Ono Sokki 6858
小野測器
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Summary
Ono Sokki manufactures digital measuring equipment (displaying data obtained by measuring weight and thicknesses, rpms and speed, etc.). It has focused on digital technologies since its establishment, and is particularly strong in digital signal processing and digital control technology.
Electronic Equipment, Instruments & Components
Key dates
2016-06-29
Coverage initiation
Executive Summary
Overview of operations
Ono Sokki manufactures measuring equipment, with strengths in digital signal processing and digital control technologies. It primarily supplies the manufacturing sector with measuring equipment used in research and development, production, and quality inspection. Ono Sokki’s principal customers are in the automotive sector (over 60% of total sales).
The company has two main business segments. In the Measuring Equipment segment, the company sells equipment it has designed for general use. In the Custom Order Test Equipment and Service segment, the company designs and manufactures custom-order testing equipment tailored to customers’ specific R&D needs. The company’s business model involves identifying cutting-edge market needs based on the requests of customers in Custom Order Test Equipment and Service, and then applying the knowledge gained to the development of new products and product upgrades in Measuring Equipment. Ono Sokki maintains a core policy of retaining intellectual property rights of results of R&D requested by customers. According to Ono Sokki, expansion based on this unique business model is its strength.
In Measuring Equipment (38.2% of total sales and operating loss of JPY309mn before eliminations in FY12/21), the company’s core products include sound and vibration measuring equipment, such as fast Fourier transform (FFT, a data analysis method) analyzers. Ono Sokki estimates it holds about 40% of the domestic FFT analyzers market (based on FY12/17 sales), making it one of the market leaders. According to the company, the domestic market for FFT analyzers is mature and some participants have exited the market as substantial knowledge and expertise is needed to provide technological support, such as instructions after the sale regarding usage and measurement principles. Ono Sokki has enjoyed benefits from staying in the market of FFT analyzers, and its support capabilities have allowed it to capture market share and maintain steady earnings.
In Custom Order Test Equipment and Service (61.7% of total sales and operating loss of JPY549mn before eliminations in FY12/21), the company manufactures testing equipment based on customer specifications. Its measurement control systems use proprietary measuring equipment, and analysis equipment made by other companies. Profitability in this segment has declined since FY12/12 (OPM: 15.1%), because of an increase in projects that require many processes and longer delivery times stemming from more advanced and complicated automotive testing systems and higher research expenses for new technologies using simulations.
Performance trends
In FY12/21, the company reported sales of JPY9.9bn (-16.8% YoY), operating loss of JPY859mn (versus loss of JPY566mn in FY12/20), recurring loss of JPY685mn (versus loss of JPY523mn), and net loss attributable to owners of the parent of JPY1.3bn (versus net loss of JPY576mn). The main reason for the lower sales and operating loss was a substantial drop in order backlogs from FY12/20, compounded by the impact of the COVID-19 pandemic on orders.
For FY12/22, Ono Sokki forecasts full-year sales of JPY12.0bn (+21.8% YoY), operating profit of JPY300mn (versus loss of JPY859mn in FY12/21), recurring profit of JPY350mn (versus loss of JPY685mn), and net income attributable to owners of the parent of JPY2.4bn (versus net loss of JPY1.3bn). The company expects its business environment to change substantially in FY12/22 due to progress in the transformation of the auto industry, its key customer base, represented by the shift to Connected, Autonomous, Share/service, and Electric (CASE) vehicles and Mobility as a Service (MaaS). The company intends to deepen its technological ties with customers to lead to new product development and pioneer new markets with the use of online trade shows and webinars.
On January 28, 2022, Ono Sokki unveiled its new medium-term management plan dubbed Challenge Stage III (2022–2024). In the previous medium-term plan, Challenge Stage II (2019–2021), final year targets were not met due to the spread of COVID-19 from spring 2020. In light of this, in the new medium-term plan the company has set as its basic strategy "Business revitalization: Reborn" aimed at recovery from the impact of the COVID-19 pandemic. The three themes of activity under the new plan are 1) strategic growth: realize growth through environmental conservation and resolution of social issues; 2) earnings expansion: expand earnings by strengthening overseas operations, primarily in Asia; and 3) structural reform: transform through the promotion of digitalization and open innovation. To this end, the company plans capital expenditures of some JPY400mn per year, backed by cash flows from operating activities. Further, it intends to expand initiatives aimed at sustainable development, such as those related to environmental conservation and human rights protection.
