Kanematsu Corporation is a general trading company. As such, it engages in diverse businesses, with a focus on communication technology and ICT solutions. The company was founded in 1889 as a wool importer. Diversification during the years of rapid economic growth following World War II turned Kanematsu into a top-10 general trading company in Japan. In 1999, it implemented structural reforms, including the sale of its textile business, and began expanding earnings from IT-related businesses (including IT system infrastructure construction). As of March 2022, the company had four business segments: Electronics & Devices (FY03/22 revenue of JPY255.5bn, 33.3% of total revenue, 65.0% of total operating profit), Foods, Meat & Grain (JPY285.3bn, 37.1%, 12.1%), Steel, Materials & Plant (JPY148.0bn, 19.3%, 13.8%), and Motor Vehicles & Aerospace (JPY65.8bn, 8.6%, 5.7%).

In the Electronics & Devices segment, the ICT solutions and mobile businesses account for more than 90% of operating profit. Kanematsu Electronics Ltd. (TSE1: 8096, 57.8% held by Kanematsu) handles the ICT solutions business and employs about 800 system engineers. It designs, builds, operates, and maintains corporate information system infrastructure (mainly cloud servers), and sells network devices.

Kanematsu Corporation generates 70.8% of its revenue from the systems business (one-time revenue business, including system construction) and 29.2% from the service and support business (recurring revenue business such as repair and maintenance) (as of FY03/21). The company's main customers are manufacturers, financial institutions, electric and gas utility companies, and educational institutions. The company's system development is often customized to meet customer needs, and its operating profit margin tends to be higher than that of competing system integrators (16.6% for Kanematsu Electronics in FY03/21; average of 8.0% for 15 competitors in their latest financial year).

In the Electronics & Devices segment, wholly owned subsidiary Kanematsu Communications Ltd. handles the mobile business, operating some 420 stores nationwide (including about 150 directly managed stores), mainly in affiliation with companies such as NTT Docomo (Docomo shops). Kanematsu Communications’ revenue is calculated by subtracting labor and overhead expenses for stores from the fees it receives from NTT Docomo. In terms of revenue per employee, it is second in the mobile phone store industry at JPY75mn per employee, versus JPY97mn at the top company, T-Gaia (TSE1: 3738). Kanematsu Communications’ operating profit grew from JPY3.7bn in FY03/16 to JPY7.1bn in FY03/20 due to market expansion and the acquisition of competitors (most recently in April 2017). In FY03/21, operating profit declined YoY due to the COVID-19 pandemic, but Kanematsu Communications still expects the general uptrend to continue on increased demand related to 5G.

The Foods, Meat & Grain segment comprises three businesses: food (sales of imported foodstuff in the restaurant, ready-to-eat, and retail markets), meat products (import and sales of a full range of meat products, from ingredients to processed meat products), and feedstuff and grain (sales of grain, agricultural products, and processed agricultural products such as pasta, and import and sales of feedstuff and fertilizer). Kanematsu says that, in the meat products business, it has one of the largest import shares in Japan for the three major livestock animals (cows, pigs, and chickens), and a share of more than 90% of Japanese imports of Uruguayan beef (as of FY03/21), for which an import ban that had been in place for about 20 years has been lifted. Kanematsu has invested in a processed food manufacturer (in Indonesia), established a primary beef processer and manufacturer (in China), and promotes efforts to add value through processing.

The Steel, Materials & Plant segment comprises six businesses: iron and steel, steel tubing, chemicals, energy, plants and ships, and machine tools and industrial machinery (although the company provides figures in three categories: machine tools and industrial machinery, overseas [steel tubing], and energy, chemicals, and other). In this segment, the company engages in domestic and overseas trading of iron and steel products, various overseas plant and infrastructure development projects, sales of machine tools and industrial machinery, and domestic and overseas trading of petroleum products and chemicals (including pharmaceuticals). Although it does handle products in the energy sector, including petroleum and gas, as of end-FY03/21 it owned no resource interests in any oil fields or mines. Unlike other trading companies conducting resources business, it therefore has no risk of booking any impairment loss related to resource interests.

The Motor Vehicles & Aerospace segment comprises the aerospace business and the motor vehicles and parts business. In the aerospace business, the company procures and sells aircraft, helicopters, and onboard equipment and parts. It is also investing to expand into niche businesses such rocket tracking systems. The post-delivery aircraft parts business provides a stable revenue source. In the motor vehicles and parts business, the company mainly sells OEM automotive parts such as gears and clutches for motorcycles and automobiles to overseas customers. In FY03/21, Kanematsu acquired a company that develops and manufactures drive recorders. It plans to enter a new data business using vehicle operation data recorded by onboard devices.

Earnings trends

In full-year FY03/22, revenue came to JPY768.0bn (+18.3% YoY; 102.4% achievement versus the revised full-year forecast), operating profit was JPY29.3bn (+24.2% YoY; 97.8% versus the revised full-year forecast), pre-tax profit was JPY28.8bn (+22.0% YoY; 95.9%), and profit attributable to owners of the parent was JPY16.0bn (+20.1% YoY; 99.9%). Revenue increased in almost all businesses, especially in the meat products and feedstuff businesses, which benefited from higher market prices, and in the energy business, where petroleum and petroleum product transaction volume increased on the back of higher crude oil prices. Operating profit declined in the aerospace business, which was during a lull for government contracts, and in the mobile business, where commission income declined. Meanwhile, the meat products business, ICT solutions business, and steel pipe business, which saw increased revenues, posted higher profits.

The full-year FY03/23 company forecast calls for revenue of JPY850.0bn (+10.7% YoY), operating profit of JPY31.5bn (+7.3% YoY), pre-tax profit of JPY32.0bn (+11.2% YoY), and profit attributable to owners of the parent of JPY18.0bn (+12.6% YoY).
Although there are some concerns about the economic environment due to the spread of geopolitical risks and the COVID-19 pandemic, the company factored in profit growth in the semiconductor parts and manufacturing equipment business, where supply and demand are expected to continue to tighten, and in the mobile business, where the acquisition of distributors is expected to have a positive effect. It also expects profit growth in the machine tools and industrial machinery business, where it sees a full-fledged recovery in capex demand from the lows of the COVID-19 pandemic, and in the energy business, where it incurred valuation losses on futures contracts in the previous fiscal year.

Kanematsu has been pursuing its medium-term vision, “future135,” which covers the six years through FY03/24 (announced on May 9, 2018), which will be the company’s 135^th year since its founding. At the time of its FY03/21 earnings announcement (May 7, 2021), the company reconfirmed the course of its policy based on the progress of business investment in the first three years of the plan and the impact of the COVID-19 pandemic. Kanematsu stated that it would make no major changes to its basic policy. However, the company announced a revision to the following quantitative targets (for FY03/24, the last year of the plan), taking into account progress in business investment and related revenue growth. Kanematsu lowered its projections for FY03/24 profit attributable to owners of the parent to JPY20.0bn (pre-revision: JPY25.0bn) and ROE to 10–12% (pre-revision: 13–15%), and raised its projection for total return ratio to 30–35% (pre-revision: 25–30%).

Strengths and weaknesses

Shared Research sees Kanematsu’s strengths as the following: 1) OPM in the ICT solutions business is 16.6% (FY03/21), due to robust customer response capabilities and technological strength, 2) Net debt-to-equity ratio of 0.3x (as of end-FY03/21) reflects one of the soundest financial structures among Japanese trading companies and ensures high resistance to changes in the interest rate environment, and 3) Relatively low impairment losses compared to the five largest Japanese general trading companies due to non-involvement in resource and real estate businesses. We consider its weaknesses as the following: 1) Kanematsu’s scope of operations tends to be small in non-IT businesses, hampering economies of scale, 2) The company has been slow to develop business overseas, where economic growth is high, and 3) It lacks experience and expertise with large M&A deals.

Key financial data

Income statement			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
(JPYmn)			Cons.	Cons.	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	Est.
Sales			1,019,232	1,114,539	1,108,230	1,056,230	-	-	-	-	-	-	-
	YoY		1.3%	9.4%	-0.6%	-4.7%	-	-	-	-	-	-	-
Revenue			-	-	704,211	668,374	675,579	714,790	723,849	721,802	649,142	767,963	850,000
	YoY		-	-	-	-5.1%	1.1%	5.8%	1.3%	-0.3%	-10.1%	18.3%	10.7%
Gross profit			80,021	86,402	87,880	86,238	100,139	106,371	110,014	110,904	101,515	111,801
	YoY		-1.1%	8.0%	1.7%	-1.9%	16.1%	6.2%	3.4%	0.8%	-8.5%	10.1%
	Gross profit margin		7.9%	7.8%	7.9%	8.2%	14.8%	14.9%	15.2%	15.4%	15.6%	14.6%
Operating profit			18,262	19,776	23,547	18,772	22,633	26,160	30,349	28,352	23,635	29,347	31,500
	YoY		-14.8%	8.3%	19.1%	-20.3%	20.6%	15.6%	16.0%	-6.6%	-16.6%	24.2%	7.3%
	Operating profit margin		1.8%	1.8%	2.1%	1.8%	3.4%	3.7%	4.2%	3.9%	3.6%	3.8%	3.7%
Pre-tax profit (Recurring profit)			16,705	20,160	22,373	18,122	17,875	26,043	29,177	26,944	23,580	28,765	32,000
	YoY		-5.9%	20.7%	11.0%	-19.0%	-1.4%	45.7%	12.0%	-7.7%	-12.5%	22.0%	11.2%
	Recurring profit margin		1.6%	1.8%	2.0%	1.7%	2.6%	3.6%	4.0%	3.7%	3.6%	3.7%	3.8%
Profit (Net income) attributable to owners of the parent			9,564	11,799	10,540	8,959	8,049	16,317	16,605	14,399	13,315	15,986	18,000
	YoY		46.9%	23.4%	-10.7%	-15.0%	-10.2%	102.7%	1.8%	-13.3%	-7.5%	20.1%	12.6%
	Net margin		0.9%	1.1%	1.0%	0.8%	1.2%	2.3%	2.3%	2.0%	2.1%	2.1%	2.1%
Per-share data (split-adjusted; JPY)
No. of shares outstanding at end of period ('000 shares )			422,501	422,501	422,501	422,501	84,500	84,500	84,500	84,500	84,500	84,500
EPS (JPY)			22.8	28.1	25.1	21.3	95.6	193.8	198.2	172.4	159.4	191.4	215.5
EPS (fully diluted; JPY)			-	-	25.1	21.3	95.6	193.8	198.2	172.3	159.3	159.3
Dividend per share (JPY)			-	3.0	4.0	5.0	30.0	48.0	60.0	60.0	60.0	65.0	70.0
Book value per share (JPY)			60	74	215	218	1,192	1,378	1,500	1,567	1,723	1,910
Balance sheet (JPYmn)
		Cash and cash equivalents	60,421	73,867	66,485	87,466	77,566	77,731	88,941	91,105	81,045	91,420
Total current assets			316,554	345,366	367,664	346,574	371,329	414,662	444,443	426,756	420,894	492,090
Tangible fixed assets			26,990	24,218	28,966	26,883	26,858	21,900	22,090	40,756	42,246	42,087
Intangible fixed assets			7,226	11,706	8,641	8,083	20,935	20,377	23,051	23,382	24,926	24,912
Total assets			399,186	428,459	466,314	443,592	479,717	519,889	549,459	551,671	557,495	634,456
		Short-term debt	82,303	81,552	65,305	61,989	64,643	61,210	74,686	74,467	64,722	80,381
Total current liabilities			244,776	258,635	258,255	233,034	265,455	284,313	312,443	284,503	284,909	338,459
		Long-term debt	66,389	62,146	74,426	74,877	69,201	76,116	65,858	86,480	74,762	79,903
Total fixed liabilities			78,496	73,620	89,043	89,851	84,398	88,525	78,317	100,994	92,093	96,714
Total liabilities			323,273	332,255	347,298	322,885	349,854	372,838	390,760	385,497	377,003	435,173
		Shareholders' equity	54,519	71,657	90,244	91,599	100,357	116,013	125,247	130,830	143,926	159,484
Total net assets			75,912	96,204	119,015	120,706	129,863	147,050	158,698	166,174	180,492	199,282
Total liabilities and net assets			399,185	428,459	466,313	443,591	479,717	519,888	549,458	551,671	557,495	634,455
Total interest-bearing debt			146,860	141,905	139,731	136,866	133,844	137,326	139,504	143,393	122,157	143,452
Cash flow statement((JPYmn))
Cash flows from operating activities			1,355	22,384	6,758	33,024	11,852	434	24,698	24,259	36,984	15,382
Cash flows from investing activities			1,466	-1,111	-6,649	-4,214	-14,691	1,103	-6,575	-10,215	-9,927	-10,547
Cash flows from financing activities			-15,721	-9,351	-10,046	-6,729	-6,904	-842	-7,158	-11,590	-37,497	-4,245
Financial ratios
ROA (RP-based)			4.2%	4.9%	4.8%	4.0%	3.9%	5.2%	5.5%	4.9%	4.3%	4.8%
ROE			20.4%	18.7%	14.2%	9.9%	8.4%	15.1%	13.8%	11.2%	9.7%	10.5%
		Equity ratio	13.7%	16.7%	19.4%	20.6%	20.9%	22.3%	22.8%	23.7%	25.8%	25.1%
		Total asset turnover	255.1%	269.3%	247.7%	232.2%	146.3%	143.0%	135.4%	131.1%	117.1%	128.9%
		Net margin	0.9%	1.1%	1.0%	0.8%	1.2%	2.3%	2.3%	2.0%	2.1%	2.1%

