Kondotec 7438
コンドーテック
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2022-05-16
2022-04-08
2022-02-10
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Summary
It operates in three segments: 1) Industrial Materials (supplied to retailers of metal fittings), 2) Structural Steel Materials (supplied to structural steel processors), and 3) Electrical Equipment (supplied to electrical contractors and consumer electronics retailers).
Building Products
Key dates
2019-02-25
Coverage initiation
Executive summary
Business overview
Kondotec Inc. is a wholesaler of construction materials in the same league as companies such as Okabe Co., Ltd. (TSE1: 5959). It has been profitable (on a recurring profit basis) for 69 years since its establishment, and its growth has consistently outpaced domestic construction spending (fiscal years 2005–2020 CAGR: nominal construction spending 1.4% versus Kondotec 2.5%). The company operates in three segments: 1) Industrial Materials (supplied to hardware stores), 2) Structural Steel Materials (supplied to steel structure fabricators), and 3) Electrical Equipment (supplied to electrical work operators and electronic appliance stores). In addition to materials, screws, and other supplies for civil engineering and construction, Kondotec also supplies hardware for use in the cargo handling and shipping industries.
Manufacturing operations (including OEM production) generate some 40% of sales, with in-house production making up about 15%. The company operates both as a manufacturer and a trading company. It has a high market share for products it manufactures in house, such as turnbuckle braces (used for seismic bracing), shackles (used as connecting fittings), and scaffolding suspension chains. Kondotec hopes to gradually increase the ratio of its in-house products. By segment, Industrial Materials generate 63% of sales, Structural Steel Materials 23%, and Electrical Equipment 14%. OPM is highest in the Structural Steel Materials segment at 6.7%, followed by Industrial Materials at 5.9%, and Electrical Equipment at 3.1%, reflecting the ratio of in-house manufacturing and the company’s core competence (as of FY03/21).
The company supplies roughly 50,000 products (roughly 40,000 from the Industrial and Structural Steel Materials segments and roughly 10,000 from Electrical Equipment) to about 25,000 customers (Industrial Materials: about 15,000, Structural Steel Materials: about 5,000, Electrical Equipment: about 5,000). The Industrial Materials business supplies products to general contractors, overseas companies, and hardware stores. The Structural Steel Materials business sells products directly to end users, such as steel structure fabricators. The Electrical Equipment business supplies products to electronic appliance stores and individual electrical work operators. In addition to existing customers, the company has expanded channels to home improvement centers and further developed businesses for industries it has not yet explored, including selling to railway companies. It also established an E-commerce Group in July 2017 to develop online sales.
The company’s strategy is to continue to grow organically with existing segments and to enter new fields (inorganic growth). Its organic growth centers on 1) four growth strategies (cultivate new customers, provide new products, adopt flexible sales methods, and develop distribution channels), 2) response to natural disasters (sales of related products account for nearly 10% of parent sales), and 3) office network expansion. The company focuses on overseas expansion for inorganic growth, M&A deals (acquisitions and business/capital alliances) in particular, to accelerate both organic and inorganic growth.
Earnings trends
In FY03/22, sales amounted to JPY66.1bn (+11.0% YoY), while operating profit came to JPY3.6bn (+7.2% YoY), recurring profit JPY3.8bn (+10.3% YoY), and net income attributable to owners of the parent JPY2.3bn (+46.3% YoY). Meanwhile, EPS finished at JPY87.3. Despite record-high sales and profit growth, OPM declined 0.2pp YoY to 5.4% due to soaring material prices and limitations on the extent to which the company could reflect associated cost increases through its selling prices. The company plans to pay a year-end dividend of JPY16.0 per share, bringing its annual dividends to JPY32.0 per share (versus JPY31.0 per share in FY03/21). In accordance with its targets, the company projects a dividend payout ratio of 36.7% (versus 52.0% in FY03/21). If the company meets its targets, FY03/22 will be the 11th consecutive year in which the company successfully raised its dividends (accounting for impact from payments of commemorative dividends)
For FY03/23, the company projects sales of JPY70.0bn (+5.8% YoY), operating profit of JPY3.8bn (+6.0% YoY), recurring profit of JPY4.0bn (+4.2% YoY), and net income attributable to owners of the parent of JPY2.5bn (+8.1% YoY). It forecasts EPS of JPY96.1. The company anticipates record-high sales for the second consecutive year due primarily to demand recovery in the construction market and upward impact from the conversion of Kuriyama Aluminum into a consolidated subsidiary. However, it projects that OPM will remain generally level YoY. For FY03/23, the company expects to pay an annual dividend of JPY34.0 per share (versus planned JPY32.0 per share in FY03/22). It projects a dividend payout ratio of 35.4% (versus planned 36.7% in FY03/22). If the company's projections become reality, FY03/23 will be the 12th consecutive fiscal year in which the company successfully achieves an increase in dividends.
