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
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.
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.
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%
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, 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%
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, 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.
Executive summary
Business overview
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.
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
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.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
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)
* 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)
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.
* 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
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
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
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
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
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
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
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
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, 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
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, 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