Source: Shared Research based on company data

By segment

By segment			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
(JPYmn)			Act.	Act.	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	IFRS	Est.
Revenue			1,019,232	1,114,539	704,211	668,374	675,579	714,790	723,849	721,802	649,142	767,963	850,000
	YoY		1.3%	9.4%	-	-5.1%	1.1%	5.8%	1.3%	-0.3%	-10.1%	18.3%	10.7%
	Electronics & Devices		236,774	277,348	231,230	235,028	254,280	263,310	265,530	254,516	226,109	255,463	280,000
		YoY	-	17.1%	-	1.6%	8.2%	3.6%	0.8%	-4.1%	-11.2%	13.0%	9.6%
		% of total	23.2%	24.9%	32.8%	35.2%	37.6%	36.8%	36.7%	35.3%	34.8%	33.3%	32.9%
	Foods, Meat & Grain		287,936	309,024	213,720	222,577	227,764	231,260	244,859	251,403	244,617	285,284	305,000
		YoY	-	7.3%	-	4.1%	2.3%	1.5%	5.9%	2.7%	-2.7%	16.6%	6.9%
		% of total	28.3%	27.7%	30.3%	33.3%	33.7%	32.4%	33.8%	34.8%	37.7%	37.1%	35.9%
	Steel, Materials & Plant		434,230	468,831	201,957	135,269	131,201	153,075	139,436	129,858	96,868	147,993	170,000
		YoY	-	8.0%	-	-33.0%	-3.0%	16.7%	-8.9%	-6.9%	-25.4%	52.8%	14.9%
		% of total	42.6%	42.1%	28.7%	20.2%	19.4%	21.4%	19.3%	18.0%	14.9%	19.3%	20.0%
	Motor Vehicles & Aerospace		50,719	54,451	52,396	63,792	50,419	54,453	62,063	74,605	71,086	65,827	80,000
		YoY	-	7.4%	-	21.7%	-21.0%	8.0%	14.0%	20.2%	-4.7%	-7.4%	21.5%
		% of total	5.0%	4.9%	7.4%	9.5%	7.5%	7.6%	8.6%	10.3%	11.0%	8.6%	9.4%
	Other		9,570	4,883	4,906	11,706	11,914	12,691	11,960	11,418	10,497	13,395	15,000
		YoY	-	-49.0%	-	138.6%	1.8%	6.5%	-5.8%	-4.5%	-8.1%	27.6%	12.0%
		% of total	0.9%	0.4%	0.7%	1.8%	1.8%	1.8%	1.7%	1.6%	1.6%	1.7%	1.8%
Operating profit			18,262	19,776	23,547	18,772	22,633	26,160	30,349	28,352	23,635	29,347	31,500
	YoY		-14.8%	8.3%	-	-20.3%	20.6%	15.6%	16.0%	-6.6%	-16.6%	24.2%	7.3%
	Operating profit margin		1.8%	1.8%	3.3%	2.8%	3.4%	3.7%	4.2%	3.9%	3.6%	3.8%	3.7%
	Electronics & Devices		8,339	7,755	10,152	10,658	14,348	17,556	18,533	18,963	17,575	19,064	20,000
		YoY	-	-7.0%	-	5.0%	34.6%	22.4%	5.6%	2.3%	-7.3%	8.5%	4.9%
		Operating profit margin	3.5%	2.8%	4.4%	4.5%	5.6%	6.7%	7.0%	7.5%	7.8%	7.5%	7.1%
		% of total	45.7%	39.4%	43.1%	56.8%	63.4%	67.1%	61.1%	66.9%	74.3%	65.0%	63.5%
	Foods, Meat & Grain		3,165	2,099	3,365	1,427	2,489	2,149	3,951	2,381	1,498	3,541	3,600
		YoY	-	-33.7%	-	-57.6%	74.4%	-13.7%	83.9%	-39.7%	-37.1%	136.4%	1.7%
		Operating profit margin	1.1%	0.7%	1.6%	0.6%	1.1%	0.9%	1.6%	0.9%	0.6%	1.2%	1.2%
		% of total	17.3%	10.7%	14.3%	7.6%	11.0%	8.2%	13.0%	8.4%	6.3%	12.1%	11.4%
	Steel, Materials & Plant		5,094	8,129	6,345	3,388	2,820	3,930	4,437	3,819	1,840	4,052	5,300
		YoY	-	59.6%	-	-46.6%	-16.8%	39.4%	12.9%	-13.9%	-51.8%	120.2%	30.8%
		Operating profit margin	1.2%	1.7%	3.1%	2.5%	2.1%	2.6%	3.2%	2.9%	1.9%	2.7%	3.1%
		% of total	27.9%	41.3%	27.0%	18.1%	12.5%	15.0%	14.6%	13.5%	7.8%	13.8%	16.8%
	Motor Vehicles & Aerospace		1,447	1,494	2,601	2,964	2,223	2,541	2,549	2,383	2,055	1,663	1,700
		YoY	-	3.2%	-	14.0%	-25.0%	14.3%	0.3%	-6.5%	-13.8%	-19.1%	2.2%
		Operating profit margin	2.9%	2.7%	5.0%	4.6%	4.4%	4.7%	4.1%	3.2%	2.9%	2.5%	2.1%
		% of total	7.9%	7.6%	11.1%	15.8%	9.8%	9.7%	8.4%	8.4%	8.7%	5.7%	5.4%
	Other		205	224	1,068	329	756	-20	850	819	696	1,009	900
		YoY	-	9.3%	-	-69.2%	129.8%	-	-	-3.6%	-15.0%	45.0%	-10.8%
		Operating profit margin	2.1%	4.6%	21.8%	2.8%	6.3%	-	7.1%	7.2%	6.6%	7.5%	6.0%
		% of total	1.1%	1.1%	4.5%	1.8%	3.3%	-0.1%	2.8%	2.9%	2.9%	3.4%	2.9%
	Adjustments		9	73	14	4	-5	2	26	-14	-30	16	-

Note: For FY03/13 and FY03/14, the table shows sales (under Japanese standards) in place of revenue.
Source: Shared Research based on company data

Operating profit by business

		FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
(JPYmn)		Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
Electronics & Devices		10,152	10,658	14,348	17,556	18,533	18,963	17,575	19,064	20,000
	ICT Solutions			8,300	10,000	10,200	11,000	11,000	12,800
	Mobile			4,500	5,900	6,700	7,100	5,800	4,300
	Other			1,500	1,700	1,600	800	800	1,900
Foods, Meat & Grain		3,365	1,427	2,489	2,149	3,951	2,381	1,498	3,541	3,600
	Foods (Meat included up to FY03/19)			1,400	1,300	1,500	100	-400	-100
	Meat						900	-900	1,700
	Grain			800	500	2,200	900	2,700	1,900
	Other			300	300	300	400	0	0
Steel, Materials & Plant		6,345	3,388	2,820	3,930	4,437	3,819	1,840	4,052	5,300
	Machining tools, industrial machinery			1,800	1,300	2,000	1,100	700	1,100
	Overseas			-800	900	1,800	1,300	-400	1,700
	Energy, Chemicals			1,800	1,700	700	1,500	1,600	1,300
Motor Vehicles & Aerospace		2,601	2,964	2,223	2,541	2,549	2,383	2,055	1,663	1,700
	Aerospace			1,300	1,200	1,400	1,600	1,600	400
	Motor vehicles and parts			900	1,300	1,100	700	500	1,300
	Other			0	0	0	0	0	0
Other		1,068	329	756	-20	850	819	696	1,009	900
Adjustments		14	4	-5	2	26	-14	-30	16
Total		23,547	18,772	22,633	26,160	30,349	28,352	23,635	29,347	31,500

		FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
(YoY change; JPYmn)		Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
Electronics & Devices			506	3,690	3,208	977	430	-1,388	1,489	936
	ICT Solutions				1,700	200	800	0	1,800
	Mobile				1,400	800	400	-1,300	-1,500
	Other				200	-100	-800	0	1,100
Foods, Meat & Grain			-1,938	1,062	-340	1,802	-1,570	-883	2,043	59
	Foods (Meat included up to FY03/19)				-100	200	-1,400	-500	300
	Meat				0	0	900	-1,800	2,600
	Grain				-300	1,700	-1,300	1,800	-800
	Other				0	0	100	-400	0
Steel, Materials & Plant			-2,957	-568	1,110	507	-618	-1,979	2,212	1,248
	Machining tools, industrial machinery				-500	700	-900	-400	400
	Overseas				1,700	900	-500	-1,700	2,100
	Energy, Chemicals				-100	-1,000	800	100	-300
Motor Vehicles & Aerospace			363	-741	318	8	-166	-328	-392	37
	Aerospace				-100	200	200	0	-1,200
	Motor vehicles and parts				400	-200	-400	-200	800
	Other				0	0	0	0	0
Other			-739	427	-776	870	-31	-123	313	-109
Adjustments			-10	-9	7	24	-40	-16	46
Total			-4,775	3,861	3,527	4,189	-1,997	-4,717	5,712	2,153

		FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
% of total		Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
Electronics & Devices		43.1%	56.8%	63.4%	67.1%	61.1%	66.9%	74.3%	65.0%	63.5%
	ICT Solutions			36.7%	38.2%	33.6%	38.8%	46.5%	43.6%
	Mobile			19.9%	22.6%	22.1%	25.0%	24.5%	14.7%
	Other			6.6%	6.5%	5.3%	2.8%	3.4%	6.5%
Foods, Meat & Grain		14.3%	7.6%	11.0%	8.2%	13.0%	8.4%	6.3%	12.1%	11.4%
	Foods (Meat included up to FY03/19)			6.2%	5.0%	4.9%	0.4%	-1.7%	-0.3%
	Meat			0.0%	0.0%	0.0%	3.2%	-3.8%	5.8%
	Grain			3.5%	1.9%	7.3%	3.2%	11.4%	6.5%
	Other			1.3%	1.1%	1.0%	1.4%	-	-
Steel, Materials & Plant		27.0%	18.1%	12.5%	15.0%	14.6%	13.5%	7.8%	13.8%	16.8%
	Machining tools, industrial machinery			8.0%	5.0%	6.6%	3.9%	3.0%	3.8%
	Overseas			-3.5%	3.4%	5.9%	4.6%	-1.7%	5.8%
	Energy, Chemicals			8.0%	6.5%	2.3%	5.3%	6.8%	4.4%
Motor Vehicles & Aerospace		11.1%	15.8%	9.8%	9.7%	8.4%	8.4%	8.7%	5.7%	5.4%
	Aerospace			5.7%	4.6%	4.6%	5.6%	6.8%	1.4%
	Motor vehicles and parts			4.0%	5.0%	3.6%	2.5%	2.1%	4.4%
	Other			0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Other				3.3%	-0.1%	2.8%	2.9%	2.9%	3.4%	2.9%

Figures for individual businesses are rounded to the nearest JPY100mn, so the totals of business figures do not match the segment totals. The YoY differences for individual businesses through FY03/20 and for the FY03/22 estimate are based on Shared Research calculations; figures released by the company are used for FY03/21.
Source: Shared Research based on company data

Trends and outlook

Quarterly trends and results

Quarterly performance (companywide)

