-		65.7%
		Machine sales		8,020	19,200	29,736	41,272	11,245	-	-	-
			YoY	35.6%	50.7%	49.3%	40.5%	40.2%	-	-	-
		Maintenance and supplies		2,362	4,945	7,512	10,213	2,850	-	-	-
			YoY	1.7%	14.4%	17.5%	18.0%	20.7%	-	-	-
	Industrial Machinery			1,893	4,628	6,928	10,367	2,625	-	-	-	24.3%	10,800
		YoY		-25.9%	-12.9%	-13.9%	-5.2%	38.7%	-	-	-		4.2%
		% of total		13.2%	13.4%	12.8%	13.8%	13.4%	-	-	-		13.9%
		Machine sales		1,546	3,899	5,856	8,941	2,241	-	-	-
			YoY	-31.2%	-17.8%	-18.8%	-8.6%	45.0%	-	-	-
		Maintenance and supplies		347	728	1,072	1,425	383	-	-	-
			YoY	11.9%	27.7%	28.2%	24.1%	10.4%	-	-	-
	Food Machinery			580	2,521	5,063	6,884	1,021	-	-	-	12.5%	8,200
		YoY		-25.8%	66.4%	127.8%	92.0%	76.0%	-	-	-		19.1%
		% of total		4.1%	7.3%	9.4%	9.2%	5.2%	-	-	-		10.5%
		Machine sales		418	2,178	4,544	6,156	857	-	-	-
			YoY	-36.0%	78.7%	159.5%	111.5%	105.0%	-	-	-
		Maintenance and supplies		161	342	519	728	163	-	-	-
			YoY	25.8%	15.5%	10.2%	8.0%	1.2%	-	-	-
	Other			1,460	3,209	4,735	6,437	1,861	-	-	-	24.2%	7,700
		YoY		0.5%	14.3%	13.9%	17.3%	27.5%	-	-	-		19.6%
		% of total		10.2%	9.3%	8.8%	8.6%	9.5%	-	-	-		9.9%
Operating profit				424	2,714	4,950	6,813	1,907	-	-	-	26.5%	7,200
	YoY			-	686.7%	498.5%	267.9%	349.8%	-	-	-		5.7%
	Operating profit margin			3.0%	7.9%	9.2%	9.1%	9.7%	-	-	-		9.2%
	Machine Tool			898	3,156	5,260	7,176	2,143	-	-	-	28.6%	7,500
		YoY		355.8%	235.4%	214.0%	147.8%	138.6%	-	-	-		4.5%
		Operating profit margin		8.6%	13.1%	14.1%	13.9%	15.2%	-	-	-		14.6%
		% of total		88.7%	79.6%	77.5%	77.0%	87.3%	-	-	-		77.3%
	Industrial Machinery			10	177	274	503	152	-	-	-	50.7%	300
		YoY		-93.0%	-35.9%	-25.9%	-15.6%	1,420.0%	-	-	-		-40.4%
		Operating profit margin		0.5%	3.8%	4.0%	4.9%	5.8%	-	-	-		2.8%
		% of total		1.0%	4.5%	4.0%	5.4%	6.2%	-	-	-		3.1%
	Food Machinery			-39	205	566	830	-29	-	-	-	-3.1%	950
		YoY		-	4,000.0%	1,996.3%	1,176.9%	-	-	-	-		14.5%
		Operating profit margin		-6.7%	8.1%	11.2%	12.1%	-2.8%	-	-	-		11.6%
		% of total		-3.9%	5.2%	8.3%	8.9%	-1.2%	-	-	-		9.8%
	Other			144	426	688	811	188	-	-	-	19.8%	950
		YoY		140.0%	94.5%	120.5%	154.2%	30.6%	-	-	-		17.1%
		Operating profit margin		9.9%	13.3%	14.5%	12.6%	10.1%	-	-	-		12.3%
		% of total		14.2%	10.7%	10.1%	8.7%	7.7%	-	-	-		9.8%
	Adjustments			-588	-1,251	-1,839	-2,507	-548	-	-	-		-2,500
By application				FY12/21				FY12/22
Quarterly (JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue				14,317	20,187	19,472	21,198	19,604	-	-	-
	YoY			9.9%	47.7%	38.7%	22.6%	36.9%	-	-	-
	Machine Tool			10,382	13,763	13,103	14,237	14,096	-	-	-
		YoY		26.0%	55.9%	41.6%	21.6%	35.8%	-	-	-
		% of total		72.5%	68.2%	67.3%	67.2%	71.9%	-	-	-
		Machine sales		8,020	11,180	10,536	11,536	11,245	-	-	-
			YoY	35.6%	63.8%	46.7%	22.2%	40.2%	-	-	-
		Maintenance and supplies		2,362	2,583	2,567	2,701	2,850	-	-	-
			YoY	1.7%	29.2%	23.9%	19.3%	20.7%	-	-	-
	Industrial Machinery			1,893	2,735	2,300	3,439	2,625	-	-	-
		YoY		-25.9%	-0.9%	-15.7%	19.2%	38.7%	-	-	-
		% of total		13.2%	13.5%	11.8%	16.2%	13.4%	-	-	-
		Machine sales		1,546	2,353	1,957	3,085	2,241	-	-	-
			YoY	-31.2%	-5.8%	-20.6%	19.9%	45.0%	-	-	-
		Maintenance and supplies		347	381	344	353	383	-	-	-
			YoY	11.9%	46.5%	29.3%	13.1%	10.4%	-	-	-
	Food Machinery			580	1,941	2,542	1,821	1,021	-	-	-
		YoY		-25.8%	164.8%	259.0%	33.7%	76.0%	-	-	-
		% of total		4.1%	9.6%	13.1%	8.6%	5.2%	-	-	-
		Machine sales		418	1,760	2,366	1,612	857	-	-	-
			YoY	-36.0%	211.0%	344.7%	39.0%	105.0%	-	-	-
		Maintenance and supplies		161	181	177	209	163	-	-	-
			YoY	25.8%	7.7%	1.1%	3.0%	1.2%	-	-	-
	Other			1,460	1,749	1,526	1,702	1,861	-	-	-
		YoY		0.5%	29.2%	13.0%	28.0%	27.5%	-	-	-
		% of total		10.2%	8.7%	7.8%	8.0%	9.5%	-	-	-
Operating profit				424	2,290	2,236	1,863	1,907	-	-	-
	YoY			-	428.9%	363.9%	81.8%	349.8%	-	-	-
	Operating profit margin			3.0%	11.3%	11.5%	8.8%	9.7%	-	-	-
	Machine Tool			898	2,258	2,104	1,916	2,143	-	-	-
		YoY		355.8%	203.5%	186.6%	56.9%	138.6%	-	-	-
		Operating profit margin		8.6%	16.4%	16.1%	13.5%	15.2%	-	-	-
		% of total		88.7%	76.5%	74.5%	75.7%	87.3%	-	-	-
