Ono Sokki 6858
小野測器
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2021-11-11
2021-10-27
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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 of JPY11.8bn in FY12/20).
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 test 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 (30.5% of total sales and an operating loss of JPY645mn before eliminations in FY12/20; the total operating loss was JPY548mn before eliminations), 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 FY12/20, sales declined and operating profit swung to a loss due to market investments being put on hold and companies taking a wait-and-see attitude amid the COVID-19 pandemic.
In Custom Order Test Equipment and Service (69.4% of total sales and an operating loss of JPY81mn before eliminations in FY12/20), the company manufactures test equipment based on customer specifications. Its measurement control systems use proprietary measuring equipment, and analysis equipment made by other companies. Profitability in this segment once fell 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 test systems and higher research expenses for new technologies using simulations. Earnings capability started to recover in FY12/18 on improvement of order environment and as a result of its focus on manufacturing within specified lead times, but operating profit declined in FY12/20 due in part to restrictions on sales activities during the COVID-19 pandemic.
Performance trends
In FY12/20, the company reported sales of JPY11.8bn (-9.2% YoY), an operating loss of JPY566mn (versus profit of JPY454mn in FY12/19), a recurring loss of JPY523mn (versus profit of JPY499mn), and a net loss attributable to owners of the parent of JPY576mn (versus net income of JPY357mn). The main reason for the operating loss was a substantial drop in sales and profit in the high-margin Measuring Equipment segment owing to R&D expenses rising amid a slump in orders triggered by the COVID-19 pandemic.
Ono Sokki revised down its FY12/21 earnings forecasts on July 26, 2021. The company now forecasts full-year sales of JPY10.0bn (-15.5%% YoY), operating losses of JPY900mn (versus losses of JPY566mn in FY12/20), recurring losses of JPY800mn (versus losses of JPY523mn), and net losses attributable to owners of the parent of JPY1.5bn (versus losses of JPY576mn). Factoring in the effects of pandemic-related restrictions on the company’s ability to capture orders and material shortages leading to delayed orders for custom-order test equipment, mainly for the automotive industry, management expects 1H earnings to fall short of its initial forecasts, resulting in the company recording operating losses for the half. In light of these conditions, and taking the current backlog of orders that will be booked as sales in FY12/21 and the outlook for new orders under the current constraints on the company’s ability to capture orders into account, management concluded that orders leading to sales are likely to fall well short of its initial expectations and accordingly revised its full-year forecast. The company left the forecast unchanged when it announced its Q3 FY12/21 results.
The three core strategies of Challenge STAGE I(the medium-term business plan for 2016–2018 whose main policy is to bolster the company’s brand power) were as follows: 1) Selective focus on the automotive, acoustics and vibration measurement businesses, which are the company’s areas of strength; 2) Strengthen trust-based relationships with customers by solving their problems; and 3) Strengthen product range centered on high value-added products. Although the company did not attain its FY12/18 KPIs, it has set the same targets for the next stage of the plan Challenge STAGE II as for STAGE I of JPY16bn in sales and JPY1.6bn in operating profit. Its basic policy for STAGE II is to provide one-stop solutions to become a collaborative partner needed by customers for the next 10 years. Six priority initiatives are to enter new markets, to expand sales in global markets, to develop new products and technologies by co-creating value, to promote the “experience” business by bolstering engineering capabilities, to foster employee engagement by productivity and working style reforms, and to strengthen alliances with other companies.
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 test 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.
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.
Note: Figures may differ from company data due to differences in rounding methods.
Q3 FY12/21 results (out October 27, 2021)
Results for cumulative Q3 FY12/21 (January–September 2021)
Operating environment and order trends: The business environment remained severe, with the state of emergency imposed due to the COVID-19 pandemic at the beginning of the year continuing through almost the entire period. Although there have been signs of a pickup in areas such as housing construction and corporate earnings and capital investment, the domestic economic outlook remains uncertain, in light of personal consumption remaining sluggish, and a global shortage of semiconductor components. In terms of orders received in cumulative Q3 FY12/21, orders in the Measuring Equipment segment were JPY2.9bn (+8.9% YoY), and orders in the Custom Order Test Equipment and Service segment were JPY5.3bn (+10.6% YoY). Overall, orders were up 10.0%, or up JPY751mn, YoY.
Sales: Cumulative Q3 FY12/21 sales of JPY7.1bn were down 20.4% YoY. Sales in the Custom Order Test Equipment and Service segment continued to show substantial YoY decline.