Cumulative		FY03/20				FY03/21				FY03/22				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		168,416	356,955	531,133	721,802	142,371	304,879	467,770	649,142	175,567	364,138	560,941	767,963	102.4%	750,000
	YoY	-1.9%	-0.1%	-1.1%	-0.3%	-15.5%	-14.6%	-11.9%	-10.1%	23.3%	19.4%	19.9%	18.3%		15.5%
Gross profit		25,220	54,956	79,830	110,904	21,445	47,461	71,681	101,515	24,782	53,914	81,491	111,801
	YoY	-0.9%	1.5%	0.6%	0.8%	-15.0%	-13.6%	-10.2%	-8.5%	15.6%	13.6%	13.7%	10.1%
	Gross profit margin	15.0%	15.4%	15.0%	15.4%	15.1%	15.6%	15.3%	15.6%	14.1%	14.8%	14.5%	14.6%
SG&A expenses		19,510	39,946	61,142	82,716	18,617	38,094	57,795	78,893	20,565	41,358	62,692	85,103
	YoY	2.7%	2.5%	4.5%	2.9%	-4.6%	-4.6%	-5.5%	-4.6%	10.5%	8.6%	8.5%	7.9%
	SG&A ratio	11.6%	11.2%	11.5%	11.5%	13.1%	12.5%	12.4%	12.2%	11.7%	11.4%	11.2%	11.1%
Operating profit		5,840	14,698	18,738	28,352	3,386	9,970	14,556	23,635	5,047	14,242	21,094	29,347	97.8%	30,000
	YoY	-14.7%	-4.9%	-13.6%	-6.6%	-42.0%	-32.2%	-22.3%	-16.6%	49.1%	42.8%	44.9%	24.2%		26.9%
	Operating profit margin	3.5%	4.1%	3.5%	3.9%	2.4%	3.3%	3.1%	3.6%	2.9%	3.9%	3.8%	3.8%		4.0%
Pre-tax profit		5,779	14,220	17,861	26,944	3,418	9,582	14,088	23,580	5,284	13,554	20,535	28,765	95.9%	30,000
	YoY	-15.4%	-4.1%	-14.5%	-7.7%	-40.9%	-32.6%	-21.1%	-12.5%	54.6%	41.5%	45.8%	22.0%		27.2%
	Recurring profit margin	3.4%	4.0%	3.4%	3.7%	2.4%	3.1%	3.0%	3.6%	3.0%	3.7%	3.7%	3.7%		4.0%
Profit attributable to owners of the parent		3,523	7,810	9,415	14,399	2,359	5,874	8,546	13,315	3,253	7,285	12,012	15,986	99.9%	16,000
	YoY	-14.6%	-3.5%	-20.1%	-13.3%	-33.0%	-24.8%	-9.2%	-7.5%	37.9%	24.0%	40.6%	20.1%		20.2%
	Profit margin	2.1%	2.2%	1.8%	2.0%	1.7%	1.9%	1.8%	2.1%	1.9%	2.0%	2.1%	2.1%		2.1%
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		168,416	188,539	174,178	190,669	142,371	162,508	162,891	181,372	175,567	188,571	196,803	207,022
	YoY	-1.9%	1.5%	-2.9%	2.0%	-15.5%	-13.8%	-6.5%	-4.9%	23.3%	16.0%	20.8%	14.1%
Gross profit		25,220	29,736	24,874	31,074	21,445	26,016	24,220	29,834	24,782	29,132	27,577	30,310
	YoY	-0.9%	3.7%	-1.3%	1.3%	-15.0%	-12.5%	-2.6%	-4.0%	15.6%	12.0%	13.9%	1.6%
	Gross profit margin	15.0%	15.8%	14.3%	16.3%	15.1%	16.0%	14.9%	16.4%	14.1%	15.4%	14.0%	14.6%
SG&A expenses		19,510	20,436	21,196	21,574	18,617	19,477	19,701	21,098	20,565	20,793	21,334	22,411
	YoY	2.7%	2.4%	8.3%	-1.3%	-4.6%	-4.7%	-7.1%	-2.2%	10.5%	6.8%	8.3%	6.2%
	SG&A ratio	11.6%	10.8%	12.2%	11.3%	13.1%	12.0%	12.1%	11.6%	11.7%	11.0%	10.8%	10.8%
Operating profit		5,840	8,858	4,040	9,614	3,386	6,584	4,586	9,079	5,047	9,195	6,852	8,253
	YoY	-14.7%	2.9%	-35.1%	10.9%	-42.0%	-25.7%	13.5%	-5.6%	49.1%	39.7%	49.4%	-9.1%
	Operating profit margin	3.5%	4.7%	2.3%	5.0%	2.4%	4.1%	2.8%	5.0%	2.9%	4.9%	3.5%	4.0%
Pre-tax profit		5,779	8,441	3,641	9,083	3,418	6,164	4,506	9,492	5,284	8,270	6,981	8,230
	YoY	-15.4%	5.6%	-40.0%	9.7%	-40.9%	-27.0%	23.8%	4.5%	54.6%	34.2%	54.9%	-13.3%
	Recurring profit margin	3.4%	4.5%	2.1%	4.8%	2.4%	3.8%	2.8%	5.2%	3.0%	4.4%	3.5%	4.0%
Profit attributable to owners of the parent		3,523	4,287	1,605	4,984	2,359	3,515	2,672	4,769	3,253	4,032	4,727	3,974
	YoY	-14.6%	8.1%	-56.6%	3.5%	-33.0%	-18.0%	66.5%	-4.3%	37.9%	14.7%	76.9%	-16.7%
	Profit margin	2.1%	2.3%	0.9%	2.6%	1.7%	2.2%	1.6%	2.6%	1.9%	2.1%	2.4%	1.9%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Quarterly performance (by segment)

By segment (cumulative)			FY03/20				FY03/21				FY03/22				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue			168,416	356,955	531,133	721,802	142,371	304,879	467,770	649,142	175,567	364,138	560,941	767,963	102.4%	750,000
	YoY		-1.9%	-0.1%	-1.1%	-0.3%	-15.5%	-14.6%	-11.9%	-10.1%	23.3%	19.4%	19.9%	18.3%		15.5%
	Electronics & Devices		55,607	126,837	185,662	254,516	43,738	102,940	157,420	226,109	53,757	118,815	179,838	255,463	102.2%	250,000
		YoY	-2.3%	-0.7%	-1.1%	-4.1%	-21.3%	-18.8%	-15.2%	-11.2%	22.9%	15.4%	14.2%	13.0%		10.6%
		% of total	33.0%	35.5%	35.0%	35.3%	30.7%	33.8%	33.7%	34.8%	30.6%	32.6%	32.1%	33.3%		33.3%
	Foods, Meat & Grain		62,931	127,477	191,225	251,403	61,933	122,939	186,088	244,617	70,074	142,004	215,229	285,284	98.4%	290,000
		YoY	0.9%	4.8%	4.1%	2.7%	-1.6%	-3.6%	-2.7%	-2.7%	13.1%	15.5%	15.7%	16.6%		18.6%
		% of total	37.4%	35.7%	36.0%	34.8%	43.5%	40.3%	39.8%	37.7%	39.9%	39.0%	38.4%	37.1%		38.7%
	Steel, Materials & Plant		31,560	62,517	95,443	129,858	20,458	41,166	66,615	96,831	31,937	65,178	104,775	147,993	113.8%	130,000
		YoY	-2.6%	-8.2%	-10.4%	-6.9%	-35.2%	-34.2%	-30.2%	-25.4%	56.1%	58.3%	57.3%	52.8%		34.3%
		% of total	18.7%	17.5%	18.0%	18.0%	14.4%	13.5%	14.2%	14.9%	18.2%	17.9%	18.7%	19.3%		17.3%
	Motor Vehicles & Aerospace		15,342	33,983	49,927	74,605	13,634	32,544	49,635	71,086	16,835	32,022	51,148	65,827	94.0%	70,000
		YoY	-9.7%	0.2%	0.6%	20.2%	-11.1%	-4.2%	-0.6%	-4.7%	23.5%	-1.6%	3.0%	-7.4%		-1.5%
		% of total	9.1%	9.5%	9.4%	10.3%	9.6%	10.7%	10.6%	11.0%	9.6%	8.8%	9.1%	8.6%		9.3%
	Other		2,975	6,139	8,874	11,418	2,605	5,287	8,010	10,497	2,962	6,116	9,948	13,395	134.0%	10,000
		YoY	-1.3%	0.5%	-5.2%	-4.5%	-12.4%	-13.9%	-9.7%	-8.1%	13.7%	15.7%	24.2%	27.6%		-4.7%
		% of total	1.8%	1.7%	1.7%	1.6%	1.8%	1.7%	1.7%	1.6%	1.7%	1.7%	1.8%	1.7%		1.3%
Operating profit			5,840	14,698	18,738	28,352	3,386	9,970	14,556	23,635	5,047	14,242	21,094	29,347	97.8%	30,000
	YoY		-14.7%	-4.9%	-13.6%	-6.6%	-42.0%	-32.2%	-22.3%	-16.6%	49.1%	42.8%	44.9%	24.2%		26.9%
	Operating profit margin		3.5%	4.1%	3.5%	3.9%	2.4%	3.3%	3.1%	3.6%	2.9%	3.9%	3.8%	3.8%		4.0%
	Electronics & Devices		2,803	9,299	12,548	18,963	1,894	7,465	9,952	17,575	2,192	8,712	11,425	19,064	103.6%	18,400
		YoY	11.3%	15.2%	1.1%	2.3%	-32.4%	-19.7%	-20.7%	-7.3%	15.7%	16.7%	14.8%	8.5%		4.7%
		Operating profit margin	5.0%	7.3%	6.8%	7.5%	4.3%	7.3%	6.3%	7.8%	4.1%	7.3%	6.4%	7.5%		7.4%
		% of total	48.1%	63.3%	66.9%	66.9%	55.8%	74.8%	68.2%	74.3%	43.5%	61.2%	54.2%	65.0%		61.3%
	Foods, Meat & Grain		1,492	1,689	1,900	2,381	361	328	1,801	1,498	1,536	2,779	4,342	3,541	73.8%	4,800
		YoY	-13.1%	-28.4%	-42.0%	-39.7%	-75.8%	-80.6%	-5.2%	-37.1%	325.5%	747.3%	141.1%	136.4%		220.4%
		Operating profit margin	2.4%	1.3%	1.0%	0.9%	0.6%	0.3%	1.0%	0.6%	2.2%	2.0%	2.0%	1.2%		1.7%
		% of total	25.6%	11.5%	10.1%	8.4%	10.6%	3.3%	12.4%	6.3%	30.5%	19.5%	20.6%	12.1%		16.0%
	Steel, Materials & Plant		410	1,844	1,764	3,819	39	471	765	1,840	556	1,262	3,094	4,052	98.8%	4,100
		YoY	-58.5%	-33.3%	-44.2%	-13.9%	-90.5%	-74.5%	-56.6%	-51.8%	1,325.6%	167.9%	304.4%	120.2%		122.8%
		Operating profit margin	1.3%	2.9%	1.8%	2.9%	0.2%	1.1%	1.1%	1.9%	1.7%	1.9%	3.0%	2.7%		3.2%
		% of total	7.0%	12.6%	9.4%	13.5%	1.1%	4.7%	5.2%	7.8%	11.0%	8.9%	14.7%	13.8%		13.7%
	Motor Vehicles & Aerospace		861	1,316	1,802	2,383	901	1,318	1,484	2,055	586	959	1,292	1,663	97.8%	1,700
		YoY	-36.9%	-26.3%	-15.4%	-6.5%	4.6%	0.2%	-17.6%	-13.8%	-35.0%	-27.2%	-12.9%	-19.1%		-17.3%
		Operating profit margin	5.6%	3.9%	3.6%	3.2%	6.6%	4.0%	3.0%	2.9%	3.5%	3.0%	2.5%	2.5%		2.4%
		% of total	14.8%	9.0%	9.6%	8.4%	26.6%	13.2%	10.2%	8.7%	11.6%	6.7%	6.1%	5.7%		5.7%
	Other		267	542	730	819	198	400	580	696	168	513	931	1,009	100.9%	1,000
		YoY	5.1%	19.1%	6.7%	-3.6%	-25.8%	-26.2%	-20.5%	-15.0%	-15.2%	28.3%	60.5%	45.0%		43.7%
		Operating profit margin	9.0%	8.8%	8.2%	7.2%	7.6%	7.6%	7.2%	6.6%	5.7%	8.4%	9.4%	7.5%		10.0%
		% of total	4.6%	3.7%	3.9%	2.9%	5.8%	4.0%	4.0%	2.9%	3.3%	3.6%	4.4%	3.4%		3.3%
	Company-wide, eliminations		5	6	-8	-14	-7	-12	-27	-30	6	15	8	16
By segment (quarterly)			FY03/20				FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			168,416	188,539	174,178	190,669	142,371	162,508	162,891	181,372	175,567	188,571	196,803	207,022
	YoY		-1.9%	1.5%	-2.9%	2.0%	-15.5%	-13.8%	-6.5%	-4.9%	23.3%	16.0%	20.8%	14.1%
	Electronics & Devices		55,607	71,230	58,825	68,854	43,738	59,202	54,480	68,689	53,757	65,058	61,023	75,625
		YoY	-2.3%	0.5%	-2.0%	-11.5%	-21.3%	-16.9%	-7.4%	-0.2%	22.9%	9.9%	12.0%	10.1%
		% of total	33.0%	37.8%	33.8%	36.1%	30.7%	36.4%	33.4%	37.9%	30.6%	34.5%	31.0%	36.5%
	Foods, Meat & Grain		62,931	64,546	63,748	60,178	61,933	61,006	63,149	58,529	70,074	71,930	73,225	70,055
		YoY	0.9%	8.9%	2.7%	-1.6%	-1.6%	-5.5%	-0.9%	-2.7%	13.1%	17.9%	16.0%	19.7%
		% of total	37.4%	34.2%	36.6%	31.6%	43.5%	37.5%	38.8%	32.3%	39.9%	38.1%	37.2%	33.8%
	Steel, Materials & Plant		31,560	30,957	32,926	34,415	20,458	20,708	25,449	30,216	31,937	33,241	39,597	43,218
		YoY	-2.6%	-13.2%	-14.3%	4.4%	-35.2%	-33.1%	-22.7%	-12.2%	56.1%	60.5%	55.6%	43.0%
		% of total	18.7%	16.4%	18.9%	18.0%	14.4%	12.7%	15.6%	16.7%	18.2%	17.6%	20.1%	20.9%
	Motor Vehicles & Aerospace		15,342	18,641	15,944	24,678	13,634	18,910	17,091	21,451	16,835	15,187	19,126	14,679
		YoY	-9.7%	10.1%	1.5%	98.6%	-11.1%	1.4%	7.2%	-13.1%	23.5%	-19.7%	11.9%	-31.6%
		% of total	9.1%	9.9%	9.2%	12.9%	9.6%	11.6%	10.5%	11.8%	9.6%	8.1%	9.7%	7.1%
	Other		2,975	3,164	2,735	2,544	2,605	2,682	2,723	2,487	2,962	3,154	3,832	3,447
		YoY	-1.3%	2.2%	-15.9%	-2.1%	-12.4%	-15.2%	-0.4%	-2.2%	13.7%	17.6%	40.7%	38.6%
		% of total	1.8%	1.7%	1.6%	1.3%	1.8%	1.7%	1.7%	1.4%	1.7%	1.7%	1.9%	1.7%
	Adjustments		-88	-281	-201	-164	-113	-138	-152	-137	-120	-212	-208	540
Operating profit			5,840	8,858	4,040	9,614	3,386	6,584	4,586	9,079	5,047	9,195	6,852	8,253
	YoY		-14.7%	2.9%	-35.1%	10.9%	-42.0%	-25.7%	13.5%	-5.6%	49.1%	39.7%	49.4%	-9.1%
	Operating profit margin		3.5%	4.7%	2.3%	5.0%	2.4%	4.1%	2.8%	5.0%	2.9%	4.9%	3.5%	4.0%
	Electronics & Devices		2,803	6,496	3,249	6,415	1,894	5,571	2,487	7,623	2,192	6,520	2,713	7,639
		YoY	11.3%	17.0%	-25.1%	4.7%	-32.4%	-14.2%	-23.5%	18.8%	15.7%	17.0%	9.1%	0.2%
		Operating profit margin	5.0%	9.1%	5.5%	9.3%	4.3%	9.4%	4.6%	11.1%	4.1%	10.0%	4.4%	10.1%
		% of total	48.0%	73.3%	80.4%	66.7%	55.9%	84.6%	54.2%	84.0%	43.4%	70.9%	39.6%	92.6%
	Foods, Meat & Grain		1,492	197	211	481	361	-33	1,473	-303	1,536	1,243	1,563	-801
		YoY	-13.1%	-69.4%	-76.9%	-28.8%	-75.8%	-	598.1%	-	325.5%	-	6.1%	-
		Operating profit margin	2.4%	0.3%	0.3%	0.8%	0.6%	-0.1%	2.3%	-0.5%	2.2%	1.7%	2.1%	-1.1%
		% of total	25.5%	2.2%	5.2%	5.0%	10.7%	-0.5%	32.1%	-3.3%	30.4%	13.5%	22.8%	-9.7%
	Steel, Materials & Plant		410	1,434	-80	2,055	39	432	294	1,075	556	706	1,832	958
		YoY	-58.5%	-19.3%	-	61.2%	-90.5%	-69.9%	-	-47.7%	1,325.6%	63.4%	523.1%	-10.9%
		Operating profit margin	1.3%	4.6%	-0.2%	6.0%	0.2%	2.1%	1.2%	3.6%	1.7%	2.1%	4.6%	2.2%
		% of total	7.0%	16.2%	-2.0%	21.4%	1.2%	6.6%	6.4%	11.8%	11.0%	7.7%	26.7%	11.6%
	Motor Vehicles & Aerospace		861	455	486	581	901	417	166	571	586	373	333	371
		YoY	-36.9%	7.8%	41.7%	38.3%	4.6%	-8.4%	-65.8%	-1.7%	-35.0%	-10.6%	100.6%	-35.0%
		Operating profit margin	5.6%	2.4%	3.0%	2.4%	6.6%	2.2%	1.0%	2.7%	3.5%	2.5%	1.7%	2.5%
		% of total	14.7%	5.1%	12.0%	6.0%	26.6%	6.3%	3.6%	6.3%	11.6%	4.1%	4.9%	4.5%
	Other		267	275	188	89	198	202	180	116	168	345	418	78
		YoY	5.1%	36.8%	-17.9%	-46.4%	-25.8%	-26.5%	-4.3%	30.3%	-15.2%	70.8%	132.2%	-32.8%
		Operating profit margin	9.0%	8.7%	6.9%	3.5%	7.6%	7.5%	6.6%	4.7%	5.7%	10.9%	10.9%	2.3%
		% of total	4.6%	3.1%	4.7%	0.9%	5.8%	3.1%	3.9%	1.3%	3.3%	3.8%	6.1%	0.9%
	Company-wide, eliminations		5	1	-14	-6	-7	-5	-15	-3	6	9	-7	8