	Industrial Machinery			10	167	97	229	152	-	-	-
		YoY		-93.0%	24.6%	3.2%	1.3%	1,420.0%	-	-	-
		Operating profit margin		0.5%	6.1%	4.2%	6.7%	5.8%	-	-	-
		% of total		1.0%	5.7%	3.4%	9.0%	6.2%	-	-	-
	Food Machinery			-39	244	361	264	-29	-	-	-
		YoY		-	-	1,540.9%	594.7%	-	-	-	-
		Operating profit margin		-6.7%	12.6%	14.2%	14.5%	-2.8%	-	-	-
		% of total		-3.9%	8.3%	12.8%	10.4%	-1.2%	-	-	-
	Other			144	282	262	123	188	-	-	-
		YoY		140.0%	77.4%	181.7%	1,657.1%	30.6%	-	-	-
		Operating profit margin		9.9%	16.1%	17.2%	7.2%	10.1%	-	-	-
		% of total		14.2%	9.5%	9.3%	4.9%	7.7%	-	-	-
	Adjustments			-588	-663	-588	-668	-548	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Overseas revenue by segment				FY12/21				FY12/22
Cumulative (JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue				14,317	34,504	53,976	75,174	19,604	-	-	-
	YoY			9.9%	29.2%	32.5%	29.5%	36.9%	-	-	-
	Japan			4,659	9,927	15,082	21,959	6,671	-	-	-
		YoY		-16.5%	-0.4%	5.1%	11.3%	43.2%	-	-	-
		% of total		32.5%	28.8%	27.9%	29.2%	34.0%	-	-	-
		Machine Tool		2,141	3,833	5,770	8,480	3,140	-	-	-
			YoY	2.1%	6.1%	10.2%	12.3%	46.7%	-	-	-
		Industrial Machinery		882	1,959	2,905	4,345	1,133	-	-	-
			YoY	-42.2%	-23.2%	-15.0%	0.6%	28.5%	-	-	-
		Food Machinery		304	1,303	2,140	3,255	621	-	-	-
			YoY	-43.3%	19.7%	26.9%	23.6%	104.3%	-	-	-
		Other		1,330	2,829	4,265	5,879	1,776	-	-	-
			YoY	-6.1%	4.4%	6.4%	12.3%	33.5%	-	-	-
	North and South America			1,482	3,449	5,283	7,521	2,343	-	-	-
		YoY		-3.5%	15.5%	14.1%	15.1%	58.1%	-	-	-
		% of total		10.4%	10.0%	9.8%	10.0%	12.0%	-	-	-
		Machine Tool		1,307	3,052	4,549	6,442	1,982	-	-	-
			YoY	-9.9%	22.7%	17.5%	14.5%	51.6%	-	-	-
		Industrial Machinery		170	372	694	982	356	-	-	-
			YoY	112.5%	-12.7%	5.8%	22.1%	109.4%	-	-	-
		Food Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Other		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
	Europe			1,140	2,517	4,044	5,854	1,817	-	-	-
		YoY		-1.4%	25.9%	29.7%	35.0%	59.4%	-	-	-
		% of total		8.0%	7.3%	7.5%	7.8%	9.3%	-	-	-
		Machine Tool		1,139	2,517	4,043	5,854	1,817	-	-	-
			YoY	-1.5%	25.9%	29.7%	35.0%	59.5%	-	-	-
		Industrial Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Food Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Other		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
	Greater China			5,365	14,797	23,957	31,987	6,575	-	-	-
		YoY		67.4%	65.3%	63.0%	47.5%	22.6%	-	-	-
		% of total		37.5%	42.9%	44.4%	42.6%	33.5%	-	-	-
		Machine Tool		4,621	12,231	19,440	25,823	5,570	-	-	-
			YoY	89.7%	73.8%	71.8%	55.8%	20.5%	-	-	-
		Industrial Machinery		611	1,690	2,422	3,792	624	-	-	-
			YoY	-13.9%	-5.8%	-22.9%	-15.0%	2.1%	-	-	-
		Food Machinery		3	498	1,624	1,814	296	-	-	-
			YoY	-84.2%	2,521.1%	1,627.7%	360.4%	9,766.7%	-	-	-
		Other		129	377	469	558	84	-	-	-
			YoY	248.6%	288.7%	216.9%	118.8%	-34.9%	-	-	-
	Asia			1,670	3,812	5,608	7,850	2,196	-	-	-
		YoY		7.4%	36.2%	42.1%	36.8%	31.5%	-	-	-
		% of total		11.7%	11.0%	10.4%	10.4%	11.2%	-	-	-
		Machine Tool		1,172	2,510	3,443	4,886	1,584	-	-	-
			YoY	6.8%	30.5%	24.0%	24.0%	35.2%	-	-	-
		Industrial Machinery		229	604	905	1,247	511	-	-	-
			YoY	-3.4%	11.2%	9.4%	-7.4%	123.1%	-	-	-
		Food Machinery		267	694	1,259	1,717	99	-	-	-
			YoY	21.4%	109.7%	269.2%	279.0%	-62.9%	-	-	-
		Other		1	2	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Overseas revenue by segment				FY12/21				FY12/22
Quarterly (JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue				14,317	20,187	19,472	21,198	19,604	-	-	-
	YoY			9.9%	47.7%	38.7%	22.6%	36.9%	-	-	-
	Japan			4,659	5,268	5,155	6,877	6,671	-	-	-
		YoY		-16.5%	20.1%	17.6%	27.6%	43.2%	-	-	-
		% of total		32.5%	26.1%	26.5%	32.4%	34.0%	-	-	-
		Machine Tool		2,141	1,692	1,937	2,710	3,140	-	-	-
			YoY	2.1%	11.5%	19.5%	17.0%	46.7%	-	-	-
		Industrial Machinery		882	1,077	946	1,440	1,133	-	-	-
			YoY	-42.2%	5.2%	9.2%	60.0%	28.5%	-	-	-
		Food Machinery		304	999	837	1,115	621	-	-	-
			YoY	-43.3%	80.7%	40.2%	17.6%	104.3%	-	-	-
		Other		1,330	1,499	1,436	1,614	1,776	-	-	-
			YoY	-6.1%	15.8%	10.5%	31.9%	33.5%	-	-	-