Accounting for factors such as impact from the COVID-19 pandemic and rising material prices, the company has revised performance targets of the medium-term management plan it previously announced on May 13, 2021. The company has announced a new medium-term management plan that ends with FY03/25 and removes FY03/22 (previously, the plan covered the three-year period spanning from FY03/22 through FY03/24). Under this plan, the company targets FY03/25 sales of JPY78.0bn (versus JPY66.1bn in FY03/22), operating profit of JPY4.4bn (versus JPY3.6bn in FY03/22), and an OPM of 5.6% (versus 5.4% in FY03/22). In terms of operating profit, the company revised its projection for FY03/23 upward while lowering its projection for FY03/24. Meanwhile, it expects sales to rise throughout the duration of the plan.
Strengths and weaknesses
Shared Research thinks Kondotec’s strengths are 1) manufacturing operations (in-house and OEM production) that account for a high percentage of total sales, at about 40%; 2) differentiation achieved through a well-stocked nationwide inventory facilitating small-lot/decentralized sales and through the development of a rapid-delivery system; and 3) its high-margin businesses based on the ability to supply a range of industries and business types through low-volume manufacturing of a large number of top niche products. Its weaknesses are 1) low growth potential due to poor R&D capabilities, 2) growth blunted by the decline or departure of customers, and 3) slowing growth reflecting limitations in a business model that is heavily dependent on inventory.
Key financial data
Note: Figures my differ from company materials due to differences in rounding methods.
Trends and outlook
Quarterly trends and results
Note: EBITDA = Pre-tax profit + interest paid + depreciation + goodwill amortization
Note: Figures may differ from company materials due to differences in rounding methods.
Note: EBITDA = Pre-tax profit + interest paid + depreciation + goodwill amortization, Segment EBITA = Segment profit + depreciation + goodwill amortization
Note: Figures may differ from company materials due to differences in rounding methods.
FY03/22 results (out May 13, 2022)
Full-year earnings summary
Full-year results (for 12 months from April 2021 to March 2022) were as follows.
*Net income attributable to owners of the parent
EPS was JPY87.3. The company plans to pay a year-end dividend of JPY16.0 per share, bringing its annual dividends to JPY32.0 per share (versus JPY31.0 per share in FY03/21). In accordance with its targets, the company anticipates a dividend payout ratio of 36.7% (versus 52.0% in FY03/21). If the company's projections become reality, FY03/22 will be the 11th consecutive year in which the company successfully achieved an increase in dividends (accounting for impact from commemorative dividends).
Both sales and operating profit increased and exceeded previous projections. Sales reached a record high for the first time in two fiscal years due to an increase in consolidated subsidiaries and sales growth in the Structural Steel Materials segment. Meanwhile, OPM in the company's mainstay Industrial Materials segment fell 0.2pp YoY due primarily to limitations on the extent to which the company could reflect impact from rising material costs through its selling prices and an increase in miscellaneous costs associated with an increase in consolidated subsidiaries. Net income increased at a relatively high YoY rate compared to operating and recurring profit because the company did not incur impact from extraordinary loss (impairment loss) that it recorded in FY03/21.
Summary of Q4 (three months from January through March 2022)
Q4 results (for three months from January to March 2022) were as follows.
*Net income attributable to owners of the parent
Quarterly sales (for October–December) increased YoY for the fifth consecutive quarter, while operating profit rose YoY for the third consecutive quarter.
We plan to further update the report based on our upcoming interview with the company.
FY03/23 company forecast (announced on May 13, 2022)
Note: Figures may differ from company materials due to differences in rounding methods.