Source: Shared Research based on company data

Full-year FY03/22 results (out May 10, 2022)

Summary

Revenue: JPY768.0bn (+18.3% YoY; achievement of 102.4% versus full-year FY03/22 forecast)
Operating profit: JPY29.3bn (+24.2% YoY; 97.8%)
Pre-tax profit: JPY28.8bn (+22.0% YoY; 95.9%)
Profit attributable to owners of the parent: JPY16.0bn (+20.1% YoY; 99.9%)
Annual dividend: JPY65 per share (JPY60 per share in FY03/21).

Key points

Revenue came in at JPY768.0bn (+18.3% YoY) as nearly all businesses recorded revenue growth. This was primarily driven by higher market prices in the meat products and feedstuff and grain businesses and higher transaction volumes for petroleum and petroleum products on the back of higher crude oil prices in the energy business.

Operating profit reached JPY29.3bn (+24.2% YoY) on higher revenue in the meat products, ICT solutions, and steel tubing businesses. These positive factors offset lower profits in the aerospace business (slow period for government contracts) and mobile business (lower commission income) and higher SG&A expenses.

Performance by segment

Electronics & Devices

Revenue: JPY255.5bn (+13.0% YoY)
Operating profit: JPY19.1bn (+8.5% YoY; achievement of 103.6% versus full-year FY03/22 forecast)

Operating profit amounted to JPY19.1bn (+8.5% YoY). In the ICT solutions business, amid firm corporate IT investment, the company focused on developing its solutions business and remote work environment, in addition to developing its infrastructure configuration business. As a result, it saw higher operating profit due to increases in network security-related and storage-related projects. The mobile business saw signs of a recovery in store footfall, but operating profit fell due to a decline in commission income from store subsidies amid the pandemic. The semiconductor parts and manufacturing equipment business showed steady performance on the back of growth in shipments of semiconductor parts for in-car devices and manufacturing equipment driven by strong demand.

Foods, Meat & Grain

Revenue: JPY285.3bn (+16.6% YoY)
Operating profit: JPY3.5bn (+136.4% YoY; achievement of 73.8% versus full-year FY03/22 forecast)

Operating profit came to JPY3.5bn (+136.4% YoY). In addition to a recovery in demand, the meat products business benefited from a substantial rise in overall meat product prices, and profits rebounded dramatically YoY from the drop in 1H FY03/21 caused by lower sales to restaurants. The feedstuff business was sluggish due to valuation losses caused by the sharp rise in market prices in Q4 FY03/21. The food business meanwhile delivered solid results owing to growth in retail product sales. The feedstuff business performed well on higher grain and feed prices.

The 73.8% achievement rate for operating profit relative to the company's full-year forecast stemmed from a peak-out in Q4 in the beef market in particular, which resulted in inventory valuation losses on a lower-of-cost-or-market basis and other factors. Foods, Meat & Grain profits were sluggish in Q4 due to a combination of factors, including a loss on valuation of commodity futures in the feedstuff business.

Steel, Materials & Plant

Revenue: JPY148.0bn (+52.8% YoY)
Operating profit: JPY4.1bn (+120.2% YoY; achievement of 98.9% versus full-year FY03/22 forecast)

Operating profit rose 304.4% YoY to JPY3.1bn. The steel tubing business performed strongly on recovery of energy demand. The machine tools and industrial machinery business posted solid results after recovering from the harsh business environment in FY03/21 brought on by the COVID-19 pandemic. Meanwhile, performance in the energy business was lackluster as the business incurred valuation losses on futures contracts.

Motor Vehicles & Aerospace

Revenue: JPY65.8bn (-7.4% YoY)
Operating profit: JPY1.7bn (-19.1% YoY; achievement of 97.8% versus full-year FY03/22 forecast)

Operating profit fell 12.9% YoY to JPY1.3bn. The aerospace business remained sluggish as FY03/22 was in the slow period for government contracts. In the motor vehicles and parts business, transactions for parts were steady due to market recovery from pandemic conditions and the weakening of the yen.

Other

Revenue: JPY13.4bn (+27.6% YoY)
Operating profit: JPYJPY1.0bn (+45.0% YoY; achievement of 100.9% versus full-year FY03/22 forecast)

FY03/23 full-year company forecast

	FY03/21			FY03/22			FY03/23	YoY
(JPYmn)	1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.	FY Est.
Revenue	304,879	344,263	649,142	364,138	403,825	767,963	850,000	10.7%
Cost of revenue	257,418	290,208	547,626	310,224	345,937	656,161
Gross profit	47,461	54,054	101,515	53,914	57,887	111,801
Gross profit margin	15.6%	15.7%	15.6%	14.8%	14.3%	14.6%
SG&A expenses	38,094	40,799	78,893	41,358	43,745	85,103
SG&A ratio	12.5%	11.9%	12.2%	11.4%	10.8%	11.1%
Operating profit	9,970	13,665	23,635	14,242	15,105	29,347	31,500	7.3%
Operating profit margin	3.3%	4.0%	3.6%	3.9%	3.7%	3.8%	3.7%
Pre-tax profit	9,582	13,998	23,580	13,554	15,211	28,765	32,000	11.2%
Recurring profit margin	3.1%	4.1%	3.6%	3.7%	3.8%	3.7%	3.8%
Profit attributable to owners of the parent	5,874	7,441	13,315	7,285	8,701	15,986	18,000	12.6%
Profit margin	1.9%	2.2%	2.1%	2.0%	2.2%	2.1%	2.1%

Source: Shared Research based on company data

Full-year FY03/23 forecast (announced May 10, 2022)

Revenue: JPY850.0bn (+10.7% YoY)
Operating profit: JPY31.5bn (+7.3% YoY)
Pre-tax profit: JPY32.0bn (+11.2% YoY)
Profit attributable to owners of the parent: JPY18.0bn (+12.6% YoY)
Basic EPS: JPY215.53 (versus JPY191.42 in FY03/22)
Assumed exchange rate: JPY115/USD
Annual dividend: JPY70.00 per share (versus JPY65.00 per share in FY03/22)

The company expects operating profit to increase 7.3% YoY. Although there are some concerns about the economic environment due to the spread of geopolitical risks and the COVID-19 pandemic, the company factored in profit growth in the semiconductor parts and manufacturing equipment business, where supply and demand are expected to continue to tighten, and in the mobile business, where the acquisition of distributors is expected to have a positive effect. It also expects profit growth in the machine tools and industrial machinery business, where it sees a full-fledged recovery in capex demand from the lows of the COVID-19 pandemic, and in the energy business, where it incurred valuation losses on futures contracts in the previous fiscal year.

Regarding transactions denominated in foreign currencies, the company said the impact on the income statement is generally neutral due to high imports centered on the Foods, Meat & Grain segment, and the fact that foreign exchange risk is basically transferred to its customers in Japan. As for the impact on the balance sheet, the company said that a JPY1 depreciation of the yen would have a positive impact on shareholders' equity to the tune of approx. JPY300mn.

Based on the FY03/23 dividend forecast of JPY70.0, the dividend payout ratio is expected to be 32.5%. The company's medium-term vision "future135" calls for a total payout ratio of 30–35%.

Company outlook on full-year operating profit by segment

The following information is based on information as of May 10, 2022. The company does not disclose operating profit by individual business. Details will be updated following interviews with the company.

Electronics & Devices segment

Operating profit: JPY20.0bn (+4.9% YoY)

Kanematsu projects the full-year operating profit in the Electronics & Devices segment to come in at JPY20.0bn (+4.9% YoY).
The company's outlook for its mobile business, which saw a decrease in profits in FY03/22, is as follows.

Sales volume in the mobile business recovered to about 105% of FY03/21, but remained at about 90% of the level of FY03/20 (before the spread of the COVID-19 pandemic). Recovery was weak as evidenced by the number of customers visiting some stores, especially in urban areas, coming in at half of FY03/20 levels. There was the further negative factor of telecommunication carriers decreasing support payments as a measure against the COVID-19 pandemic. In addition, the shortage of semiconductors and disruptions in supply chains has resulted in shortages of products such as models with high corporate demand. In urban areas, the company thinks that online-only plans spreading to some extent, and expects the downward trend in the number of customers visiting stores to continue. Therefore, it has begun to prioritize the optimization of store size for stores with large declines in customer footfall through store relocations and reviews of staff numbers.