	North and South America			1,482	1,967	1,834	2,238	2,343	-	-	-
		YoY		-3.5%	35.6%	11.6%	17.6%	58.1%	-	-	-
		% of total		10.4%	9.7%	9.4%	10.6%	12.0%	-	-	-
		Machine Tool		1,307	1,745	1,497	1,893	1,982	-	-	-
			YoY	-9.9%	68.4%	8.1%	7.9%	51.6%	-	-	-
		Industrial Machinery		170	202	322	288	356	-	-	-
			YoY	112.5%	-41.6%	40.0%	94.6%	109.4%	-	-	-
		Food Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Other		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
	Europe			1,140	1,377	1,527	1,810	1,817	-	-	-
		YoY		-1.4%	63.3%	36.6%	48.5%	59.4%	-	-	-
		% of total		8.0%	6.8%	7.8%	8.5%	9.3%	-	-	-
		Machine Tool		1,139	1,378	1,526	1,811	1,817	-	-	-
			YoY	-1.5%	63.5%	36.5%	48.6%	59.5%	-	-	-
		Industrial Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Food Machinery		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
		Other		-	-	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-
	Greater China			5,365	9,432	9,160	8,030	6,575	-	-	-
		YoY		67.4%	64.1%	59.3%	15.0%	22.6%	-	-	-
		% of total		37.5%	46.7%	47.0%	37.9%	33.5%	-	-	-
		Machine Tool		4,621	7,610	7,209	6,383	5,570	-	-	-
			YoY	89.7%	65.4%	68.6%	21.4%	20.5%	-	-	-
		Industrial Machinery		611	1,079	732	1,370	624	-	-	-
			YoY	-13.9%	-0.5%	-45.7%	3.9%	2.1%	-	-	-
		Food Machinery		3	495	1,126	190	296	-	-	-
			YoY	-84.2%	-	1,401.3%	-36.7%	9,766.7%	-	-	-
		Other		129	248	92	89	84	-	-	-
			YoY	248.6%	313.3%	80.4%	-16.8%	-34.9%	-	-	-
	Asia			1,670	2,142	1,796	2,242	2,196	-	-	-
		YoY		7.4%	72.3%	56.4%	25.0%	31.5%	-	-	-
		% of total		11.7%	10.6%	9.2%	10.6%	11.2%	-	-	-
		Machine Tool		1,172	1,338	933	1,443	1,584	-	-	-
			YoY	6.8%	62.0%	9.4%	24.1%	35.2%	-	-	-
		Industrial Machinery		229	375	301	342	511	-	-	-
			YoY	-3.4%	22.5%	6.0%	-34.1%	123.1%	-	-	-
		Food Machinery		267	427	565	458	99	-	-	-
			YoY	21.4%	284.7%	5,550.0%	308.9%	-62.9%	-	-	-
		Other		1	1	-	-	-	-	-	-
			YoY	-	-	-	-	-	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Electrical discharge machines			FY12/21				FY12/22
Cumulative			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Orders
Total			1,311	2,513	3,387	4,173	967
	YoY		109.1%	93.2%	68.3%	45.6%	-26.2%
	North and South America		58	128	182	250	81
		YoY	3.6%	52.4%	27.3%	11.1%	39.7%
	Europe		100	208	321	427	96
		YoY	28.2%	49.6%	57.4%	52.0%	-4.0%
	China		1,007	1,865	2,378	2,803	578
		YoY	187.7%	116.4%	78.8%	48.5%	-42.6%
	Asia		78	162	238	310	92
		YoY	1.3%	44.6%	45.1%	28.6%	17.9%
	Japan		68	150	268	383	120
		YoY	3.0%	44.2%	56.7%	65.1%	76.5%
Unit sales
Total			715	1,694	2,657	3,606	904
	YoY		38.3%	42.4%	43.0%	33.3%	26.4%
	North and South America		52	125	176	257	68
		YoY	-13.3%	27.6%	15.8%	8.0%	30.8%
	Europe		68	150	242	353	108
		YoY	1.5%	25.0%	22.8%	26.5%	58.8%
	China		467	1,172	1,883	2,465	514
		YoY	88.3%	58.2%	58.5%	44.0%	10.1%
	Asia		67	138	186	261	89
		YoY	11.7%	17.9%	16.3%	15.5%	32.8%
	Japan		61	109	170	270	125
		YoY	-25.6%	-4.4%	5.6%	7.6%	104.9%
Electrical discharge machines			FY12/21				FY12/22
Quarterly			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Orders
Total			1,311	1,202	874	786	967	-	-	-
	YoY		109.1%	78.3%	22.9%	-8.1%	-26.2%	-	-	-
	North and South America		58	70	54	68	81	-	-	-
		YoY	3.6%	150.0%	-8.5%	-17.1%	39.7%	-	-	-
	Europe		100	108	113	106	96	-	-	-
		YoY	28.2%	77.0%	73.8%	37.7%	-4.0%	-	-	-
	China		1,007	858	513	425	578	-	-	-
		YoY	187.7%	67.6%	9.6%	-23.8%	-42.6%	-	-	-
	Asia		78	84	76	72	92	-	-	-
		YoY	1.3%	140.0%	46.2%	-6.5%	17.9%	-	-	-
	Japan		68	82	118	115	120	-	-	-
		YoY	3.0%	115.8%	76.1%	88.5%	76.5%	-	-	-
Unit sales
Total			715	979	963	949	904	-	-	-
	YoY		38.3%	45.5%	44.2%	11.9%	26.4%	-	-	-
	North and South America		52	73	51	81	68	-	-	-
		YoY	-13.3%	92.1%	-5.6%	-5.8%	30.8%	-	-	-
	Europe		68	82	92	111	108	-	-	-
		YoY	1.5%	54.7%	19.5%	35.4%	58.8%	-	-	-
	China		467	705	711	582	514	-	-	-
		YoY	88.3%	43.0%	59.1%	11.1%	10.1%	-	-	-
	Asia		67	71	48	75	89	-	-	-
		YoY	11.7%	24.6%	11.6%	13.6%	32.8%	-	-	-
	Japan		61	48	61	100	125	-	-	-
		YoY	-25.6%	50.0%	29.8%	11.1%	104.9%	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

