Provides Auto-ID Solutions to help gather data on people and things at the site of business operations such as production, logistics, and retail. Mainstay products are mechatronics products, including label printers, reader equipment, maintenance services, and software, as well as consumables, including variable data labels and RFID tags.
Commercial Services & Supplies
Executive summary
SATO Holdings Corporation primarily develops, manufactures, and sells mechatronics products, including label printers, handheld labelers, reader equipment, maintenance services, and software, and consumables, including variable data labels (allowing printing of barcodes, serial numbers, or other data that varies from label to label), primary labels (product labels and packaging labels that typically involve printing the same data in large quantities), RFID tags, printer ribbons, and MC cards. Its customer base is broad, including the manufacturing, logistics, retail, healthcare, food & beverage, and public markets. Mechatronics products account for about 40% of total sales, and consumables for about 60%. The company is distinctive for having higher gross margins on sales of mechatronics than on sales of consumables.
Shared Research estimates SATO’s share of Japan’s barcode printer market is fairly high, around 40%. Having direct connections with some 40,000 customers, the company has a system that allows it to respond rapidly to changes in customer needs. Customers choose to use the company’s products, as they produce labels in a timely fashion on production, logistics, and sales sites, with relatively little effort on the part of the customer. They also appreciate that the company’s devices rarely have trouble, after-sales service is thorough, and the company is ready to propose new solutions suited to the characteristics of individual customer sites. Meanwhile, Shared Research estimates that SATO’s share of the overseas market is only a few percent and its shift in overseas strategy is proceeding rather slowly. There seems to be ample room for the company to expand overseas sales by leveraging the expertise and services it has cultivated in Japan.
In recent years, M&A has also served as a growth driver. Companies SATO has acquired or invested in include an Asian printer manufacturer with competitive pricing capabilities, South American and Russian primary labels manufacturers, and a company in Oceania with strengths in advanced RFID reader and RFID tag tracking technology.
Trends and outlook
SATO reported FY03/22 sales of JPY124.8bn (+14.4% YoY), operating profit of JPY6.4bn (+9.5% YoY), recurring profit of JPY6.1bn (+9.7% YoY), and net income attributable to owners of the parent of JPY3.8bn (-70.7% YoY). Backed by record-high earnings in the Auto-ID Solutions (Overseas) segment, consolidated sales reached a new high for the first time in two years. However, OPM dipped 0.3pp YoY to 5.1% as the company was unable to completely offset the effects from higher costs, including higher material prices. Net income declined sharply on the dropping out of extraordinary gains booked in FY03/21 on the sale of the old headquarters building. In line with its prior forecast, the company indicated an annual dividend of JPY70.0 per share.
In light of changes in the external environment, the company in May 2021 announced a new three-year medium-term business plan starting from FY03/22. FY03/23 will be the second year in the plan.
SATO targets FY03/23 sales of JPY119.0bn (-4.6% YoY), operating profit of JPY8.0bn (+24.9% YoY), recurring profit of JPY7.8bn (+28.8% YoY), net income attributable to owners of the parent of JPY3.4bn (-10.4% YoY), and EPS of JPY101.1. In addition to overseas growth in the auto-ID solutions business, the company looks for a recovery in earnings in Japan as the effects from price pass-throughs come into play. The company targets operating profit of JPY8.0bn, which would represent the first record high in four years. Management has excluded its business in Russia from its forecast in light of the current situation in Ukraine, but still expects operating profit to reach a new record high. The company's annual dividend target is JPY72.0 per share.
In its medium-term plan, SATO targets for FY03/24 (the final year in the plan) sales of JPY126.0bn, operating profit of JPY11.2bn, and OPM of 8.9% (versus the FY03/23 forecast of 6.7%). It appears that one factor contributing to earnings will be that SATO will concentrate its business resources in the auto-ID solutions business following its withdrawal from the IDP business. The company also plans strategic investments focusing on the transition to common printer platforms and development of new IT infrastructure over the three years with a view to long-term growth, and targets an OPM of over 10% in FY03/26, when the benefits start flowing through in earnest.