Commission income from telecommunications carriers, which fell sharply in Q3 FY03/22, recovered to a certain degree in Q4 of the same year thanks to sales efforts such as in-person sales visits. However, Kanematsu expects the industry environment to become more severe moving forward. The company will urgently work to build new earnings drivers, such as new businesses utilizing carrier store floors and a solutions business for corporate clients.

Foods, Meat & Grain segment

Operating profit forecast: JPY3.6bn (+1.7% YoY)

Kanematsu expects to see operating profit in this segment finish at JPY4.8bn (+220.4% YoY).

Steel, Materials & Plant segment

Operating profit forecast: JPY5.3bn (+30.8% YoY)

The company expects operating profit in this segment to reach JPY5.3bn, up 30.8% YoY.
Kanematsu stated the following about the outlook for its overseas business (steel tubing business in North America), which saw an increase in operating profit of approximately JPY1.7bn in the previous fiscal year.

The Russian–Ukrainian crisis has led to a further rise in crude oil prices, and there has been a policy shift in the US toward increasing energy supply capacity, which is expected to drive investment in the shale industry. On the other hand, there are also investment constraints and labor market strains due to decarbonization, the effects of which will need to be monitored. The steel tubing sales business is recovering and becoming more profitable, but the rig count level only rose moderately to the high 600s as of end-FY03/22. Therefore, the company expects some uncertainty in the speed of recovery of the steel tubing business environment to remain.

Motor Vehicles & Aerospace segment

Operating profit forecast: JPY1.7bn (+2.2% YoY)

The company expects operating profit in this segment to increase by 2.2% YoY to JPY1.7bn.

Operating profit: results and company forecast by segment (company forecasts for individual businesses not disclosed as of May 10, 2022)

		FY03/21			FY03/22			FY03/23	YoY	FY03/22	FY03/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.	FY Est.	Est. in Nov. revision	Initial Est
Electronics & Devices		7,465	10,110	17,575	8,712	10,352	19,064	20,000	4.9%	19,200	19,200
	ICT Solutions	5,200	5,800	11,000	6,100	6,700	12,800			12,300	11,500
	Mobile	2,000	3,800	5,800	2,300	2,000	4,300			5,700	6,500
	Other	300	500	800	400	1,500	1,900			1,200	1,200
Foods, Meat & Grain		328	1,170	1,498	2,779	762	3,541	3,600	1.7%	3,500	3,500
	Foods (Meat included up to FY03/19)	-200	-200	-400	100	-200	-100			200	200
	Meat	-700	-200	-900	1,200	500	1,700			1,500	800
	Grain	1,300	1,400	2,700	1,400	500	1,900			1,800	2,500
	Other	0	0	0	0	0	0			0	0
Steel, Materials & Plant		471	1,369	1,840	1,262	2,790	4,052	5,300	30.8%	3,100	3,100
	Machining tools, industrial machinery	-100	800	700	300	800	1,100			1,000	1,400
	Overseas	-200	-300	-500	600	1,100	1,700			700	0
	Energy, Chemicals	800	800	1,600	300	1,000	1,300			1,400	1,700
Motor Vehicles & Aerospace		1,318	737	2,055	959	704	1,663	1,700	2.2%	1,400	1,400
	Aerospace	1,300	300	1,600	500	-100	400			600	400
	Motor vehicles and parts	100	400	500	500	800	1,300			800	1,000
	Other	0	0	0	0	0	0			0	0
Other, adjustments		400	296	696	513	496	1,009	900	-10.8%	800	800
Total		9,970	13,665	23,635	14,242	15,105	29,347	31,500	7.3%	28,000	28,000

Figures for individual businesses are rounded to the nearest JPY100mn (in gray), so the totals of business figures do not match the segment totals.
Source: Shared Research based on company data

Management strategy

Medium-term vision, “future135” (FY03/19–FY03/24)

Kanematsu has been pursuing its medium-term vision, “future135,” which covers the six years through FY03/24 (announced on May 9, 2018). At the time of its FY03/21 earnings announcement (May 7, 2021), the company reconfirmed the course of its policy based on the progress of business investment in the first three years of the plan and the impact of the COVID-19 pandemic.

Kanematsu stated that it would make no major changes to its basic policy despite unexpected changes in the business environment such as the COVID-19 pandemic. However, the company announced a revision to the following quantitative targets (for FY03/24, the last year of the plan), taking into account progress in business investment and related revenue growth. It also decided to add measures related to the sustainable development goals (SDGs) and to digital transformation (DX) to its priority initiatives.

Quantitative targets

Profit attributable to owners of the parent: JPY20.0bn (previously JPY25.0bn)
ROE: 10–12% (previously 13–15%)
Total return ratio (dividend payout ratio): 30–35% (previously 25–30%)

For the final year of its medium-term plan, the company revised downward its target for profit attributable to owners of the parent from JPY25.0bn to JPY20.0bn. This was in response to sluggish growth in the three years through FY03/21, due in part to the COVID-19 pandemic. At the time the plan was formulated (May 9, 2018), profit attributable to owners of the parent was announced as having been JPY16.3bn in FY03/18, but the amount shrank to JPY13.3bn in FY03/21.

Kanematsu expects a roughly equal contribution to future growth in profit attributable to owners of the parent from organic growth of its own businesses and from the move into a profitable position for its investment projects (including M&A).

The company raised the initial 25–30% dividend payout ratio projection to 30–35%, based on the fact that the ratio exceeded 30% in FY03/19, FY03/20, and FY03/21, and the fact that retained earnings have been accumulating.

Priority initiatives (qualitative targets)

Sustainable growth in fundamental businesses, expansion of scale through business investments, and securing added value

The company aims to achieve sustainable growth while maintaining a balance between capital and risk assets, backed by a stable revenue structure and financial structure.

The company plans to make business investments in its areas of strength, including Electronics & Devices; Foods, Meat & Grain; steel tubing, and aircraft. Kanematsu will pursue two types of investments: those aimed at expanding scale and those that ensure added value. Investments aimed at building scale include factory expansions and purchases of peer companies. Investments targeting higher added value include businesses where technical hurdles to entry are high, businesses that involve substantial intellectual property, and businesses that require the accumulation of sophisticated expertise.

Newly added item: The company will promote investment in business fields with environmental, social, and safety themes to contribute to achieving the UN’s SDGs.

The company will continue its existing SDG-related initiatives. For example, it is currently converting its US steel tubing business to enhanced oil recovery tubing, which is needed in underground CO2 sequestration. In addition, in the Foods, Meat & Grain segment, the company says its investment in a soy meat producer will contribute to sustainability.

Response to technical innovation

Newly added item: Promote digital transformation (DX) throughout group

Promote and expand new businesses that involve leading-edge technologies (such as IoT and AI) in the data business

Promote “innovation investments” (investment in development for the future)

In regard to DX promotion, Kanematsu plans to use customer and business partner data it and its group companies are collecting to anticipate the needs of customers and society, enabling it to adjust its business model to provide the services needed. The company says it sought during the first three years (first half) of the medium-term plan to ensure that the infrastructure and resources were in place to promote DX. During the next three years (second half) of the plan, it will use this infrastructure as the basis for a groupwide DX push.

Establishment of management structure to achieve sustainable growth

Creation of a structure that supports global strategies, such as enhancing revenue generation at overseas bases

Investment in human resources, such as for the development of management personnel

Improvement in operational efficiency and employee satisfaction through ongoing promotion of work style reform and other measures

Business investment

Results

Kanematsu newly invested some JPY23bn in the three years from FY03/19 to FY03/21, including JPY6bn in the Electronics & Devices segment, JPY1bn in the Foods, Meat & Grain segment, JPY9bn in the Steel, Materials & Plant segment, and JPY7bn in the Motor Vehicles & Aerospace segment (all figures are approximate). The company cited the following as main projects that specifically contributed to revenue.

Electronics & Devices segment: Turning a card printer business into a subsidiary (Japan)

Foods, Meat & Grain segment: Providing a capital increase to a processed food manufacturer (Indonesia)

Steel, Materials & Plant segment: Acquiring a metal sash manufacturer (Japan) and making an equity-method investment in a steel sheet processing manufacturer (South Korea)

Investment in new businesses: FY03/19–FY03/21 (for details, see the following section, “Reference: Business strategy”)

Segment	Completed projects
Electronics & Devices	Made card printer business company a wholly owned subsidiary	Japan
Approx. JPY6bn	Acquired semiconductor image sensor back-end process business	Japan
	Invested in data trading market development and consulting company	Japan
	Expanded mobile communication business	Japan
	Made equity-method investment in photo printer business company	Germany
	Acquired semiconductor manufacturing (marking) equipment trading company	Japan
	Acquired semiconductor manufacturing (IC handler) equipment manufacturing business	Japan
Foods, Meat & Grain	Established primary beef processing and sales company	China
Approx. JPY1bn	Established feedstuff ingredient manufacturing plant	China
	Increased capital to processed food manufacturing company	Indonesia
	Invested in feedlot operations for Uruguayan beef	Uruguay
	Invested in production company for soy-based and other plant-based meat	Japan
Steel, Materials & Plant	Made equity-method investment in steel sheet processing manufacturer	South Korea
Approx. JPY9bn	Acquired manufacturer specializing in metal sashes	Japan
	Acquired plant engineering company	Japan
	Made equity-method investment in steel frame and bridge girder fabricator	Vietnam
	Established second plant for steel tubing processing business	US
Motor Vehicles & Aerospace	Participated in cybersecurity investment fund	US
Approx. JPY7bn	Invested in startup developing equipment for rescue helicopters	US
	Purchased aircraft in the aircraft parts business	Ireland
	Acquired Kaneyo Co., Ltd., through tender offer	Japan
	Acquired company that develops and manufactures drive recorders	Japan

Source: Shared Research based on company data

Outlook

Kanematsu expects its business investments in the semiconductor field to contribute to earnings, given the growing demand for semiconductors. It also expects to expand its market share of meat products and improve its profit margin by working to increase its primary processing. In the long term, it expects plant-based meat, data distribution, and drive recorders to contribute to revenue growth.

Reference: Business strategy

Electronics & Devices segment

The company plans to enter and invest in new fields of business where technological innovation and market growth rates are particularly high, such as IoT and AI.

Given workstyle reforms and the expansion of teleworking, the company will work to shore up its revenue base in the ICT solutions and mobile businesses by providing solutions such as virtual desktop infrastructure (VDI)*, as well as network access points and other services.

Companies throughout Japan are reinforcing and expanding their strategies targeting digital transformation (DX). Given these circumstances, Kanematsu plans to make innovation investments in solution providers, including venture companies. In addition, Kanematsu plans to acquire companies and businesses to bolster revenue via synergy with existing businesses.

Kanematsu perceives an increasing level of complexity in information security, shortage of specialized personnel, and a need to promote technological innovation. Accordingly, in the ICT solutions business the company aims to form capital alliances and partnerships with domestic and overseas companies that have sophisticated and specialized technologies, acquiring and expanding its solutions infrastructure.

In the semiconductor production equipment, electronic devices, and electronic components fields, the company intends to take a precaution against the risk that geopolitical issues will cause supply chains to be cut off by expanding functions at its overseas bases and increasing their diversity.

The company aims to expand the high-value-added printer business, centering on the card printer business, a field that requires technological expertise and has high barriers to entry.

Kanematsu plans to increase business related to high-resolution imaging, such as image analysis and diagnostic imaging.