		FY12/21				FY12/22				FY12/22
		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Capital investment		400	1,301	1,954	3,451	939	-	-	-	22.9%	4,100
	YoY	3.6%	60.6%	24.8%	41.0%	134.8%	-	-	-		18.8%
Depreciation		814	1,669	2,548	3,452	851	-	-	-	24.3%	3,500
	YoY	-3.0%	-0.1%	1.1%	1.6%	4.5%	-	-	-		1.4%
R&D expenses		770	1,581	2,305	3,216	685	-	-	-	19.0%	3,600
	YoY	-4.6%	0.3%	-2.5%	-0.1%	-11.0%	-	-	-		11.9%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Foreign exchange rates		FY12/21				FY12/22
(Average during term)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	FY Est.
USD		106.09	107.82	108.58	109.90	116.34	-	-	-	115.00
	YoY	-2.5%	-0.4%	1.0%	2.9%	9.7%	-	-	-	4.6%
CNY		16.35	16.65	16.77	17.01	18.29	-	-	-	17.50
	YoY	4.8%	8.3%	9.1%	9.9%	11.9%	-	-	-	2.9%
EUR		127.81	129.89	129.87	129.91	130.40	-	-	-	130.00
	YoY	6.4%	8.9%	7.4%	6.6%	2.0%	-	-	-	0.1%
THB		3.50	3.50	3.45	3.44	3.52	-	-	-	3.50
	YoY	0.6%	2.0%	1.2%	0.6%	0.6%	-	-	-	1.7%
Foreign exchange rates		FY12/21				FY12/22
(End-term)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
USD		110.71	110.58	111.92	115.02	122.39	-	-	-
	YoY	1.7%	2.6%	5.8%	11.1%	10.6%	-	-	-
CNY		16.84	17.11	17.30	18.06	19.26	-	-	-
	YoY	10.0%	12.3%	11.3%	13.7%	14.4%	-	-	-
EUR		129.80	131.58	129.86	130.51	136.70	-	-	-
	YoY	8.6%	8.7%	4.6%	2.8%	5.3%	-	-	-
THB		3.54	3.44	3.30	3.43	3.68	-	-	-
	YoY	6.0%	-1.4%	-1.2%	-0.3%	4.0%	-	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Q1 FY12/22 results (out May 11, 2022)