Strengths and weaknesses
We see Ono Sokki’s strengths as leveraging leading-edge technologies cultivated in Custom Order Test Equipment and Service to generate profits in Measuring Equipment; being one of the few remaining players in the FFT analyzer business after other companies left the market; and offering customer support including consulting services. Weaknesses: low price competitiveness of custom-order testing equipment due to the high percentage of equipment made by other companies; weak overseas development despite a shrinking domestic market; and the inability to conduct proposal-based sales for Custom Order Test Equipment and Service.
Key financial data
Note: Figures may differ from company data due to differences in rounding methods.
Note: Figures may differ from company data due to differences in rounding methods.
Recent updates
Warrant issue approved for use in stock option awards program for senior management
On March 18, 2022, Ono Sokki Co., Ltd. announced that will be issuing warrants to be used under its stock option awards program for senior management, as detailed below.
At a meeting of the company's board of directors on March 18, 2022, the board approved the issuance of warrants to be used in the company's stock option awards program for company directors and executive officers, in accordance with Articles 236, 238, and 240 of the Company Act.
According to the company, the purpose of its stock option awards program is to tie the compensation of its senior management team close to its stock price so as to further motivate management to work towards growing earnings and increasing the company's corporate value, and identify with its investors. The board of directors approved the issuance of a total 883 warrants, 753 of which will be allocated among five of the company's directors and 130 of which will be allocated among its ten executive officers. Each warrant represents the right to buy 100 shares of the company's common stock and has an exercise period from April 28, 2022 through April 27, 2052. (See company press release for further details.)
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company data due to differences in rounding methods.
Note: Ono Sokki’s sales and profits tend to increase in the first quarter, as its principal customers, automakers, end their fiscal years in March.
Q1 FY12/22 results (out April 26, 2022)
Results for Q1 FY12/22 (January–March 2022)
Operating environment and order trends: In Q1 FY12/22 the Japanese economy faced an ever more uncertain outlook, owing to the quasi-state of emergency imposed due to a renewed surge in COVID-19 infections, Russia's invasion of Ukraine, and the imposition of economic sanctions on Russia by many governments. The sense of unease over the outlook was further exacerbated by the ongoing global shortage of semiconductors and other components, as well as sharply higher input costs and energy prices. In terms of orders received in Q1 FY12/22, orders in the Measuring Equipment segment were JPY1.0bn (-5.9% YoY), and orders in the Custom Order Test Equipment and Service segment were JPY1.5bn (+11.5% YoY). Overall, orders were up 3.6% at JPY2.5bn.
Sales: Q1 FY12/22 sales of JPY3.4bn were up 25.9% YoY, as the company worked through the large order backlog that formed in FY12/21.
Gross profit margin: Gross profit margin increased 1.4pp YoY because of the productivity-enhancement measure that the company has been maintaining since FY12/21.
SG&A expenses: SG&A expenses fell JPY13mn YoY. Depreciation expenses fell while company-wide cost-control efforts
progressed, even as product R&D expenses rose.
Operating profit: Operating profit was about 12x the amount for FY12/21. Sales bounced back and the earnings structure improved thanks to cost-reduction efforts that the company has been pursuing since FY12/21.
Results by segment
Measuring Equipment segment
Results for Q1 FY12/22 were as follows.
In Q1 FY12/22, sales were solid for products used in production lines, such as in the rotational speed field and dimensional displacement field, as well as for sensors used for sound and vibration measurement. This is partly due to an increase in order backlog to JPY821mn (+65.9% YoY) at the beginning of the period. However, orders fell 5.9% YoY because of a slowdown in the data processing field. The company believes that orders fell in reaction to the front-loading that took place in FY12/21, when customers placed orders ahead of schedule on concern about delivery delays related to shortages of semiconductors and other components.