Gross profit margin: Gross profit margin increased 1.8pp YoY, driven by efforts to automate and reduce labor involved in production.
SG&A expenses: SG&A expenses declined JPY441mn YoY due to a decline in R&D expenses reflecting the completion of new product development and company-wide efforts to control spending.
Operating profit: There was a significant impact from the decline in sales, and the company recorded an operating loss of JPY877mn (loss of JPY696mn in cumulative Q3 FY12/20).
Results by segment
Measuring Equipment segment
Results for cumulative Q3 FY12/21 (January–September 2021)
New products related to the data processing field launched sequentially from the end of 2020 performed well. Orders for products used in production lines such as in the rotational speed field and dimensional displacement field grew YoY. Orders were also strong for sensors used for sound and vibration measurement. As a result, both total orders received and sales rose YoY. The segment did not record high enough sales to post a segment profit, despite a decline in testing and research spending as new product development slowed along with benefits of an increased focus on cost control.
Custom Order Test Equipment and Service segment
Results for cumulative Q3 FY12/21 (January–September 2021)
While some customers in the automobile industry, a major customer base of this segment, placed orders ahead of schedule due to an unstable supply of parts and materials including semiconductors, the industry as a whole maintained a cautious stance amid uncertainties going forward. Sales decreased by 31.8% YoY due to a substantial decline in the order backlog from the start of the year to JPY3.3bn (-36.5% YoY). The segment posted a loss of JPY572mn, due largely to the decline in sales.
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 cumulative Q3 FY12/21 (January–September 2021)
Company forecast for FY12/21
Note: Figures may differ from company data due to differences in rounding methods.
Consolidated full-year FY12/21 earnings forecast
*Net income/loss attributable to owners of the parent
Background to earnings forecast
The company revised down its initial earnings forecasts on July 26, 2021. Despite a recovery in demand in some areas were seen in 1H FY12/21 (January-June 2021), the company lowered its earnings forecasts for 1H FY12/21 to factor in the effect of curbs on its ability to capture orders due to the spread of COVID-19, and in particular the delayed recovery in custom-order test equipment orders. The company believes that this delayed recovery was due to a larger-than-expected number of customers taking a more cautious stance on capital investment, partly due to supply shortages in semiconductors and materials.
The company lowered its full-year FY12/21 sales forecast by JPY2.0bn and now expects losses at each profit line. In particular, management looked at the current backlog of orders that will be booked as sales in FY12/21 and the outlook for new orders under the current constraints on the company’s ability to capture orders, and revised its full-year forecasts based on the conclusion that orders leading to sales are likely to fall well short of initial expectations. The company intends to focus on capturing new orders, strengthen sales activities, increase operational efficiency, and cut costs.
The company left its forecast unchanged when it announced its Q3 FY12/21 results (October 27, 2021).
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.
Outlook
Long-term target KPIs
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.
Medium-term plan Challenge STAGE II (as of January 29, 2019 announcement)
Following the first phase of its medium-term plan covering 2016 to 2018 announced in March 2016, Ono Sokki unveiled the second phase of the plan covering 2019 to 2021 on January 29, 2019. According to the company, it recognized that its main challenge is to recover profitability, citing a fall in OPM in FY12/15 (to 3.5%, down 5.2pp from 8.7% in FY12/14). For this initial phase of the plan, the company aims to strengthen its earnings base. In the second phase, the company reaffirms that its business is in a transitional phase and prioritizes making its long-term vision a reality. Accordingly, the basic policy of the second phase is “provide one-stop solutions to become a collaborative partner needed by customers for the next 10 years.”
Targets
Attainment rates for targets in the final year (FY12/18) of Challenge STAGE I were sales 90.3%, operating profit 60.2%, OPM 66.7%, ROE 59.0%, and overseas sales ratio 63.6%. The company set the same targets in Challenge STAGE II as for STAGE I (sales of JPY16bn, +10.8% from FY12/18; operating profit of JPY1.6bn, +66.3% from FY12/18; ROE of 8% versus 4.7% in FY12/18, and overseas sales ratio of 25% versus 15.9% in Y12/18, continuing with its original challenge.
Strategies to bolster brand power
The basic policy of the second phase is “provide one-stop solutions to become a collaborative partner needed by customers for the next 10 years.” The four main strategies are entering new markets, developing new technologies, exploring the “experience” business, and fostering an organization capable of taking on challenges.