Summary of FY03/23 company forecast
The company has released a new earnings forecast for FY03/23. Its projections are included below.
The company projects EPS of JPY96.1. It expects to pay annual dividends of JPY34.0 per share, compared with planned JPY32.0 per share in FY03/22. In accordance with its targets, the company anticipates a dividend payout ratio of 35.4% (versus planned 36.7% in FY03/22). If the company's projections are actualized, FY03/23 will be the 12th consecutive fiscal year in which the company successfully achieves an increase in dividends.
We plan to further update the report following the interview with the company.
Cancellation of treasury stock (nearly 3% of total shares outstanding)
Kondotec has been acquiring and holding treasury stock to enable flexible capital measures in response to changes in the business environment, and has retired a portion of its treasury stock to increase shareholder profit through reduction in total shares outstanding. Details are shown below.
*The number of treasury shares after cancelation is rounded to the nearest thousand.
Ongoing share buybacks
On November 9, 2021, the company announced that it would conduct a share buyback. It will buy back a maximum of 1mn shares (3.81% of total shares outstanding, excluding treasury stock) at a maximum cost of JPY900mn. This buyback will take place from January 4 through October 31, 2022. As of April 30, 2022, the company had acquired 742,000 shares for JPY776mn (rounded to the nearest thousand shares and JPYmn).
Note: Figures may differ from company materials due to differences in rounding methods
Medium-term outlook
Medium-term plan
Note: Figures may differ from company materials due to differences in rounding methods.
Announcement of revisions to the company's medium-term management plan (May 13, 2022)
Based on earnings results in FY03/22, the company announced a reformulated medium-term management plan that adds FY03/25 to the company's previous medium-term management plan (which originally spanned from FY03/22 through FY03/24) released on May 13, 2021 and removes FY03/22.
The company indicated that it has made no major changes to the basic policies of its medium-term management plan. However, it revised performance targets for FY03/23 and FY03/24 in response to impact stemming from the conversion of Kuriyama Aluminium into a subsidiary (in October 2021), trends of the COVID-19 pandemic, and soaring material prices. Compared to its previous plan, the company has revised upward its projections for both sales and operating profit in FY03/23 (raising anticipated operating profit from JPY3.5bn to JPY3.8bn) and has increased its projection for sales in FY03/24 while reducing its forecast for operating profit (from JPY4.4bn to JPY4.2bn).
The forecasts for FY03/25 that have been newly added to the company's medium-term management plan project sales of JPY78.0bn, operating profit of JPY4.4bn, and an OPM of 5.6%. In FY03/22, the company generated sales of JPY66.1bn, operating profit of JPY3.6bn, and an OPM of 5.4%.
We plan to further update the following sections of the report based on our upcoming interview with the company. The following content was composed by Shared Research in May 2021. It will be retained for purposes of reference until information necessary for future updates becomes available.
Three-year Medium-term Management Plan (out May 13, 2021)
Factoring in the impact from the COVID-19 pandemic and the consolidation of Fukoku Co., Ltd., the company revised the earnings targets in the Medium-term Management plan it announced on August 6, 2020. The previous plan covered FY03/21–FY03/23, but the revised Medium-term Management Plan, covering the next three years, extends from FY03/22 to FY03/24. The company’s medium-term management plans are based on a rolling format, allowing management to respond to changes in the business environment and reflect the company’s review of issues and outcomes on a year-by-year basis.
Basic policy
Although it does not have a formal name, the company has announced a basic policy that is roughly equivalent to a long-term vision. Its stated basic policy is “aiming for sustainable growth and improvement in long-term corporate value while responding to changes in the business environment by strengthening the management base and promoting growth strategies through the appropriate allocation of funds.” The company targets sales of JPY100.0bn, ROE of 10% or more, and DOE of 2.5% or more in the 2020s (effectively by FY03/30).
Numerical targets in the Medium-term Management Plan
Following this basic policy, the company's Medium-term Management Plan for the next three years aims to maximize sales and profits while further enhancing shareholder returns though continued dividend increases.
FY03/24 targets
The company’s targets for FY03/24, the last year in the current plan, are as follows.