The segment profit was 27.0x the amount for FY12/21. The company has been overhauling its cost structure since FY12/21, when it posted an operating loss, with the aim of lowering its break-even sales. The segment profit significantly improved in FY12/22 thanks in part to a sales turnaround on the back of a higher order backlog at the start of the period. The segment profit margin increased to 13.4% (+12.8pp YoY).
Custom Order Test Equipment and Service segment
Results for Q1 FY12/22 were as follows.
There remains an overall sense of uncertainty in the auto industry, the key customer base for this segment, regarding the future. Thus, customers continue to be cautious when it comes to capital investment. Even so, orders have been rising in this segment since the middle of FY12/21 in part because customers placed orders ahead of schedule expecting shortages of semiconductors and other components. For this reason, orders increased 11.5% YoY in Q1 FY12/22. Meanwhile, sales rose 34.7% YoY as the order backlog increased to JPY4.3bn (+32.6% YoY) at the start of the period. Performance was solid also in repairs, calibration, and other after-sales services, and in contracted testing and other engineering services, areas that are expected to drive steady earnings growth.
The segment profit showed a significant improvement, increasing 780.6% YoY. This is due to two factors. First, the company continued to reduce manufacturing costs by standardizing components without compromising quality. Second, many of the projects that generated sales in Q1 FY12/22 were highly profitable as these projects, such as those involving dynamometers, were profitable because they used fewer externally purchased items. The improvement in cost structure and sales mix led to an increase in the segment profit margin to 12.5% (+10.6pp YoY).
Other
The Other segment consists of property and casualty insurance agency business, management of properties owned by the company, and outsourced work from the company, which are not included as part of other reporting segments.
Results for Q1 FY12/22 were as follows.
Company forecast for FY12/22
Note: Figures may differ from company data due to differences in rounding methods.
Consolidated full-year FY12/22 earnings forecast (announced January 28, 2022)
When reporting Q1 FY12/22 results, the company made no change to its consolidated full-year FY12/22 earnings forecast.
Background to earnings forecast
Ono Sokki released its earnings forecast based on order backlogs in the Measuring Equipment segment (JPY821mn at end-FY12/21; +65.9% YoY) and the Custom Order Test Equipment and Service segment (JPY4.3bn at end-FY12/21; +32.6%) and on the post-pandemic economic outlook. As of Q1 FY12/22, the company and its customers were facing parts shortages and extending their delivery time in certain business areas. However, the company plans to respond to difficulties procuring connectors and other components by diversifying its suppliers.
The company expects its business environment to change substantially in FY12/22 due to progress in the transformation of the auto industry, its key customer base, represented by the shift to Connected, Autonomous, Share/service, and Electric (CASE) vehicles and Mobility as a Service (MaaS). The company has strength in the field of measuring, particularly the measuring and analysis of sound and vibration. The company won the 72nd Society of Automotive Engineers of Japan Award on April 25, 2022 for a paper entitled “Estimation Method of Knocking Sound and In-Cylinder Pressure from Engine Radiation Noise by Deep Learning (part1—part 3).” The company intends to deepen its technological ties with customers to lead to new product development and pioneer new markets with the use of online trade shows and webinars.
The company is likely to eliminate its FY12/21 operating loss and post an operating profit of JPY300mn. This is because the performance of the Measuring Equipment segment, whose products include high-value-added items, will recover as the company overhauls its cost structure, and because the amortization expenses related to Utsunomiya Technical & Product Center and the core information system will disappear.
Company forecasts versus results
Note: Figures may differ from company data due to differences in rounding methods.
Note: No initial forecast was announced for FY12/14.
Note: Initial estimates for FY12/21 are from the company forecast released at the time of Q3 results announcement.