Investment history

Acquired Nippon Office Systems (November 2012): Kanematsu Electronics, a subsidiary, purchased Nippon Office Systems through a tender offer, making the company a wholly owned subsidiary. The purchase price was JPY709mn.
Purchased all shares in BD Holdings (April 2013): Kanematsu acquired all shares in BD Holdings, which directly operated four Docomo shops in Fukuoka prefecture, bringing those mobile phone sales outlets under the Kanematsu umbrella.
Purchased Kanematsu-NNK through a tender offer, made the company a subsidiary (December 2014): Kanematsu purchased shares of Kanematsu-NNK Corp. (TSE1: 7961, now Kanematsu Sustech Corporation) through a tender offer, making the company a subsidiary. The acquired company conducts ground improvement, processes lumber, and sells security equipment. The purchase price was JPY1.6bn.
Invested in Alpha Group (May 2015): The Kanematsu group invested JPY400mn, purchasing about a 15% (end-March 2021) stake in Alpha Group (TSE JASDAQ: 3322), which sells mobile handsets.
Acquired Diamond Telecom, made the company a subsidiary (January 2016): The Kanematsu group invested some JPY17.4bn to acquire Diamond Telecom, Inc. from Mitsubishi Electric Corporation (TSE1: 6503), making Diamond Telecom a Kanematsu subsidiary. Diamond Telecom sells mobile handsets nationwide through shops certified by telecoms carriers, mainly NTT Docomo.
Acquired G-Printec, made the company a subsidiary (December 2016): Along with corporate investment fund AZ-Star Co., Ltd., Kanematsu acquired JVC Kenwood Corporation subsidiary G-Printec, Inc., purchasing all shares and making G-Printec a Kanematsu subsidiary. G-Printec makes IC card printers.
Formed a capital and business alliance with Japan Data Exchange Inc. (J-DEX) (December 2019): Kanematsu entered a capital and business alliance with J-DEX, becoming its largest shareholder and making J-DEX an equity-method affiliate. By coordinating with J-DEX’s data exchange consulting service, Kanematsu aims to build and expand a data exchange market that achieves consistency in the use of data.
Purchased shares in di support, a German company (December 2019): Established in 2000, di support provides various services related to digital imaging. To date, di support has built relationships with large retailers in the German-speaking world, providing digital photography and instant printing services.
Kanematsu subsidiary Kanematsu PWS acquired Lumonics KK, turning the company into a wholly owned subsidiary (November 2020): Kanematsu PWS Ltd. sells semiconductor manufacturing equipment made by Suss Micro Tec (a German company) and ASM Pacific Technology (from Hong Kong). Lumonics is the sales agent in Japan for Germany’s InnoLas Semiconductor and sells its wafer marking equipment, which do not compete with those Kanematsu PWS offers. Through the acquisition, Kanematsu PWS aimed to expand its lineup of semiconductor manufacturing equipment.
Acquisition of IC test handler business (January 2021): Kanematsu took over Seiko Epson Corporation’s IC test handler business. IC test handlers are a standard part of the semiconductor testing process. On March 1, 2021 it established NS Technologies Inc., a wholly owned subsidiary for the business. The company expects the business transfer to be completed in early April 2021. The business was launched on April 1, 2021.

Foods, Meat & Grain segment

The Japanese market for meat products is being affected by a growing volume of imports, due to import tax reductions stemming from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Agreement (TPP11 Agreement), the Japan–EU Economic Partnership Agreement (EPA), and the Japan-U.S. Trade Agreement on goods (TAG). Meanwhile, in other Asian markets demand for meat products is rising in step with population growth and economic expansion.

Food business

In the cooked foods business, the company intends to increase the number of product development personnel and develop processed foods at optimal locations around the world.

As Asian demand for high-quality food products expands, the company will promote the development of locations that can produce safe, secure, and fresh agricultural products. Kanematsu intends to expand local production for local consumption through the overseas rollout of frameworks for supplying food safely and to Japanese quality levels.

With global warming and abnormal weather conditions damaging the cultivation of agricultural products more than in the past, the company is working to secure water resources and promote cultivation overseas. The company plans to hedge against risks by distributing its overseas production basis geographically.

In light of a global spate of incidents in which consumer health is damaged as a result of food product contamination, the company intends to reinforce food product management systems, based on the ISO 22000 and FSSC 22000 standards.

The company aims to increase sales of halal and other third-party verified agricultural and marine products.

The company aims to expand sales of environmentally friendly renewable products.

Kanematsu aims to actively enhance relationships with and make capital investments in collaborative partners in Indonesia and other parts of Southeast Asia to establish a leading position in the region.

Meat products business

The company will actively pursue business investments and acquisitions.

In the Asian market, the company will attempt to roll out the business model for meat products it has used in Japan.

Through capital participation and business alliances, the company aims to strengthen relationships with existing suppliers and cultivate new production regions, as well as promoting the development of safe, high-value-added products.

In response to geopolitical risk, the company aims to diversify regions of production and spread out supply sources.

The company intends to reduce the risk of market volatility by diversifying its customer base and expanding the processing business.

The company will work to reinforce sales and enhance procurement capabilities in high-growth Asian markets, helping to ensure a steady supply of food products for Japan.

To add value to products, the company plans to augment functionality in the storage (refrigerated warehousing) and processing businesses.

Feedstuff business

The company hedges its trades by using the futures market of the Chicago Mercantile Exchange (CME).

To ensure supply stability, in the grain business the company is working to source from more geographically diverse producing regions.

In the grain business, the company is augmenting its quality control capabilities through involvement in upstream production and shipping.

In the rice business, the company is expanding exports from Vietnam to other Asian countries.

The company is preparing to invest in supply bases to increase supply capabilities in the food soybean and oilseed business.

In the overseas feedstuffs business, the company is working to meet increasing demand for soybeans due to expansion of the livestock business in Northeastern China.

The company is strengthening capabilities in the domestic feedstuffs business, such as in the field of agricultural IoT.

Investment history

Established a food-processing joint venture with an Indonesian company (November 2012): With Indonesia’s Cimory Group, Kanematsu established PT. Kanemory Food Service as a joint venture for food processing and operation of a central kitchen. The JV handles R&D and content provision in the food service field, for restaurants, convenience stores, and supermarkets, and provides various types of processed foods from its central kitchen. The JV has a plant capable of producing halal-certified foods.
Purchased US base for providing food soybeans (December 2012): Kanematsu purchased Harmony Agricultural Products in Ohio from Honda Trading America, established a wholly owned subsidiary (KG Agri Products), and began developing food soybean seeds and engaged in the contract farming, sorting, and sales of food soybeans. The Ohio base can sort 45,000 tons of soybeans per year.
Invested in a Vietnamese diary producer (July 2013): The Kanematsu group invested in Dalat Milk, a Vietnamese dairy producer, and entered a business alliance to provide feed for dairy cattle. Together the companies established and operate a feed-mixing facility. From there, the companies sell feed within Vietnam and export it to Japan and South Korea.
Invested in an Indonesian producer of fruit jellies (February 2015): Through a joint venture with Indonesian company Aternit, Kanematsu invested in Tarami Corporation’s (based on Nagasaki) PT. Tarami Aternit Food that produces fruit jellies in Indonesia.
Invested in Farmnote, which engages in smart agribusiness (August 2015): The Kanematsu group invested in Farmnote Inc., which has developed an eponymous cloud-based cattle management system. The system uses smart devices that operate at a touch to make ranch management visible.
Purchased additional shares in GPC Holdings (December 2015): The Kanematsu group acquired shares in GPC Holdings Ltd., a wholesaler of pet foods and products. The additional purchase brought Kanematsu’s stake in GPC Holdings to 67%, making it a consolidated subsidiary.
Invested in Be Smile Project Inc. (March 2016): The Kanematsu group invested in Be Smile Project, a Kagoshima-based company that focuses on sixth-order industrialization*. By building a value chain spanning breeding cattle production, feed supply, feedlot operation, processing and sales, restaurants, and export, the company aims to produce safe and high-value-added products such as Japanese cattle.
Built a chilled/frozen storage warehouse in Jakarta (October 2018): The Kanematsu group is an investor in Indonesia-based PT. Dunia Express Transindo (DUNEX), which built a three-temperature (chilled, refrigerated, and frozen) warehouse in northern Jakarta. With this move, DUNEX (Indonesia’s largest Japanese-affiliated logistics company) entered the cold chain business.
Entered capital and business alliance with DAIZ, Inc. (December 2020): Kanematsu agreed to a capital and business alliance including acceptance of part of a third-party allotment to increase capital at DAIZ, Inc., a startup company making plant-based meat.
*Sixth-order industrialization: This Japanese concept expresses the goal of invigorating agriculture by combining the growing of things (primary industry) with processing (secondary industry) and distribution/sales (tertiary) to produce synergies (1 + 2 + 3 = 6).

Steel, Materials & Plant segment

To reduce risk related to trade problems, such as US–China trade friction, the company aims to expand business in high-performance products and private brand products.

The company is strengthening relations with business partners, aiming to create new business schemes by leveraging partners’ technologies, expertise, products, and services.

The company aims to cultivate new markets, products, and business partners to mitigate the risk of commercial rights being dissipated due to falling demand.

Kanematsu intends to create new businesses that contribute to environmental preservation, including the reduction of CO₂.

To strengthen the construction materials business, the company aims to enhance product and service sales capabilities across the board.

The company intends to expand initiatives in the solar power generation and biomass fuel businesses.

Kanematsu plans to step up initiatives in the high-value-added pharmaceuticals/life science field, including the sale of pharmaceutical raw materials and intermediates.

To differentiate itself from other companies, Kanematsu plans to actively propose packaged products covering raw materials, products, and related equipment and materials.

Investment history

Acquired Benoit, a US steel tubing company (October 2012): Along with JFE Steel Corporation, Kanematsu acquired US steel tubing manufacturer Benoit for approximately JPY7.3bn, making Benoit a subsidiary. At its plant in Houma, Louisiana, Benoit manufactures steel tubing used in oil and gas exploration, and produces and sells threaded tubing ends and various other oilfield parts. Kanematsu notes that the specialty threading products Benoit began manufacturing more than 30 years ago have gained a strong reputation among major oilfield developers around the world. Benoit’s specialty threading products have a US market share of around 30%.

Built a second factory at Benoit (October 2014): Benoit Premium Threading, a subsidiary established jointly by Kanematsu and JFE Steel, built a second plant in Waller County, Texas, on the site of the Eagle Ford shale oil and gas field. Total investment was approximately JPY3.5bn.

Made equity-method investment in South Korean steel sheet manufacturer (March 2019): Kanematsu made an equity-method investment in a steel sheet processing manufacturer with an established track record as a primary subcontractor for major South Korean home appliance manufacturers. The investee has also been expanding into the construction and automotive fields in recent years.

Acquired a plant engineering company (January 2020): Subsidiary Kanematsu KGK, a general trading company for machinery, acquired Aioi Sekkei Co., Ltd., an engineering company that serves as a one-stop source for the design, manufacture, and construction of plant facilities.

Made equity-method investment in Vietnam’s ATAD (March 2021): Kanematsu completed a capital and business alliance with Vietnam’s ATAD Steel Structure Corporation and made it an equity-method affiliate. ATAD provides products and services in the fields of pre-engineered construction and heavy steel frame construction.

Motor Vehicles & Aerospace segment

The company sees opportunities in the rapid diversification of mobility business as part of a once-in-a-century period of technological innovation and rapid digitalization. In addition to long-term growth in demand for cars and motorcycles in emerging markets, the company sees new demand opportunities related to the evolution of CASE* and MaaS** technologies. In line with growing demand in the aircraft market, the company expects the part-out and maintenance, repair, and overhaul (MRO) markets to expand.

*CASE: This auto industry terms comes from the first letters of the words connected, autonomous, shared/services, and electric.
**MaaS: Rather than the general approach of looking at individual modes of travel (automobiles, bicycles, buses, trains, aircraft, and so forth), mobility as a service (MaaS) refers to the idea of seamlessly connecting them as a service. By focusing on the idea of mobility as service rather than concentrating on the mode and placing them on a single platform, MaaS might help travelers select the most efficient mode of travel and lead to integrated services that make reservations and payments more convenient. In recent years, MaaS has begun to emerge as a potential way to connect non-transport businesses (tourism, food and beverage, medical care, real estate) and offer value-added services.

Strategy for the motorcycle and automotive parts businesses

The company aims to increase sales of components for EVs and other environmentally friendly vehicles.

The company intends to develop the data and software businesses.

Kanematsu plans to establish bases in and form tie-ups with local companies in the growth markets of Asia and in the US, the largest market.

Investment history

Acquired Japan’s Datatec Co., Ltd. (February 2021): On February 1, 2021, Kanematsu acquired a 90% stake in Datatec Co., Ltd., and made it a subsidiary with the aim of expanding its next-generation mobility business. Datatec provides onboard products and services to support safe driving, such as digital tachographs for commercial vehicles. Kanematsu plans to expand sales of Datatec’s mainstay digital tachographs both in Japan and overseas, especially in Southeast Asia, India, and North America, and to develop new businesses using vehicle behavior analysis technology in the vehicle telematics market. The company will also promote a new data business using AI and the vast amount of vehicle operation data obtained from Datatec’s onboard devices.

Aerospace business strategy

Kanematsu is expanding its aftermarket business for civilian aircraft, centering on the part-out* and MRO** businesses.

*Part-out business: This refers to the disassembly, removal, and storage of parts from retired aircraft for sale to customers (maintenance service providers, leasing companies, and aircraft companies) around the world.
**MRO: Short for maintenance, repair, and operations, MRO refers to systems for more efficiently ordering and providing secondary materials including consumables and equipment parts.

The company aims to utilize data from positioning and satellite constellations alongside AI and big data technologies across its operations.

Kanematsu is proactively engaging in initiatives related to national security, gathering data about Space Situational Awareness, and implementing space debris countermeasures.

New business development strategy

From its investment base in Silicon Valley (California), the company plans to promote collaboration with startups and create new businesses.