FY03/23 targets
The company also provided earnings targets for FY03/22, the first year in the plan, and FY03/23. For FY03/22 targets, please see the FY03/22 forecast section of this report. The new targets for FY03/23, which was the last year in the previous Medium-term Plan, are as follows.
*Net income attributable to owners of the parent
The previous Medium-term Management Plan targeted sales of JPY67.0bn, operating profit of JPY4.4bn, recurring profit of JPY4.4bn, and net income attributable to owners of the parent of JPY2.9bn. While making no change to the sale target, the new Medium-term Management Plan lowers the operating profit target by 18.6%, the recurring profit target by 16.3%, and the net income target by 13.3%. While the sales target has been maintained, the announced figure represents an effective downgrade, as it factors in an expected increase from the consolidation of Fukoku.
The company lowered its FY03/23 targets to reflect the impact from the COVID-19 pandemic as well as goodwill amortization and other costs associated with the consolidation of Fukoku. Shared Research understands that the COVID-19 pandemic is by far the largest factor, with the company in particular expecting a decline in sales in the Structural Steel Materials and Electrical Equipment segments.
Recognition of the Business Environment
In line with the issuance of the rolling Medium-term Management Plan, the company acknowledged changes in the business environment, namely a shift from “robust construction investment” to “changes in the makeup of construction investment.” Details are as follows.
“Robust construction investment” to date
Robust private capital investment
Increased capital investment tied to inbound demand
Increase in urban development projects
Solid public investment
Natural disaster prevention and mitigation projects
Construction work related to the Linear Chuo Shinkansen and projected Shinkansen lines
Working environment and production systems
Labor-intensive
“Changes in the makeup of construction investment” moving forward
Changes in private capital investment
Slump in the domestic market due to the population decline and the effects from COVID-19
Increased capital investment related to EC and IT
Changes in public investment
National Resilience and disaster prevention and mitigation projects
Decrease in new construction but an increase in maintenance/repair work
Changes in the labor environment
Increase in labor-saving capital investment
Advances in digital technologies
Growth strategies
M&A strategies
The company aims to accelerate growth by strengthening peripheral operations and expanding existing businesses as it uses its funds to create profitable businesses. In pursuing M&A, the company will focus on: 1) neighboring industries (pursuing M&A in non-construction sectors); 2) deepening its business (pursuing M&A with material manufacturers); 3) expanding its business area (pursuing M&A with companies that have overseas sites); and 4) expanding sales formats (pursuing M&A with companies with sales formats that are different than that of Kondotec).
In addition to adopting this M&A strategy, the company over the past two years has contributed to consolidated results by completing the following three deals.
These subsidiary companies are engaged in the construction and rental of scaffolding for civil engineering and construction projects. These three merger and acquisition projects are serving to bolster consolidated performance. The company plans to apply the lessons learned in the M&A strategies that may be used moving forward to its organic growth strategy and its peripheral growth strategy.
Announcement of additional M&A deal
In October 2021, Kondotec announced that it would make Kuriyama Aluminum Co., Ltd. (unlisted), a manufacturer and developer of aluminum extrusion products and the like, a subsidiary. It aims to expand the group's product lineup to include aluminum products, for which it expects demand to increase. The company judged that aluminum products, which facilitate weight reduction, would contribute to the sustainable growth of the group and increase its corporate value over the medium to long term. It plans to provide information regarding the impact on consolidated results at a later date.
Organic growth strategy
The company intends to continue to supply “staple products and merchandise” to industrial infrastructure projects by strengthening its existing businesses through the capturing of demand in a wide range of areas, including post-2020 demand. Key initiatives include: 1) the expansion of operating sites and the development of new products and merchandise; 2) adapting and responding to natural disasters; 3) diversifying sales methods, including in rentals and scaffolding construction; and 4) developing new customers and strengthening upstream sales.
Peripheral-strengthening strategies
The company aims to actively invest in the future to strengthen its efforts in areas outside of its existing businesses. Key initiatives include: 1) developing overseas markets; 2) adapting to increased digitalization; 3) entering neighboring sectors; and 4) expanding its online business.
Reinforcing the management base
With the goal of achieving the SDGs and fulfilling its social responsibilities, the company is promoting initiatives from an ESG perspective while reinforcing its management base in order to realize growth. Key initiatives include the following.