Outlook
On January 28, 2022, Ono Sokki unveiled its new medium-term management plan, dubbed Challenge Stage III (2022–2024). In the previous medium-term management plan Challenge Stage II (2019–2021), final year targets were not met due to the spread of COVID-19 from spring 2020. In light of this, in the new medium-term plan the company has set as its basic strategy "Business revitalization: Reborn," aimed at recovery from the impact of the COVID-19 pandemic. The three themes of activity under the new plan are 1) strategic growth: realize growth through environmental conservation and resolution of social issues; 2) earnings expansion: expand earnings through strengthening overseas operations, primarily in Asia; and 3) structural reform: transform through the promotion of digitalization and open innovation. To realize these goals, the company plans capital investment of some JPY400mn per year, backed by cash flows from operating activities. Further, it intends to expand initiatives aimed at sustainable development, such as those related to environmental conservation and human rights protection.
Look back at Challenge Stage II
Ono Sokki aims for a structure that ensures profitability, regardless of operating conditions and, toward this end, established three long-term performance targets, as detailed below. At present, the company has made no changes to its medium-term business plan, including the numerical targets, for FY12/19 and beyond.
In Challenge Stage II, which ran from FY12/19 to FY12/21, the company planned to strongly promote the following six points as part of a period of transformation with a view to the future. The management targets for the final year of the plan (FY12/21) were consolidated sales of JPY16.0bn, operating profit of JPY1.6bn, ROE of 8.0%, and overseas sales ratio of 25.0%, but sales fell some JPY6.0bn short of the target, leading to operating loss. The overseas sales ratio reached just 14.4%.
Medium-term plan Challenge Stage III (announced January 28, 2019)
In Challenge Stage III, Ono Sokki has laid out an objective of revitalizing business to recover from the significant impact of the COVID-19 pandemic. In Challenge Stage II, it reaffirmed that its business was in a transitional phase and prioritized making its long-term vision a reality. However, with the spread of COVID-19 from spring 2020, the company was unable to expand its sales in the global market, an effort which it had considered a priority. In addition, supply chain disruption in the auto industry, its key customer base, and restrictions on domestic sales activities under the Japanese government's state of emergency declarations contributed to its failure to meet its business goals. While the pandemic was a factor in its failure to meet targets, Ono Sokki also strongly recognizes its shortcomings in responding to changes in the business environment. It therefore decided to focus on revitalizing its compromised business as the basic direction of its new medium-term management plan.
Targets
Management targets for the final year of the Challenge Stage II, the company's previous medium-term management plan, were sales of JPY16.0bn (+10.8% versus FY12/18), operating profit of JPY1.6bn (+66.3% versus FY12/18), ROE of 8% (versus 4.7% in FY12/18), and overseas sales ratio of 25% (versus 15.9% in FY12/18). In the end, however, the company reported FY12/21 sales of JPY9.9bn (-16.8% YoY), operating loss of JPY859mn (versus loss of JPY566mn in FY12/20), ROE of -9.6%, and overseas sales ratio of 11.5%. Ono Sokki has positioned its Challenge Stage III as a period of business revitalization and for the final year (FY12/24) is targeting sales of JPY14.0bn (+42.1% versus FY12/21), operating profit of JPY1.0bn (versus loss in FY12/21), ROE of 5% or more (versus -9.6% in FY12/21), and overseas sales ratio of 27.0% (versus 11.5% in FY12/21).
Strategies to bolster brand power
Ono Sokki has set "Business revitalization: Reborn" as its basic strategy for the third phase. It has proposed three themes of activity under the new plan: 1) strategic growth: realize growth through environmental conservation and resolution of social issues; 2) earnings expansion: expand earnings by strengthening overseas operations, primarily in Asia; and 3) structural reform: transform through the promotion of digitalization and open innovation.
In deciding the basic strategy for its medium-term plan, the company noted that the COVID-19 pandemic had made it apparent that there was some disparity between its own business and general social trends. It therefore set a basic policy of business revitalization with the intention of rebuilding its operations.
Themes of activity
To carry out its basic strategy, the company has proposed three themes of activity. It plans to develop concrete action plans from these themes.
With the aim of co-creating value together with its customers, Ono Sokki will deepen cooperation with a range of external parties and develop and release new products and services based on new technologies. In addition, it will secure earnings from services by engineering measurement, analysis, problem-solving, and bench operations, and forming a structure that enables feeding back market information thus obtained to product development.