Investment history

Participated in Cyber Innovation Partners II, a US fund (February 2019): US company Allegis manages Cyber Innovation Partners II, a fund that invests mainly in companies operating in the field of cyber security.
Acquired Kaneyo Co., Ltd. (TSE1: 3209) through a tender offer, and converted the company to a subsidiary (December 2019): Kanematsu made a tender offer for Kaneyo’s shares, acquired an 87.44% stake, and made Kaneyo a subsidiary. Kaneyo sells such items as bedding and weight-loss products, household and interior goods, rolled fabrics and other cloth materials, textiles, and lifestyle products in Japan and exports them overseas. By investing in Kaneyo, which sells materials for car seats and other automotive products, Kanematsu aimed to reinforce its offerings in the automobile-related business.
Acquired Datatec Co., Ltd. (February 2021): Kanematsu acquired a 90% stake in Datatec. Datatec provides onboard products and services to support safe driving, such as a digital tachograph for commercial vehicles. Kanematsu says the company has expertise in vehicle behavior analysis technology in particular and provides products and services to improve fuel efficiency.

Performance and management measures

Segment operating profit

(JPYmn)		FY03/05	FY03/06	FY03/07	FY03/08	FY03/09	FY03/10	FY03/11	FY03/12
Operating profit		15,762	17,982	21,713	22,605	19,027	12,186	18,029	21,426
	Electronics & Devices	3,612	5,032	7,913	8,100	6,920	5,394	9,488	9,026
	Foods, Meat & Grain	1,711	705	1,806	4,328	3,923	3,622	2,835	5,186
	Steel, Materials & Plant	6,443	7,955	7,421	7,461	6,995	1,510	4,472	5,059
	Life Science & Energy	1,877	2,490	2,852	1,733	2,087	893	977	1,972
	Textile	1,187	424	-	-	-	-	-	-
	Other, adjustments	2,119	1,800	1,721	983	-898	767	257	183
Operating cash flows		10,122	19,720	20,874	14,308	17,177	26,441	7,827	15,822
Investing cash flows		5,382	7,822	23,149	38,799	-370	-19,149	17,322	1,291

New segments from FY03/13
(JPYmn)		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
Operating profit		18,262	19,776	23,547	18,772	22,633	26,160	30,349	28,352	23,635
	Electronics & Devices	8,339	7,755	10,152	10,658	14,348	17,556	18,533	18,963	17,575
	Foods, Meat & Grain	3,165	2,099	3,365	1,427	2,489	2,149	3,951	2,381	1,498
	Steel, Materials & Plant	5,094	8,129	6,345	3,388	2,820	3,930	4,437	3,819	1,840
	Motor Vehicles & Aerospace	1,447	1,494	2,601	2,964	2,223	2,541	2,549	2,383	2,055
	Other, adjustments	217	299	1,084	335	753	-16	879	806	696
Operating cash flows		1,355	22,384	10,115	33,024	11,852	434	24,698	24,259	36,984
Investing cash flows		1,466	-1,111	-8,903	-4,214	-14,691	1,103	-6,575	-10,215	-9,927

Source: Shared Research based on annual securities reports

Performance and segment restructuring (FY03/05 to FY03/17)

Looking historically, operating profit was in the range of JPY16–22bn between FY03/05 and FY03/17. In the Electronics & Devices segment, operating profit grew nearly 4x during this period, from JPY3.6bn to JPY14.3bn. Over the same period, operating profit from the materials and machinery segments (Steel, Materials & Plant and Motor Vehicles & Aerospace) fell by almost half, from JPY9.5bn to JPY5.0bn.

From FY03/06 to FY03/13, the company’s investment stance was conservative. Asset sales exceeded investments, and net investing cash flow was positive. During that period, the company sold off real estate holdings and collected loans receivable. Investing cash flow turned net negative from FY03/14, marking a turn to active investment. Between FY03/14 and FY03/17, net investing cash flow outflows totaled JPY28.9bn.

Electronics & Devices segment

ICT solutions business

Advances in semiconductor and telecommunications technologies led to greater data processing volumes and the widespread adoption of networks and servers, along with growing importance of information management, stronger security systems, and the rise of the cloud computing market. The Kanematsu group took advantage of this changing business environment to develop a service structure to meet customer needs more closely and build a vendor-free procurement structure. The company provided infrastructure configuration services to optimize hardware and software, and business expanded. In October 2012, Kanematsu conducted a management integration with Nippon Office Systems, making it a wholly owned subsidiary. The company shifted its management focus to profitability and boosted labor productivity by moving to higher-value-added services and improving efficiencies. As a result, OPM at Kanematsu Electronics, a subsidiary, improved 9.6pp, from 3.5% in FY03/05 to 13.1% in FY03/17.

Mobile business

Kanematsu’s business benefited from the growing market for smartphones and tablets as Apple launched its iPhone and iPad. Other major changes in the operating environment also contributed to the company’s business, such accelerating advances in smartphone technology, handset model changes, and a move from 3G to 4G communication standards. The company worked to optimize its selling strategy and implement effective marketing practices that took advantage of the service/fee structures and sales incentives set by telecom carriers. Sales of mobile handsets rose. The company earned plaudits from NTT Docomo (a contract telecom carrier), and commissions and other revenues grew. In April 2013, Kanematsu acquired BD Holdings, adding four stores. In May 2015, the company invested JPY400mn in Alpha Group, acquiring a majority stake. In January 2016, Kanematsu invested approximately JPY17.6bn to acquire Diamond Telecom, adding approximately 200 stores and raising its total to around 450.

Foods, Meat & Grain segment

The food business has performed favorably, due to growing Asian demand. Higher prices in the meat products business have boosted gross profit. In the feedstuff business, increasing market prices and expanding sales routes in Asia have prompted stronger grain sales. Accordingly, operating profit in the Foods, Meat & Grain segment grew from JPY1.7bn in FY03/05 to JPY2.5bn in FY03/17.

Steel, Materials & Plant segment

Prior to the global financial crisis of 2008/2009, Chinese economic growth led to a tight demand/supply balance, and performance was robust. However, the global demand/supply balance then broke down as Chinese steelmakers increased their investments. As the international competitiveness of Japanese steelmakers waned, Kanematsu’s sales opportunities decreased. As with iron and steel products, the global financial crisis eased the supply/demand balance for petroleum products, and profitability fell. As a result of these factors, operating profit in the Steel, Materials & Plant segment approximately halved between FY03/05 and FY03/17, from JPY9.5bn to JPY5.0bn.

Incidentally, Kanematsu withdrew from the textile business in 2007 due to the growing market share of SPA companies (specialty store retailers of private label apparel) and the sluggish domestic apparel market.

Profit and segment restructuring (from FY03/17)

Operating profit grew from JPY22.6bn in FY03/17 to JPY30.3bn in FY03/19. The main driver of growth was the Electronics & Devices segment, which added JPY4.2bn in operating profit during that period, contributing more than other segments. Amid a changing business climate, outlined below, the company invested approximately JPY23.0bn between FY03/19 and FY03/21.

Electronics & Devices segment

ICT solutions business

Advances in semiconductor and telecommunications technologies led to greater data processing volumes and the widespread adoption of networks and servers, along with stronger security systems, the expansion of virtual desktop infrastructure, and the rise of the cloud computing market. The company benefited from these changes in the information and communication technology (ICT) industry. The Kanematsu group took advantage of this changing business environment to develop a service structure to meet customer needs more closely and build a vendor-free procurement structure, expanding business by focusing on cloud services (virtual desktop infrastructure, DaaS and IaaS). As a result, operating profit at subsidiary Kanematsu Electronics expanded from JPY8.4bn in FY03/17 to JPY10.9bn in FY03/20, and OPM rose from 13.1% in FY03/17 to 15.2% in FY03/20. In FY03/21, despite an 8.9% YoY decline in revenue to JPY65.5bn, OPM continued to improve, reaching 16.6%.

Mobile business

Kanematsu’s business has benefited from the major changes taking place in the industry operating environment, such as the iPhone X and other accelerations in the advancement of smartphone technologies and model changes. The company had worked to optimize its selling strategy and implement effective marketing practices that took advantage of the service/fee structures and sales incentives set by telecom carriers. Sales of mobile handsets rose. The company earned plaudits from NTT Docomo (a major contract telecom carrier), and commissions and other revenues grew. Kanematsu acquired mobile phone sales agents as subsidiaries. By acquiring franchisees and moving to direct sales, Kanematsu increased margins and boosted profit. Pre-tax profit at subsidiary Kanematsu Communications rose from JPY5.4bn in FY03/17 to JPY7.2bn in FY03/20. Over this same period, the pre-tax profit margin improved from 4.1% in FY03/17 to 6.1% in FY03/20. In FY03/21, the COVID-19 pandemic triggered a drop in the number of customers visiting stores, and pre-tax profit fell to JPY5.6bn (-21.7% YoY), while the pre-tax profit margin was 5.5%.

Foods, Meat & Grain segment

Revenue in the feed business has been robust, due to stable domestic feed prices. In the meat products business, prices on meat products have fluctuated, but performance was generally solid. Results have also been strong in the processed food business. Accordingly, operating profit in the Foods, Meat & Grain segment remained essentially flat, from JPY2.5bn in FY03/17 to JPY2.4bn in FY03/20. However, it declined to JPY1.5bn (-37.1% YoY) in FY03/21 as the pandemic triggered temporary closings and shortened business hours in the restaurant industry.

Steel, Materials & Plant segment

Revenue in the steel tubing business in North America benefited from higher oil prices and improvements in oil and gas field drilling. Sales of pharmaceutical raw materials and intermediates have risen as the pharmaceuticals market expanded. As a result, operating profit in the Steel, Materials & Plant segment grew from JPY2.8bn in FY03/17 to JPY3.8bn in FY03/20. However, it declined to JPY1.8bn (-51.8% YoY) in FY03/21. Although the energy business performed well due to improved profitability of domestic petroleum product transactions, the overseas and machine tools and industrial machinery businesses were affected by sluggish demand both inside and outside Japan in light of the pandemic.

Motor Vehicles & Aerospace segment

In the motor vehicles and parts business, exports of car and motorcycle parts to Southeast Asia rose, while exports to the Middle East declined. In the aerospace business, the aircraft parts business grew as aircraft ownership around the world rose. Amid these factors, operating profit in the Motor Vehicles & Aerospace segment was essentially flat, rising slightly from JPY2.2bn in FY03/17 to JPY2.4bn in FY03/20. In FY03/21, it fell to JPY2.1bn (-13.8% YoY).

Business

Business model

General trading company focused on the IT business

Kanematsu is a general trading company, formerly a “top-10 general trading company*.” It operates as a conglomerate, with widespread operations ranging across the Electronics & Devices segment; Foods, Meat & Grain segment; Steel, Materials & Plant segment; and Motor Vehicles & Aerospace segment. The Electronics & Devices segment, which includes the ICT solutions and mobile businesses, accounts for around two-thirds of overall operating profit. Accordingly, the company has become known as a “general trading company focused on the IT business.” As most general trading companies currently concentrate on resource businesses (iron ore, coal, and energy), Kanematsu’s focus on the IT business makes it unique.

*Top-10 general trading company: During its period of high economic growth, Japan had 10 large general trading companies: Mitsui & Co., Mitsubishi Corporation, Sumitomo Corporation, Itochu, Marubeni, Nissho Iwai (now Sojitz), Nichimen (now Sojitz), Tomen (now Toyota Tsusho), Kanematsu-Gosho (now Kanematsu), and Ataka & Co. (later merged with Itochu).

Subsidiaries handle day-to-day business operations

In the Kanematsu group, the parent company (Kanematsu) acts as the control tower, handling business planning and administration. Subsidiaries handle business operations for each segment, including on-site operations. In the Electronics & Devices segment, business is handled by Kanematsu Electronics and Kanematsu Communications; in the Foods, Meat & Grain segment, by Kanematsu Shintoa Foods and Kanematsu Agritec; in the Steel, Materials & Plant segment, by Kanematsu Trading and Benoit Premium Threading; and in the Motor Vehicles & Aerospace segment, by Kanematsu Aerospace and KG Aircraft Rotables.

Business overview and group companies by business segment

Segment	Main businesses	Main products	Main group companies
Electronics & Devices	ICT solutions	Information and telecom products and services, systems integration	Kanematsu Electronics
	Mobile	Mobile communication devices, mobile internet systems and services	Kanematsu Communications
	Semiconductor parts and manufacturing equipment	Semiconductors and electronic components, electronic modules and parts, semiconductor manufacturing equipment, LCD panel manufacturing equipment	Kanematsu Futuretech Solutions
	Semiconductor parts and manufacturing equipment		Kanematsu Advanced Materials
	Electronic components and materials	Printer and related products, lithium ion battery protection module	G-Printec
	Security equipment	Various security products including security camera and recorder	Kanematsu Sustech
	Data	Data consulting, distribution support, operating data trading marketplace	Japan Data Exchange Inc.
Foods, Meat & Grain	Foods	Fruit (canned, frozen, and dried) , coffee, sesame, wine, processed food, prepared food, seafood, other	Kanematsu Foods
	Meat products	Meat products	Kanematsu Foods
	Grain, feedstuff, processed agricultural products	Soybeans, rice, feedstuff grains, soybean meal, pasture, fertilizer, other	Kanematsu Agritec, Kanematsu Soytech
Steel, Materials & Plant	Steel	Special steel products, steel products, other	Kanematsu Trading
	Steel tubing	Steel tubing, other	Benoit Premium Threading
	Energy	Kerosene, petroleum products, other	Kanematsu Petroleum
	Chemicals	Medical and agricultural active ingredients, food materials, fine chemicals, other	Kanematsu Chemicals, Kanematsu Wellness
	Plant and ships	Various plants, other
	Machine tools and industrial machinery	Industrial machinery, other	Kanematsu KGK
Motor Vehicles & Aerospace	Motor vehicles and parts	Motorcycle parts, other	Datatec
	Aerospace	Aerospace parts, aircraft, helicopters, other	Kanematsu Aerospace, KG Aircraft Rotables
	Aerospace	Aerospace parts, aircraft, helicopters, other	Kanematsu Aerospace, KG Aircraft Rotables

Source: Shared Research based on company data

Overview of business by segment

Electronics & Devices segment

The Electronics & Devices segment is Kanematsu’s main driver of business. In FY03/21, segment operating profit was JPY17.6bn, accounting for 74.3% of companywide operating profit (JPY23.6bn). Kanematsu’s business portfolio is unique; none of the other former top-10 trading houses makes Electronics & Devices their largest business. The following is a breakdown by main business.