Allocation of funds
The company aims to maintain strong levels of capital efficiency and shareholder returns as it enacts growth investment with capital costs kept in mind.
As of end-March 2021, funds on hand stood at JPY11.3bn and operating cash flow was JPY12.0bn, yielding total funds of roughly JPY23.0bn. The company over the next three years aims to use these funds in growth investment and shareholder returns.
For FY03/24, the company expects these efforts to contribute to operating profit of JPY4.4bn and ROE of 10% or more.
The previous Medium-term Management Plan (FY03/21–FY03/23) targeted capital investment of JPY7.6bn and strategic investment of JPY4.0bn. The revised plan (FY03/22–FY03/24) lifts the capital investment target by 18.4%. However, it is important to remember that capital investment in FY03/21, the first year in the prior plan, was limited or postponed as a result of the COVID-19 pandemic.
The dividend policy, one of the company’s most important policies, targets continuous increases in dividends, and management expects to lift the dividend for the 11th consecutive year in FY03/22. The company since its listing has never reduced its dividend, even in the face of natural disasters and severe recessions, including the domestic financial crisis, the collapse of the IT bubble, the Great East Japan Earthquake, the 2008–2009 global financial crises, and the COVID-19 pandemic. The company plans to maintain this policy going forward.
Note: Figures may differ from company materials due to differences in rounding methods.
Medium- to Long-Term Strategy
Two-pronged growth strategy
Kondotec’s growth strategy comprises two parts: 1) further strengthening the earnings power of existing core businesses (organic business growth), and 2) expansion into fields with growth prospects (inorganic growth). The company expects organic growth to be driven by 1) four growth strategies (cultivate new customers, provide new products, adopt flexible sales methods, develop distribution channels), 2) response to natural disasters, and 3) office network expansion. The company focuses on overseas expansion for inorganic growth and M&A deals (acquisitions and business/capital alliances) to accelerate both organic and inorganic growth.
Organic growth strategy
Four growth strategies
Kondotec has thus far operated under a business model of leveraging strengths accumulated since its establishment, but with nothing to supplement this approach, sales would eventually stagnate or enter a modest decline. By implementing four growth strategies to fuel sustainable growth, the company has managed to expand sales for ten consecutive years. Sales to new customers accounted for 4.4% of consolidated sales in FY03/21, and this contribution to sales has driven several percentage points of the growth in consolidated sales each year.
Note: Figures may differ from company materials due to differences in rounding methods.
Cultivate new customers
Sales representatives at the company each secure an average of one new customer per month, and strive to reactivate 10 dormant customers per year. Sales per new customer average about JPY1mn (JPY2.6bn for 2,526 new customers in FY03/21). Sales resulting from efforts to cultivate new customers accounted for 4.4% of consolidated sales in FY03/21.
Provide new products
The company’s joint committee on new products regularly holds meetings attended by personnel from both sales and manufacturing to review requests for product development from customers as well as measures to improve existing products. In this way, the company works to develop, cultivate, and supply products with added value. Recently launched new products include the Kondo bolts for furring strips, square hook bolt, KT harness safety belt, and CM lever hoist.
Adopt flexible sales methods
In addition to selling both in-house and procured products via wholesale, the company formulates highly value-added sales methods through, for example, differentiation strategies and providing anchor bolt installation work. The company has sought to differentiate itself through the establishment of Suspension Materials Adviser, an in-house certification system for suspension materials, and with efforts to enhance its product catalogs. The Suspension Materials Adviser system aims to retain customers and increase repeat order rate. In addition to a general catalog that contains its entire product line, the company publishes catalogs tailored to specific fields (products such as suspension materials, port materials, materials designed to prevent harm to wildlife, and materials used in agriculture) and customers. By engaging in anchor bolt installation and thus gaining early-stage access to construction sites, the company is able to rapidly collect information on required construction materials and leverage it in sales.
Develop distribution channels
In addition to existing customers, the company has expanded channels to home improvement centers and further developed businesses for industries it has not explored yet, including selling to railway companies. In July 2017, it established an E-commerce Group to develop online sales channels. It has also set up a special sales unit specializing in the Greater Tokyo Area to handle central purchasing from headquarters of leading trading companies and general contractors, which have been a source of order growth for Kondotec in recent years.