The company will further strengthen its coordination with overseas subsidiaries, expand sales channels by market, and launch products to increase sales in the global market. In addition, it will further develop its digitalization efforts, such as the online trade shows and webinars that have become more common during the pandemic, and apply such efforts to the marketing field to develop new markets.
All of the company's employees will promote measures to bring new "challenges" to the company. Ono Sokki will also work to develop human resources, aiming to increase employee engagement, and will accelerate reform through digitalization and collaboration with external parties.
Capital investment
Since the company has positioned Challenge Stage III as a period of business revitalization, the scale of capital investment will be based on cash flows from operating activities, with a focus on equipment and facilities to carry out the aforementioned activities. It currently projects investment of roughly JPY400mn per year.
The company has acquired a business site (of roughly 4,500sqm) in Toyota, Aichi Prefecture, and was formulating a construction plan with the goal of starting operation of a new factory in the Chubu region in 2022 (announced on September 10, 2020). However, it now says it has put this plan on hold in light of the current business environment and rising construction costs. It will make a decision as to whether to move ahead with the plan based on projections of future conditions.
Sustainability initiatives
Ono Sokki recognizes that global environmental issues such as climate change, along with human rights issues such as respect for diversity and consideration of health and fairness, are common social issues. For this reason, in Challenge Stage III, the company has positioned environmental conservation and resolution of social issues as essential to its growth and will keep these issues in mind as it pursues its business.
Business
Ono Sokki manufactures digital measuring equipment (displaying data obtained by measuring weight and thicknesses, rpms and speed, etc.). It has focused on digital technologies since its establishment, and is particularly strong in digital signal processing and digital control technology.
The company primarily sells digital measuring equipment used in R&D, production, and quality inspection to manufacturers. In FY12/21, 61.9% of its sales came from the automotive sector, 14.4% from the machinery and shipbuilding sector, 7.4% from the electronics sector, 3.6% from the oil and energy sector, 3.6% from the government and academic sector, 1.1% from the steel and metals sector, and 8.0% from other sectors.
Segments: The Measuring Equipment segment and the Custom Order Test Equipment and Service segment. Roughly 60% of its sales come from the latter, but Measuring Equipment contributes most to consolidated operating profit.
Performance linked to Japanese automakers’ capital and R&D expenditures
The company’s sales tend to be driven by the capital and R&D expenditures of Japanese automakers—its main customers. Yet Ono Sokki’s sales CAGR since CY2010 has been outpaced by Japanese automakers’ capex and R&D expenditure CAGRs over the same period. Shared Research thinks this reflects Japanese automakers broadening their research to include electric vehicles and fuel cell vehicles, and boosting investment in areas such as batteries and automated driving.
Note: Totals for only the automobile and motorcycle divisions of Toyota Motor, Honda Motor and Nissan Motor
Ono Sokki’s performance is susceptible to economic fluctuations, which affect Japanese automakers’ capital and R&D expenditures. The company’s highest operating profit was JPY2.6bn in FY2006 (Ono Sokki’s FY12/06–FY12/07), which coincided with a peak in capex by the three leading Japanese automakers. However, Ono Sokki booked losses in the late 1990s, around the time of the Asian financial crisis, during the global financial crisis of the late 2000s, and again in FY12/20 when the economy began contracting amid the global COVID-19 pandemic.
Five core technologies
Since its 1954 success in developing a tachometer for jet engines, Ono Sokki expanded its product lineup to include vibration and sound measuring equipment, software, and testing systems. The following table describes the company’s five core technology areas. The company is particularly strong in digital signal processing and digital control technologies.
Business model
Using segment synergies to create new technologies
In the Measuring Equipment segment, the company designs and commercializes products. In the Custom Order Test Equipment and Service segment, it designs and manufactures testing equipment and services tailored to customers’ individual needs.
Ono Sokki identifies cutting-edge market demand based on customer requests in Custom Order Test Equipment and Service, and applies this to product upgrades in the Measuring Equipment segment. The company has the basic policy of retaining intellectual property rights over results from the R&D requested by customers. According to Ono Sokki, this business model allows it to quickly develop products meeting customer needs, which is one of its strengths.