ICT solutions business (62.5% of segment operating profit in FY03/21)

Mobile business (33.0%)

Electronic equipment, materials, components, and devices (4.5%)

ICT solutions business (Kanematsu Electronics)

This business is mainly handled by Kanematsu Electronics (TSE1: 8096)*, a system integrator in which Kanematsu holds 58.34% of voting rights. Kanematsu Electronics is the core of Kanematsu’s largest business. Kanematsu Electronics designs and configures corporate information systems, provides operating services and system consulting, and sells IT systems/equipment and software. In FY03/21, Kanematsu Electronics generated operating profit of JPY10.9bn (under Japanese accounting standards).

History

Kanematsu Electronics was established in 1968 as a wholly owned subsidiary. Initially, this company installed foreign-made commercial printers and provided maintenance services. In the late 1970s, Kanematsu Electronics began selling large IBM computers and established Nippon Office Systems as a joint venture. Since the mid-1990s, the company has downsized its operations, concentrating mainly on servers, storage, and the configuration of other IT infrastructure.

Business details, sales composition

Kanematsu Electronics’ areas of operation comprise servers, storage, networks, service and support, and documents. In addition to configuring infrastructure for information systems, the company provides total IT services (including operation service) and cloud services.

In FY03/21, systems business accounted for 70.8% of segment revenue, and services and support for 29.2%. Some 50% of revenue was one-time revenue (calculated as average order value x customer count) from system construction and other work, while the remainder was recurring revenue from maintenance and servicing.

Business model

Fundamentally, Kanematsu Electronics sells directly to end clients (direct sales ratio is at least 90%) rather handling work on an outsourced basis for other system integrators. The company has more than 800 systems engineers, accounting for approximately 64% of its overall workforce (at end-March 2021). Working as a prime contractor affords the company a thorough understanding of clients’ needs. This awareness helps it optimize system designs and adopt strategies for adding value. According to the company, its clients give it high marks for attention to detail. In addition to system configuration, most customers ask Kanematsu Electronics to handle maintenance. The company says it has numerous client relationships that date back decades.

Different from manufacturer-affiliated systems integrators, Kanematsu Electronics uses products from multiple vendors, placing its focus on optimizing solutions to customers’ needs.

Kanematsu Electronics’ financials

	(JPYmn)	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
Sales		45,059	63,884	61,897	61,290	64,167	62,251	67,396	71,962	65,542
	YoY	-3.7%	41.8%	-3.1%	-1.0%	4.7%	-3.0%	8.3%	6.8%	-8.9%
Gross profit		13,794	17,180	16,911	16,476	18,409	18,483	19,093	20,485	19,946
	Gross profit margin	30.6%	26.9%	27.3%	26.9%	28.7%	29.7%	28.3%	28.5%	30.4%
SG&A expenses		9,031	11,775	10,803	10,085	10,001	8,947	9,018	9,551	9,075
	SG&A ratio	20.0%	18.4%	17.5%	16.5%	15.6%	14.4%	13.4%	13.3%	13.8%
Operating profit		4,763	5,405	6,108	6,391	8,408	9,536	10,075	10,934	10,871
	YoY	3.5%	13.5%	13.0%	4.6%	31.6%	13.4%	5.6%	8.5%	-0.6%
	Operating profit margin	10.6%	8.5%	9.9%	10.4%	13.1%	15.3%	14.9%	15.2%	16.6%
Recurring profit		4,901	5,467	6,256	6,517	8,485	9,636	10,125	10,999	11,042
	YoY	4.1%	11.5%	14.4%	4.2%	30.2%	13.6%	5.1%	8.6%	0.4%
	Recurring profit margin	10.9%	8.6%	10.1%	10.6%	13.2%	15.5%	15.0%	15.3%	16.8%
Current assets		45,107	47,221	48,831	48,987	56,806	59,585	63,393	65,740	68,981
Fixed assets		5,552	5,932	6,852	6,288	4,387	4,205	4,778	6,051	6,184
Interest-bearing debt		639	524	387	53	24	10	-	-	-
Net assets		36,085	37,126	37,979	38,657	41,999	45,915	49,423	52,915	56,415
	Fixed asset turnover	8.12	10.77	9.03	9.75	14.63	14.80	14.11	11.89	10.60
Employees		1,686	1,656	1,579	1,495	1,358	1,235	1,244	1,274	1,281
Sales per employee (JPYmn)		26.7	38.6	39.2	41.0	47.3	50.4	54.2	56.5	51.2
OP per employee (JPYmn)		2.8	3.3	3.9	4.3	6.2	7.7	8.1	8.6	8.5

Source: Shared Research based on Kanematsu Electronics’ financial statements

Major customers

As of FY03/21, the manufacturing industry accounted for 35.6% of revenue in this segment, the service industry for 32.8%, the financial industry for 11.7%, the logistics industry for 10.2%, and the educational/public industry for 9.3%.

Manufacturers: Sony Group Corporation (TSE1: 6758), Honda Motor Co. (TSE1: 7267) and its group, Subaru Corporation (TSE1: 7270), etc.

Financial companies: Sumitomo Mitsui Trust Bank, Ltd. (unlisted), etc.

Electricity and gas: Tokyo Gas Co. (TSE1: 9531), Tohoku Electric Power Co. (TSE1: 9506), etc.

Logistics: Yamato Holdings Co. (TSE1: 9064), etc.

Private universities and graduate schools: Keio University, Waseda University, Kwansei Gakuin University (customers include major private universities in the Kanto region)

Mainstay services

The company says demand for VDI* and other sorts of virtual infrastructure has expanded recently, boosting demand for the deployment of vMA** and VDA licenses*³. The company has focused on virtual infrastructure configuration as a strategic business. An early adopter itself, Kanematsu has obtained virtualization technology assessments and verifications from multiple vendors in its aim to provide optimal solutions to customers. The company has taken on numerous large-scale virtual infrastructure configuration projects. Kanematsu explains that the projects have helped the company build up a strong track record and an extensive knowledge base to tap when making client proposals, making projects smooth.

* Virtual desktop infrastructure (VDI): Under this framework, operating systems, applications, and data that were previously handled by individual PCs are managed centrally on a server, using virtualization infrastructure. Keyboard and mouse movements on individual terminals are transmitted to a virtual desktop on a server, and output is returned to the corresponding monitor. This network-based arrangement allows individuals to access their own dedicated desktop from anywhere.

**vSphere management assistant (vMA): VMware provides this Linux-based virtual appliance free of charge. Its main function is to execute scripts to manage servers used as virtualization infrastructure.

*³Virtual desktop access (VDA) license: Referring to a Windows VDA license, this license permits a user to access a Windows client operating system remotely.

KEL Custom Cloud (KCC)
KEL Custom Cloud is a subscription-based cloud service. The company tailors cloud infrastructure, optimizing it to customers’ needs. With KCC, Kanematsu also meets special security requirements for individual customers—something that would be difficult to implement with a public cloud.

Kanematsu Electronics is working on large-scale projects (providing virtual desktop environments to more than 10,000 users) and rolling out DaaS*. According to Kanematsu Electronics, it can provide customers with services priced competitively with DaaS via major public clouds, while at the same time having the flexibility to meet stringent security standards for individual customers.

*Desktop as a Service (DaaS): Rather than installing specific software on client computers operating in the cloud, SaaS provides direct access via a network. On the other hand, DaaS, as the name suggests, involves the provision of a cloud-based desktop accessible over a network by a client computer. The necessary operating system, software, and data that are typically stored directly on a conventional PC reside in the cloud. The client computer accesses them via a server connected to the cloud, operations in the desktop environment are controlled via commands on a shared screen and entered through keyboard and mouse. As with SaaS, depending on the cloud environment the service is available in three types: private-cloud DaaS (desktops are allocated through a dedicated cloud to specific companies), virtual-private-cloud DaaS (allocated by the service provider’s virtual environment), and public-cloud DaaS (allocated in the cloud in a shared environment). KEL Custom Cloud is a virtual-private-cloud DaaS.

Differences between VDI and DaaS: Both are frameworks for calling up on client computers virtual desktop environments that are running on servers. Both also use VDI technology to do so via networks. They differ, however, in the locations where desktop environments called up by client computers reside. With VDI, a company’s own servers run desktop environments and operate internally. With DaaS, the desktop environment is delivered by an external provider via the cloud. DaaS is a service that uses both VDI and cloud computing technology to provide a desktop environment.

KEL Remote Service Center (KRSC) develops KEL Custom Cloud and provides comprehensive remote support services 24/7, managing and monitoring customers’ infrastructure environments. The center has a control area, which fields calls about breakdowns, receives monitoring system alerts, and handles operations management. Employees from the center can set up dedicated equipment and working booths to meet customer security requirements. In this way, they can separate remote operating areas to handle various types of maintenance and operations on customers’ systems. Accordingly, Kanematsu eliminates the need for customers to run and maintain their own computer systems, allowing them to shift personnel to business development.

In the area of security solutions, Kanematsu Electronics is collaborating with security vendors to expand its cloud-compatible network design and security-related construction services. The growing use of the cloud for corporate systems means that information assets that were previously on corporate premises now reside in the cloud. Demand for cloud-based security measures has shot up commensurately.

Solutions by customer industry

The company’s ICT environment construction services and solutions mainly target the manufacturing industry and educational and medical institutions.

Kanematsu Electronics has provided information system solutions to clients in the manufacturing industry for more than 30 years. Manufacturers use different software for different processes, and technical documentation, parts lists, and other data needs to be maintained and managed separately. This situation leads to a host of operational inefficiencies. Kanematsu Electronics provides infrastructure based on Dassault Systèmes’ 3DEXPERIENCE* to globally integrate all information related to product development and build centralized management platforms.

*3DEXPERIENCE: A common platform for applications, 3DEXPERIENCE requires a system (server) to configure a database in order to operate. Dassault Systèmes (the developer) offers 3DEXPERIENCE as an on-premise platform installed and managed on an in-house server and as an off-premise platform operating in a cloud server environment.

Kanematsu designs and configures ICT environments for educational institutions, centering on private universities such as Kwansei Gakuin University (Hyogo Prefecture). Kanematsu is a multivendor provider (not reliant on specific manufacturers) and has extensive experience installing PC labs at educational institutions. In the educational field, the company provides support for “sakai,” an open-source learning management system (LMI). Compatible with smartphones and other devices, this system complements coursework, freeing instructors and students from time and locational constraints. The system has video distribution functionality, so students can attend lectures at whatever times suit them. The company is making the service available via the cloud, which facilitates a start from a small base (school departments and individuals).

Even for medical institutions, the business of configuring ICT environments is expanding. In 2014, revisions to Japan’s Pharmaceutical Affairs Law made it possible for hospitals and other medical institutions to split up their procurement of infrastructure equipment. Previously, they were required to make bundled purchases of applications and infrastructure equipment. This change facilitated entry into the medical ICT market for Kanematsu Electronics, which does not manufacture infrastructure equipment. Kanematsu Electronics now provides virtualization technologies, hyper-converged infrastructure (HCI)*, and other solutions to medical institutions.

*Hyper-converged infrastructure (HCI): HCI is a virtual platform integrating computing and storage functions in a common x86 server with the same CPU architecture used in most PCs. Some HCI is available with the software needed to run the infrastructure as a package.

Profitability compared with peer companies

In FY03/21, Kanematsu Electronics had an OPM of 16.6%, generally higher than its peers. The company ascribes its high margins to the fact that all contracts are sold directly; business is weighted toward highly profitable areas (configuration of servers, storage, and other system infrastructure; a high percentage of business comes from maintenance services; and the company does not engage in fixed-asset businesses such as data centers, where return on investment takes time.

Profitability comparison among systems integrators

	Ticker	Fiscal year	Employees	Sales per employee	OP per employee	Sales	Operating profit	Operating profit margin	Total assets	Total asset turnover
			(persons)	(JPYmn)	(JPYmn)	(JPYmn)	(JPYmn)	（％）	(JPYmn)	(times)
Kanematsu Electronics	8096