Q1 summary (January–March, three months)

Revenue: JPY19.6bn (+36.9% YoY)
Operating profit: JPY1.9bn (roughly 4.5x YoY); OPM: 9.7% (+6.7pp YoY)
Recurring profit: JPY3.0bn (roughly 2.5x YoY)
Net income*: JPY2.1bn (roughly 2.4x YoY)
* Net income attributable to owners of the parent

The mainstay Machine Tool segment drove growth in consolidated results thanks to higher YoY segment revenue and profit, which were backed by a rise in the sales volume of electrical discharge machines (EDMs) and success in cost reduction. Results were also underpinned by a YoY increase in segment revenue and profit in Industrial Machinery—the only segment that recorded lower YoY profit in FY12/21—owing to recovery in injection molding machine sales. The Other segment also logged higher revenue and profit on strong performance in precision die and molding. As a result, consolidate revenue surpassed pre-pandemic levels and stood at JPY19.6bn, marking a record high for Q1 (counting from FY12/18 when the company changed its fiscal year-end to December).

Operating profit margin (OPM) of 9.7% fell short of 12.1% in Q1 FY12/18 and 11.1% in Q1 FY12/19. Considering that OPM in the Machine Tool segment tracked a similar trend, Shared Research understands that OPM continued to suffer the impact of soaring material costs and tight parts procurement, which became more pronounced in the latter half of FY12/21. On a quarterly basis, revenue and operating profit logged YoY growth for five and six consecutive quarters, respectively.

Shared Research will update details of results after an interview with the company.

FY12/22 full-year company forecast (out February 14, 2022)

		FY12/20			FY12/21			FY12/22
(JPYmn)		1H	2H	FY	1H	2H	FY	FY Est.
Revenue		26,702	31,328	58,030	34,504	40,670	75,174	77,900
	YoY	-18.4%	-10.2%	-14.1%	29.2%	29.8%	29.5%	3.6%
Gross profit		8,432	9,818	18,250	11,672	14,041	25,713	-
	YoY	-25.6%	-9.4%	-17.7%	38.4%	43.0%	40.9%	-
	Gross profit margin	31.6%	31.3%	31.4%	33.8%	34.5%	34.2%	-
SG&A expenses		8,086	8,311	16,397	8,957	9,942	18,899	-
	YoY	-12.1%	-12.9%	-12.5%	10.8%	19.6%	15.3%	-
	SG&A ratio	30.3%	26.5%	28.3%	26.0%	24.4%	25.1%	-
Operating profit		345	1,507	1,852	2,714	4,099	6,813	7,200
	YoY	-83.8%	16.4%	-45.9%	686.7%	172.0%	267.9%	5.7%
	Operating profit margin	1.3%	4.8%	3.2%	7.9%	10.1%	9.1%	9.2%
Recurring profit		362	1,684	2,046	3,784	4,804	8,588	7,200
	YoY	-82.5%	13.4%	-42.5%	945.3%	185.3%	319.7%	-16.2%
	Recurring profit margin	1.4%	5.4%	3.5%	11.0%	11.8%	11.4%	9.2%
Net income		105	1,241	1,346	2,648	3,943	6,591	5,700
	YoY	-88.2%	11.8%	-32.8%	2,421.9%	217.7%	389.7%	-13.5%
	Net margin	0.4%	4.0%	2.3%	7.7%	9.7%	8.8%	7.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

The company left its forecast for FY12/22 unchanged at the time of its Q1 earnings announcement in May 2022. The commentary below is based on the company forecast released in February 2022. Shared Research plans to update the content as necessary following an interview with the company.

FY12/22 forecast

The company announced its FY12/22 forecast as follows.

Revenue: JPY77.9bn (+3.6% YoY)
Operating profit: JPY7.2bn (+5.7% YoY); OPM: 9.2% (+0.1pp YoY)
Recurring profit: JPY7.2bn (-16.2% YoY)
Net income*: JPY5.7bn (-13.5% YoY)
EPS: JPY108.6. Annual DPS projection is JPY27.0 (versus projected JPY26.0 in FY12/21), for a projected payout ratio of 24.9%
* Net income attributable to owners of the parent

On February 14, 2022, the company announced that it would buy back and cancel shares in a bid to improve shareholder returns and increase the value of its shares based on a flexible capital allocation policy in response to changes in the business environment. The buyback period is February 15 to March 9, 2022. The company said it would purchase a maximum of 500,000 shares (JPY500mn), with cancellation scheduled for March 31, 2022. The upper limit of 500,000 shares represents 0.92% of the total number of shares in issue (excluding treasury stock). Sodick subsequently acquired treasury stock, completing the buyback on March 9, 2022. The company bought back 500,000 shares at a cost of JPY378mn.

Earnings forecasts by segment

The earnings trends by segment are shown below. Segment profit figures are before consolidation adjustments, and have been adjusted with operating profit on the income statement.