Performance by segment
Sales and operating profit of Measuring Equipment have been improving since FY12/10, when the current segments were established, with the exception of FY12/20, when the COVID-19 pandemic had a substantial negative impact. Although sales have been recovering in Custom Order Test Equipment and Service, the profit situation has deteriorated due to higher post-production costs, since the increasing complexity of systems for which the company receives orders leads to more man-hours and longer delivery periods. Ono Sokki has been focused on boosting sales by winning new orders and improving CoGS by clarifying specifications when orders are received and implementing more stringent internal quality, cost, and delivery (QCD) plans. Further, to win new orders, the company has prioritized proposal-based sales that leverage its new testing laboratory in Utsunomiya, which began operations in April 2015, while also paying more attention to relationships with customers and stability of earnings from projects.
Note: The company withdrew from the electronic industrial automation equipment business in January 2009.
Measuring Equipment segment
In Measuring Equipment, the company manufactures equipment to measure sound and vibration; fuel consumption and vehicle speed; rpms and speed; and torque. The Japan Electric Measuring Instruments Manufacturers’ Association defines electrical measuring instruments as essential tools for research, development, design, and manufacturing in the industrial sector. The main objective of this business is to provide high-precision and reliable measuring equipment to customers involved in manufacturing, mainly in automobile-related industries.
In Measuring Equipment, Ono Sokki mainly manufactures made-for-stock products to measure rotation of objects such as motors, and the sound and vibration coming from them. It develops its own new technology based on customer requests received in Custom Order Test Equipment and Services, and in this segment standardizes the technology to enable use by other companies. Ono Sokki also uses the technology in its new products or product upgrades.
For products the company has in stock, delivery lead times range from one to two weeks after the order is placed. For products requiring assembly, such as those assembled in combination with PCs, delivery lead time is between two and four weeks.
Measuring equipment prices vary, from approximately JPY10,000 to JPY5mn. With regard to FFT analyzers, one of Ono Sokki's specialties, the company launched a new product in FY12/20, and the systems sell for JPY1.5mn–JPY3.0mn depending on the number of channels.
Sound and vibration measuring equipment accounted for about half of Measuring Equipment sales. The rest came from equipment to measure automotive performance, rpm and speed, dimension and displacement, and torque.
Sound and vibration measuring equipment
Sound and vibration measuring equipment are key products. The company’s product lineup ranges from noise and vibration sensors and microphones, to instruments (FFT analyzers) to analyze the obtained data, as well as secondary processing software. Ono Sokki has developed proprietary FFT analyzers for more than 40 years.
Sound and vibration measuring equipment can be used to analyze noise and vibration from automobile engines and transmissions. It is also used for measuring noise inside and around factories, soundproofing, and reducing noises of home appliances (such as vacuum cleaners and washing machines), air conditioning, and office automation equipment.
Ono Sokki explains that demand from end users for noise reduction has increased in line with the commercialization of electric vehicles and other green vehicles, and the increase in vehicles with engines that automatically shut off when idling. According to the company, even as automakers work to create more lightweight cars, demand is increasing for car doors that make a solid noise when closed, so Ono Sokki anticipates higher sales from meeting demand for improving the sound quality.
The company has a specialized support team that offers consulting services to solve customers’ sound and vibration problems, differentiating it from other companies. In FY12/15, Ono Sokki began strengthening its ability to support existing customers and measures to attract new ones.
Ono Sokki estimates it holds about 40% (based on FY12/16 sales) of the FFT analyzers market, making it one of the domestic market leaders. According to the company, the domestic market for FFT analyzers is mature and some participants have exited the market as substantial knowledge and expertise is needed to provide technological support, such as instructions after the sale on usage and measuring principles. Ono Sokki’s excellent support capabilities have allowed it to capture market share. While FFT analyzers provide real-time measurement on the spot, the company has developed its own software for secondary processing (which analyzes measured data in detail), and synergies between these technologies have allowed it to enjoy stable earnings. In FY12/20, the company launched a new product with a higher number of channels.