Response to natural disasters
The company has established a structure that allows it to rapidly respond to demand for materials that are generally urgently required for reconstruction work in the wake of natural disasters that affect various regions throughout Japan, such as earthquakes or unusual weather conditions, including torrential rain. The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has acknowledged that rainfall patterns are clearly changing and is therefore calling on companies to remain alert and prepare for a “new stage” of disaster prevention/mitigation measures. In response, Kondotec intends to focus on preparations to minimize potential damage and be in a position to resume operations quickly (e.g., by optimizing inventory allocation) so that it is well prepared for disasters. Sales of materials related to natural disasters have generally continued to grow and now account for more than 10% of annual parent sales.
Note: The drop in FY03/18 reflected 1) a reactionary decline following the Kumamoto earthquake of FY03/17, 2) impact from the end of decontamination work in Fukushima, and 3) fierce price competition due to oversupply in the market.
Development of sales offices
The company has built a sales structure with close ties to local communities to ensure it can rapidly respond to the needs of its customers. As of end-December 2021, it operated 104 sales offices across Japan. The company sees fast delivery as a point of difference in this business. It sees scope for opening new sales offices and is training personnel for this purpose. It also established an E-commerce Group in July 2017, but is aware that it has a long way to go in improving its IT resources for further business expansion. It established a project team to progress digital transformation (DX) in FY03/20 to devise business model that harnesses IT. The company plans to continue pursuing customer-centric management through rapid deliveries.
Inorganic growth strategy
Expansion into overseas markets
The company believes it can strengthen its earnings power by further expanding its operations into overseas markets with growth prospects. In November 2012, it established Kondotec International (Thailand) Co., Ltd. In August 2014, the company increased its stake in this subsidiary and acquired the rest of its shares from two other investors, effectively making it a consolidated subsidiary. The company is working to expand business areas in the ASEAN region. It intends to increase its overseas sales ratio (0.4% in FY03/21) by further strengthening sales capabilities, including by expanding distribution channels and its overseas sales force.
Note: Figures may differ from company materials due to differences in rounding methods.
M&A strategies to accelerate organic and inorganic growth
M&A strategy (acquisitions and capital/business alliances)
The company considers acquisitions and capital/business alliances to be important strategies for strengthening its business foundations. It evaluates M&A deals from four points of view: 1) enter peripheral industries: expand business areas by acquiring companies that operate in industries other than construction; 2) enrich existing businesses: improve existing businesses by acquiring materials or other manufacturers; 3) expand business areas: expand sales fields by acquiring companies with overseas bases 4) diversify sales formats: diversify sales approaches by acquiring companies with sales methods that are different from existing businesses (which already conduct retail, catalog, and online sales).
The acquisitions of Sanwa Denzai in April 2010 and Kuriyama Aluminum Co., Ltd. in October 2021 fell under category 1) and the acquisition of Chuogiken in August 2014 under category 2). The acquisition of the labor-saving and image processing equipment business of Mechatro Engineering Co., Ltd. transferred in December 2018 falls under category 2) because the arrangement results in better quality of products that Kondotec manufactures in-house and greater automation. Meanwhile, adding Tecbuild (formerly Hirose Kosan) as a subsidiary in February 2019, Tokai Step as a subsidiary in February 2020, and Fukoku as a subsidiary in January 2021 constitutes category 2) because the arrangement enhances services at civil engineering and repair sites.
Kondotec entered into the electrical equipment field through the acquisition of Sanwa Denzai and strengthened its manufacturing functions by making production lines more efficient through the acquisition of Chuogiken. In February 2018, the company entered into a business and capital alliance with N.Pat Co., Ltd. (acquiring a 5% stake), which develops, manufactures, and sells construction metal fittings, including post-installed anchor bolts and inserts. Through the alliance, Kondotec is able to offer an extensive range of products that are tailored to customer needs under the N-PAT brand and conduct corresponding sales activities.
The company expects its business environment to continue to change; demand from domestic construction spending (a key driver of its existing core businesses) to gradually decline; and demand for maintenance and repairs to rise. To secure stable earnings despite this changing landscape, the company focuses on reinforcing its business foundations in areas related to maintenance and social infrastructure repair.