Machine Tool

Revenue: JPY51.2bn (-0.6% YoY)
Segment profit: JPY7.5bn (+4.5% YoY)
OPM: 14.6% (+0.7pp YoY)

The company expects orders for its mainstay high-end (high-precision) EDMs to remain at a high level, as demand is expected to increase for automotive, semiconductor, and 5G-related applications. However, it expects sales to remain flat due to lower sales in the Chinese market (the segment's largest), and the time necessary to resolve long lead times caused by tight component procurement. The main factor in the company's forecast of YoY sales decline in the Chinese market is an expected reactionary decline from the high levels of sales in FY12/21.

Meanwhile, the company expects segment profit to increase 4.5% YoY and the segment OPM to improve 0.7pp YoY to 14.6%. Sodick expects that coping with tight component procurement will unavoidably yield higher procurement and transportation costs. However, the company expects the impact of COVID-19 to be less severe and does not believe plant operations will be seriously affected as they were in FY12/21. Further, it expects segment profit and the OPM to increase YoY as ongoing productivity improvements bear fruit. That said, the company remains concerned about the impact of continued longer lead times (such as delays in shipments or further increases in transportation costs).

Industrial Machinery

Revenue: JPY10.8bn (+4.2% YoY)
Segment profit: JPY300mn (-40.4% YoY)
OPM: 2.8% (-2.1pp YoY)

The company expects revenue growth of 4.2% YoY on higher demand for automotive, electronic components, and 5G-related applications in Japan and Greater China, as well as growth in sales to the medical sector in North America. On the other hand, it expects segment profit to decline 40.4% YoY. The company notes that the main reason for this decline in segment profit is the expected temporary increase in initial expenses due to the start of production at the new plant in Xiamen, China, which it expects to offset the increase in sales. The company also expects the segment OPM to decline 2.1pps YoY to below 3%.

Food Machinery

Revenue: JPY8.2bn (+19.1% YoY)
Segment profit: JPY950mn (+14.5% YoY)
OPM: 11.6% (-0.5pp YoY)

Sales in Greater China were particularly noteworthy in FY12/21, and the company expects sales to continue to increase in Greater China in FY12/22, as well as in the rest of Asia (of macines that produce fresh noodles, frozen noodles, and cooked rice), yielding a YoY increase in both sales and segment profit. It expects this to result in record highs in sales and segment profit. However, the company forecasts OPM dropping 0.5pp to 11.6% due to cost increases associated with business expansion.

Other

Revenue: JPY7.7bn (+19.6% YoY)
Segment profit: JPY950mn (+17.1% YoY)
OPM: 12.3% (-0.3pp YoY)

The company expects sales and profits to grow in both the precision die and molding business and in external sales of ceramics. It expects sales to reach a record high and segment profit to approach the record high of JPY1.0bn in FY12/18. However, the company expects the OPM to decline 0.3pp to 12.3% due to an increase in various costs associated with business expansion.

Company forecasts versus results

Results vs. Initial Est.		FY03/15	FY03/16	FY03/17	FY12/17	FY12/18	FY12/19	FY12/20	FY12/21	FY12/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Revenue	Initial Est.	61,500	69,000	65,500	55,800	81,000	76,800	67,800	65,400	77,900
	Act.	63,090	65,146	61,812	65,604	82,716	67,591	58,030	75,174
	Results vs. Initial Est.	2.6%	-5.6%	-5.6%	17.6%	2.1%	-12.0%	-14.4%	14.9%
Operating profit	Initial Est.	3,900	5,100	5,800	5,300	8,000	6,900	3,800	4,100	7,200
	Act.	4,891	6,353	5,236	7,490	9,888	3,422	1,852	6,813
	Results vs. Initial Est.	25.4%	24.6%	-9.7%	41.3%	23.6%	-50.4%	-51.3%	66.2%
Recurring profit	Initial Est.	3,500	4,700	5,600	5,200	8,000	6,400	3,800	4,100	7,200
	Act.	5,647	5,719	4,620	7,910	9,619	3,558	2,046	8,588
	Results vs. Initial Est.	61.3%	21.7%	-17.5%	52.1%	20.2%	-44.4%	-46.2%	109.5%
Net income	Initial Est.	2,600	3,200	4,300	3,700	700	4,700	3,100	3,000	5,700
	Act.	3,550	4,167	3,644	5,736	6,462	2,002	1,346	6,591
	Results vs. Initial Est.	36.5%	30.2%	-15.3%	55.0%	823.1%	-57.4%	-56.6%	119.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: In 2017, the company changed its fiscal year-end from March 31 to December 31, eliminating the three-month timing difference in the settling of accounts with its Chinese subsidiaries. The company did not disclose YoY changes for FY12/17 as that year was an irregular nine-month period.