Strengths and weaknesses
Shared Research believes the company’s strengths are 1) its ability to provide solutions based on a good knowledge of customers’ on-site needs, 2) the high proportion of sales coming from stable recurring-revenue businesses, and 3) its wealth of knowledge on on-site data collection. Weaknesses include 1) insufficient management of overseas operations, 2) low cost competitiveness, and 3) uncertain consumables profitability in overseas markets (see Strengths and weaknesses section for details).
Key financial data
Trends and outlook
Quarterly trends and results
Full-year FY03/22 results (out May 10, 2022)
Results summary
Full-year FY03/22 results were are follows.
EPS was JPY112.7. The company plans to pay a year-end dividend of JPY35.0 per share, bringing the expected annual dividend to JPY70.0 per share, unchanged from FY03/21. The dividend payout ratio, based on the company's forecast, is estimated at 62.1%, up from 18.1% in FY03/21.
Sales and profit improved YoY thanks to growth in the Auto-ID Solutions (Overseas) segment. Reaching a record high for the first time in two years, consolidated sales topped the JPY116.4bn level achieved in FY03/20. Sales and operating profit in the Auto-ID Solutions (Overseas) segment, which drove the overall expansion in sales, also reached record highs.
In the Auto-ID Solutions (Japan) segment, sales increased but profit declined due to higher transportation costs as well as an increase in R&D spending and DX-related investment as part of the company's effort to ensure future growth. OPM declined 0.3pp YoY to 5.1%, reflecting the fact that it will take some time before the company's efforts to counter rising costs, including soaring material prices, begin to bear fruit. Net income declined sharply on the dropping out of extraordinary gains booked in FY03/21 on the sale of the old headquarters building.
Q4 FY03/22 results summary
Q4 FY03/22 (January–March 2022) results were as follows
Sales on a YoY basis were up for a fifth consecutive quarter, while operating profit on the same basis was down for the third consecutive quarter.
Note: Shared Research intends to update this report after interviewing the company.
Auto-ID Solutions (Japan)
Note: The company changed its market classifications from FY03/22. Figures for FY03/20 and FY03/21 have been retrospectively adjusted.
Note: The company changed its market classifications from FY03/22. Figures for FY03/20 and FY03/21 have been retrospectively adjusted.
Auto-ID Solutions (Overseas)
Company forecast for FY03/23
Company forecast
The company's new FY03/23 earnings forecasts are as follows
SATO forecasts EPS of JPY101.0 and an annual dividend of JPY72.0 per share (the forecast for FY03/22 is JPY70.0 per share). Based on the company's forecast, the expected dividend payout ratio is 71.3% (62.1% in FY03/22).
In light of the current situation in Ukraine, the company is excluding its Russian business from its earnings forecasts. In FY03/21, the Russian business booked sales of about JPY7.3bn and operating profit of about JPY500mn. Based on the company's briefing materials, Shared Research estimates the Russian business reported sales of about JPY9.8bn and operating profit of about JPY1.1bn in FY03/22. Factoring in the exclusion of the Russian business, the company expects sales to decline YoY, but nevertheless forecasts operating profit reaching a new record high for the first time in four years (operating profit in FY03/19 was JPY7.7bn).
The company's forecast factors in expected growth in the auto-ID solutions business overseas (excluding the business in Russia), as well as a recovery in earnings in Japan. Management in particular expects a recovery in sales to the manufacturing industry to drive the recovery in earnings in Japan. The company forecasts OPM improving 1.6pp YoY to 6.7%. It forecasts a YoY decline in net income on the expected booking of extraordinary losses in line with pension plan revisions at the UK subsidiary.
Note: Shared Research intends to update this report after interviewing the company.
Historical performance versus company estimates
Note: Figures may differ from company materials due to differences in rounding methods.
Note: FY03/21 initial estimate was undetermined due to the COVID-19 outbreak so is shown as “-”.
Medium-term business plan