Entering new markets entails strengthening marketing capability and pioneering new markets by supplying problem-solving type applications based on the company’s technological resources. It also requires creating a competitive edge for its brand by improving engineering skills to cultivate new needs. Developing new technologies is about integrating the latest technologies brought in from outside with its own technologies to centralize development resources for creating one-of-a-kind technologies, products, and services. Exploring the “experience” business means establishing such a business by engineering measurement, analysis, problem-solving, and bench operations, and forming a structure that enables feeding back market information thus obtained to product development. An organization that takes on challenges is one whose employees boldly embrace management challenges and lift the performance of the organization as a whole by timely use and sharing of information.
Key initiatives
The company has identified six key initiatives to turn the four main strategies of its basic policy into action. It plans to develop concrete action plans from these key initiatives.
Pioneer promising new markets for existing technologies in addition to current core businesses acoustics and vibration measurement and automobile testing with products that leverage new technologies
On top of domestic sales, expand sales in markets with strong growth potential (mainly in Asia), making progress with building local support structures and HR initiatives such as recruitment and training.
The company aims to move away from the pursuit of functional value toward creating new value with customers. It plans to devise a way to commercialize products and services that facilitates a smooth cycle of transition from goods (products) to experiences (services) and back to goods, i.e., a change from providing products to providing services
Promote productivity reforms by improving efficiency of, and automating business processes, implementing working style reforms, and enhancing employee engagement by inspiring employees to produce free and proactive ideas to lift the performance of the organization as a whole.
Utilize knowledge and resources outside the company
Overseas strategies
In the second phase of the company’s medium-term plan Challenge STAGE II, the overseas sales ratio is set at 25%, the same as in Challenge STAGE I.
To expand global operations, Ono Sokki established subsidiaries in the US, Thailand, India, and China. The overseas sales ratio peaked at 25.3% in FY12/14, dropping to 11.7% in FY12/16 due to slowing growth in Asian markets. In FY12/18, the overseas sales ratio had recovered to 15.9%, with 12.4% of overall sales from Asia, 2.8% from North America, and 0.6% from Europe.
Until now, Ono Sokki has mainly provided maintenance of systems for Japanese companies with overseas operations. In FY12/15, however, it increased sales staff in charge of measuring equipment specialists in China, Thailand, and India, to offer sales support to customers overseas. The company plans to continue reinforcing overseas sales of measuring equipment through the following four strategies:
Technological alliance with Quint Corporation
One of the core strategies under the company’s medium-term business plan calls for moving into the experiencebusiness. Toward this end, in December 2019 the company entered into a technological alliance with Quint Corporation, setting four specific goals for the alliance, as detailed below. According to Ono Sokki, since forming the alliance the two companies have already been working together to bring in new orders, combining testing and simulations with the technologies of both companies to create dynamic presentations that have promoted agreater understanding on the part of customers and have been generally well received.
Combine Ono Sokki’s expertise in testing technologies with Quint’s expertise in structural optimization technology to provide solutions that will reduce the heretofore time-consuming task of creating models.
Provide technical consulting services to support companies needing testing technical expertise for resolving noise and vibration problems, technical support for conducting tests aimed at creating CAE analytical models and improving the model’s precision, and technical support for structural optimization work.
Provide outsourcing service to handle testing and analytical work for client companies looking to solve noise and vibration problems.
Develop new products that will help companies with their manufacturing processes, based on joint market research and the experience and technical expertise gained by both companies in the course of their joint consulting service and outsourcing service.
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 FY12/20, 66.7% of its sales came from the automotive sector, 14.1% from the machinery and shipbuilding sector, 5.5% from the electronics sector, 3.3% from the oil and energy sector, 2.5% from the government and academic sector, 1.1% from the steel and metals sector, and 6.8% from other sectors.
Segments: The Measuring Equipment segment and the Custom Order Test Equipment and Service segment. More than half of its sales come from the latter, but Measuring Equipment contributes most to consolidated operating profit.
Note: The company withdrew from the electronic industrial automation equipment business in January 2009.
Note: The company withdrew from the electronic industrial automation equipment business in January 2009.
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 2%, compared to Japanese automakers’ capex CAGR of 15% and R&D expenditure CAGR of 7% over the same period. We believe 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 contracted 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 test 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, expansion based on this unique business model is its strength.
Performance by segment
Sales and operating profit of Measuring Equipment have been improving since FY12/10, when the current segments were established. Although sales have been recovering in Custom Order Test Equipment and Service, profits have declined due to higher post-production costs: the increasing complexity of systems lead to projects that require more 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 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, and has started to pay 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. Ono Sokki aims to provide high-precision and reliable measuring equipment to manufacturers, particularly automakers.
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, 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.