Medium-term management plan

			FY12/20	FY12/21	FY12/22	FY12/23	FY12/24	3-year
(JPYmn)			Act.	Act.	Est.	Target	Target	CAGR
Revenue			58,030	75,174	77,900	82,700	89,600	+6.0%
	YoY		-14.1%	29.5%	3.6%	6.2%	8.3%
	Machine Tool		38,024	51,485	51,200	53,400	56,500	+3.1%
		YoY	-17.0%	35.4%	-0.6%	4.3%	5.8%
		% of total	65.5%	68.5%	65.7%	64.6%	63.1%
	Industrial Machinery		10,931	10,367	10,800	11,600	13,700	+9.7%
		YoY	11.8%	-5.2%	4.2%	7.4%	18.1%
		% of total	18.8%	13.8%	13.9%	14.0%	15.3%
	Food Machinery		3,585	6,884	8,200	9,200	10,000	+13.3%
		YoY	-42.9%	92.0%	19.1%	12.2%	8.7%
		% of total	6.2%	9.2%	10.5%	11.1%	11.2%
	Other		5,488	6,437	7,700	8,500	9,400	+13.5%
		YoY	-4.3%	17.3%	19.6%	10.4%	10.6%
		% of total	9.5%	8.6%	9.9%	10.3%	10.5%
Operating profit			1,852	6,813	7,200	8,000	9,100	+10.1%
	YoY		-45.9%	267.9%	5.7%	11.1%	13.8%
	Operating profit margin		3.2%	9.1%	9.2%	9.7%	10.2%
	Machine Tool		2,896	7,176	7,500	8,100	8,500	+5.8%
		YoY	-37.3%	147.8%	4.5%	8.0%	4.9%
		Operating profit margin	7.6%	13.9%	14.6%	15.2%	15.0%
		% of total	74.7%	77.0%	77.3%	101.3%	93.4%
	Industrial Machinery		596	503	300	400	750	+14.2%
		YoY	261.2%	-15.6%	-40.4%	33.3%	87.5%
		Operating profit margin	5.5%	4.9%	2.8%	3.4%	5.5%
		% of total	15.4%	5.4%	3.1%	5.0%	8.2%
	Food Machinery		65	830	950	1,000	1,100	+9.8%
		YoY	-89.6%	1,176.9%	14.5%	5.3%	10.0%
		Operating profit margin	1.8%	12.1%	11.6%	10.9%	11.0%
		% of total	1.7%	8.9%	9.8%	12.5%	12.1%
	Other		319	811	950	1,100	1,350	+18.5%
		YoY	2.6%	154.2%	17.1%	15.8%	22.7%
		Operating profit margin	5.8%	12.6%	12.3%	12.9%	14.4%
		% of total	8.2%	8.7%	9.8%	13.8%	14.8%
	Adjustments		-2,025	-2,507	-2,500	-	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Overview of medium-term management plan

Sodick releases three-year medium-term management plans that are updated on a rolling basis. The latest iteration of the plan was unveiled on February 18, 2022, and spans the period from FY12/22 to FY12/24. During this period, the company looks to improve profitability not only in the mainstay Machine Tool segment (FY12/24 targets: segment profit of JPY8.5bn, OPM of 15.0%), but also in the Industrial Machinery segment (JPY750mn, 5.5%), the Food Machinery segment (JPY1.1bn, 110%), and the Other segment (JPY1.4bn, 14.4%). It targets FY12/24 (final-year) revenue of JPY89.6bn (versus JPY75.2bn recorded in FY12/21), operating profit of JPY9.1bn (JPY6.8bn), and an OPM of 10.2% (9.1%). If these targets are achieved, operating profit will reach the third highest level in the company’s history, but OPM will only reach the eight highest level.

The company has released the long-term management plan “Next Stage 2026: Toward Further Growth,” which calls for FY12/26 revenue of JPY125.0bn and operating profit of JPY17.0bn as quantitative targets.
The updated medium-term management plan calls for operating profit of JPY9.1bn in FY12/24 (53.5% of JPY17.0bn), but leaves the long-term target for FY12/26 unchanged.

The medium-term targets by segment

Machine Tool

			FY12/18	FY12/19	FY12/20	FY12/21	FY12/22	FY12/23	FY12/24
(JPYmn)			Act.	Act.	Act.	Act.	Est.	Target	Target
Machine Tool
	Revenue		58,607	45,797	38,024	51,485	51,200	53,400	56,500
		YoY	-	-21.9%	-17.0%	35.4%	-0.6%	4.3%	5.8%
	Segment profit		9,988	4,621	2,896	7,176	7,500	8,100	8,500
		YoY	-	-53.7%	-37.3%	147.8%	4.5%	8.0%	4.9%
		Segment profit margin	17.0%	10.1%	7.6%	13.9%	14.6%	15.2%	15.0%

Source: Shared Research based on company data
Note: FY12/17 was an irregular nine-month period due to a change in fiscal year-end. As a result, the company did not disclose YoY changes for FY12/17 and FY12/18.

In FY12/24, the final year of the medium-term plan, Sodick targets segment profit of JPY8.5bn and an OPM of 15.0%, which is below the 17.0% recorded in FY12/18 but approaching the 15.7% booked in FY12/17 (irregular nine-month period due to change in the fiscal year-end).

Profit margins in FY12/17 and FY02/18 improved on an increase of unit sales in the Chinese market due to government subsidy policies. The company does not factor in such special factors in FY12/24, but forecasts profitability recovering to a level close to that achieved in those periods. In the EDM business, demand for the company's mainstay high-end (high-precision) models is increasing, and the company believes that its products are gaining recognition in Europe and North America, where its presence has been smaller than in Greater China.
The company said it feels that it is having success in expanding its market share in those regions. It plans to take the following measures to achieve its FY12/24 targets.

Sales strategy

In the three-year period covered by the medium-term plan, Sodick plans to reinforce its sales organization in growth markets, particularly Greater China, and strengthen its high-margin after-sales services (mainly repairs, maintenance and consumables). Rather than merely selling equipment, the company looks to offer solutions to its customers by selling comprehensive services and promoting digitalization. As part of such efforts, it will also pursue digital marketing that utilizes digital transformation (DX). Moreover, the company will strive to strengthen sales of products other than EDMs such as machining centers and metal 3D printers.