Kuriyama Aluminum Co., Ltd.
Business
Business description
Growing company in the construction materials wholesale trade
Kondotec Inc. is a wholesaler of construction materials in the same league as companies such as Furusato Industries (TSE1: 8087) and Okabe Co., Ltd. (TSE1: 5959). It has been profitable (on a recurring profit basis) for 69 years since its establishment, and its growth has consistently outpaced domestic construction spending (fiscal years 2005–2020 CAGR: nominal construction spending:1.4%, Kondotec: 2.5%). The company posted its ninth consecutive year of record profit in FY03/20. It operates in three segments: 1) Industrial Materials (supplied to retailers of metal fittings), 2) Structural Steel Materials (supplied to structural steel processors), and 3) Electrical Equipment (supplied to electrical contractors and consumer electronics retailers). In addition to materials, screws, and other supplies for civil engineering and construction, Kondotec also supplies hardware for use in the cargo handling and shipping industries.
Conducts both manufacturing and trading operations
Manufacturing operations (including OEM production) generate some 40% of sales, with in-house production making up about 15%. The company operates both as a manufacturer and a trading company, and it aims to respond to diversifying customer demands by increasing synergies between these two functions. It has a high market share for products it manufactures in house such as turnbuckle braces (used for seismic bracing), shackles (used as connecting fittings), and scaffolding suspension chains. The company hopes to gradually increase the ratio of products it manufactures in house from the current level of 15%.
Improving profitability by strengthening manufacturing operations and increasing imported products
By segment, Industrial Materials generated 63% of the total sales, Structural Steel Materials 23%, and Electrical Equipment 14% in FY03/21. OPM in Structural Steel Materials in FY03/21 was the highest at 6.7%, followed by Industrial Materials at 5.9%, and Electrical Equipment at 3.1%. In FY03/11, OPM in the Structural Steel Materials business was at 0.1%, the lowest level among the three segments. Thereafter, however, it rapidly increased to the highest level, reaching 8.1% in FY03/14. Much of this growth appears to have been driven by improved productivity on products manufactured in house and increased sales of high-margin products in light of recovery in estimated volume of steel frame demand.
Business overview
Business areas
In addition to construction-related wholesale (including wholesale of construction materials and electrical and piping equipment), the Kondotec group is also engaged in fields unrelated to construction. Its core businesses are handled by Kondotec, which mainly sells construction materials via wholesale, and consolidated subsidiary Sanwa Denzai, which joined the group in April 2010 and mainly supplies electrical and piping equipment. Kondotec, a wholesaler of metal and other construction materials, also offers an extensive range of products used in industries other than construction (such as shipbuilding, transportation, land-and-sea cargo, manufacturing facilities, fishery and aquaculture, and agriculture). Sanwa Denzai, on the other hand, procures and sells lighting and hot-water equipment, air conditioning equipment, energy-saving equipment, and plumbing equipment. In August 2014, Kondotec acquired Chuogiken, a company established by a former engineer of Brother Industries (TSE1: 6448) that specializes in optimization of production lines, and made it a consolidated subsidiary. Tecbuild, Tokai Step, and Fukoku, all of which joined the group from 2019, specialize in scaffolding for civil engineering projects. Kuriyama Aluminum, which joined the group in October 2021, is engaged in the manufacture and development of aluminum extrusion products and the like.
Sales by segment
In FY03/21, the Industrial Materials business accounted for 63% of consolidated sales, Structural Steel Materials for 23%, and Electrical Equipment for 14%. Parent sales contributed 80% to consolidated sales. The Industrial Materials business offers products such as turnbuckles, shackles, scaffolding suspension chains, hooks, clips, various threaded studs (screws and nails), container bags, and machinery equipment. The Structural Steel Materials business supplies products such as turnbuckle braces, anchor bolts, high strength bolts, self-supporting connections, control deck bars, and ceramic tabs. The Electrical Equipment business sells air conditioning equipment (air conditioners, ventilation fans, duct fans), lighting fixtures (LED lighting, lighting fixtures for housing), environmentally friendly products (solar power generation, energy-efficient hot water tanks [EcoCute]), electrical wiring, power distribution boards, control panels, and various sensors.