Technology strategy

The company plans to further improve the performance and operability of its EDMs—its core product—and increase their appeal to customers. It also intends to enhance the performance of its metal 3D printers and make progress in the mass production of its precision machining centers. Further, it plans to promote the development of environmentally friendly products.

Production strategy

The company plans to continue to optimize its global production organization. It looks to improve production efficiency and strengthen quality control by promoting digital transformation at each of its plants.

Organizational and personnel strategy

The company plans to restructure its business divisions and manage operations as a new organizaion. It intends to concentrate on personnel education in fields such as development, product design, production technology, and machining technology.

Industrial Machinery

			FY12/18	FY12/19	FY12/20	FY12/21	FY12/22	FY12/23	FY12/24
(JPYmn)			Act.	Act.	Act.	Act.	Est.	Target	Target
Industrial Machinery
	Revenue		11,155	9,773	10,931	10,367	10,800	11,600	13,700
		YoY	-	-12.4%	11.8%	-5.2%	4.2%	7.4%	18.1%
	Segment profit		802	165	596	503	300	400	750
		YoY	-	-79.4%	261.2%	-15.6%	-40.4%	33.3%	87.5%
		Segment profit margin	7.2%	1.7%	5.5%	4.9%	2.8%	3.4%	5.5%

In FY12/24, Sodick targets segment profit of JPY750mn and an OPM of 5.5%. It forecasts revenue of JPY13.7bn. If achieved, this will mark the highest revenue in the company’s history.
The biggest objective for the Industrial Machinery segment is to increase sales by expanding local production through the operation of a new plant in Xiamen, China, starting in June 2022. The company expects a temporary decline in profitability as it brings the plant online, but plans further business expansion once operations stabilize. The company plans to take the following measures to achieve its FY12/24 targets.

Sales strategy

The company plans to promote sales of its electric injection molding machines, and expand sales of its vertical injection molding machines for automotive applications. By region, it plans to strengthen its sales organization in growth markets, particularly Greater China, while kicking off sales in the European market. The company will also strive sell environmentally friendly products through initiatives such as reducing energy consumption and improving the yield on raw materials.

Technology strategy

The company intends to further improve the performance and operability of its injection molding machines, and increase their appeal to customers. It also looks to strengthen support for new raw materials in its injection molding machines by, for example, offering models that support biodegradable plastics. The company also plans to promote automation using IoT technologies.

Production strategy

Production is scheduled to begin in mid-2022 at the company's new plant in Xiamen, China. The company aims to reduce costs by producing injection molding machines for the Chinese market at this plant. It also plans to focus on initiatives to rapidly achieve mass production of injection molding machines that support aluminum, and pare down production costs for electric injection molding machines.

Organizational and personnel strategy

In addition to reviewing its business management structure, the company intends to concentrate on personnel education in fields such as development, product design, production technology, and machining technology.

Food Machinery

			FY12/18	FY12/19	FY12/20	FY12/21	FY12/22	FY12/23	FY12/24
(JPYmn)			Act.	Act.	Act.	Act.	Est.	Target	Target
Food Machinery
	Revenue		6,560	6,283	3,585	6,884	8,200	9,200	10,000
		YoY	-	-4.2%	-42.9%	92.0%	19.1%	12.2%	8.7%
	Segment profit		674	625	65	830	950	1,000	1,100
		YoY	-	-7.3%	-89.6%	1,176.9%	14.5%	5.3%	10.0%
		Segment profit margin	10.3%	9.9%	1.8%	12.1%	11.6%	10.9%	11.0%

In FY12/24, Sodick targets segment profit of JPY1.1bn and an OPM of 11.0%. It forecasts revenue of JPY10.0bn. If achieved, this will mark a new record high.
Demand in the Food Machinery segment is affected by different factors than those that affect the Machine Tool and Industrial Machinery segments. The company expects the Food Machinery segment to cover downturns in the Machine Tool segment's demand cycle to a certain extent. To this end, the company plans on aggressive capex in the Food Machinery segment, which it expects to depress OPM for some time. The company plans to take the following measures to achieve its FY12/24 targets.

Sales strategy

In Food Machinery, the company plans to establish three pillars: noodle-making machines, sterile-packed cooked rice production systems, and prepared dish machines, and acquire new customers outside of the existing business domains. It looks to step up sales overseas through a sales company in Shanghai, China, specifically in Asia, where it sees large potential demand.

Technology strategy

The company intends to conduct R&D to support an expansion of its business domains, and focus on development of energy-efficient equipment and other areas.

Production strategy

The company will expand overseas production through its plant that manufactures noodle-making machines in Xiamen, China. The company plans to improve productivity by having its two plants in Japan and China specialize in different models.

Organizational and personnel strategy

The company plans to rapidly recruit personnel at the sales company in Shanghai, China, and increase personnel for after-sales services, for which it expects growing demand in the future. The company will also step up training, including improving the skills of its engineers.

Other

				FY12/18	FY12/19	FY12/20	FY12/21	FY12/22	FY12/23	FY12/24
(JPYmn)				Act.	Act.	Act.	Act.	Est.	Target	Target
Other