|A&T Corporation (6722)|
Electrical equipment (manufacturing industry)
Yokohama Plaza Bldg. 2-6 Kinko-cho, Kanagawa-ku, Yokohama-shi
End of December
* The share price is the closing price on September 1, 2016. The number of shares issued was taken from the brief financial report for the latest period.ROE and BPS are those for the previous term.
* The forecasted values were provided by the company.
This report outlines A&T Corporation, briefly reports the results for the term ending Dec. 2016, mentions the interview with the president Misaka, and so on.
The company excels at proposing an optimal one-stop solution for preparing necessary products in a laboratory, installing and operating equipment while proposing a layout, and possesses advanced technologies that are highly evaluated by leading overseas OEM clients.
1-1 Corporate historyIn the 1980s, the general chemical manufacturer Tokuyama Corporation (4043, 1st section of Tokyo Stock Exchange) was expanding its business scope from materials to fine chemicals. While taking inventory of various technologies and items, Tokuyama Corporation decided to develop latex (rubber material; one of chemical products) reagents for testing antigen-antibody reactions.
In the development process, Tokuyama Corporation formed a business tie-up with Analytical Instruments Inc., which develops, manufactures, and sells clinical test equipment and had been leading the industry by releasing such products as fully automatic blood sugar analyzer in 1978, and in Apr. 1988, they founded a joint venture for distributing their products, A&T Corporation. ("A" of Analytical Instruments and "T" of Tokuyama were combined.)
In November 1990, the company established Esashi Factory, which is now the primary production site, in Iwate Prefecture.
In 1994, A&T Corporation underwent absorption-type merger, integrating the diagnosis system division of Tokuyama Corporation. The period from the 1980s to the 1990s was the growth period of the clinical testing industry, in which many core technologies were developed, and the company expanded its business steadily while taking advantage of that trend.
In Jul. 2003, the company issued over-the-counter shares. It is now listed in the JASDAQ market of Tokyo Stock Exchange.
1-2 Corporate philosophy, etc.A&T Corporation upholds its corporate ethos: "Support medical care and contribute to people's health around the world," and aims to improve the quality of medical care and reduce cost, under following three management policies.
1-3 Market environment
◎ Market scaleAccording to the Fuji Research Institute Corporation, the scale of the Japanese clinical testing market was 463.9 billion yen in 2015, accounting for 6.0% of the scale of the global market, but the market growth is slight, because the growth of immunoserological tests became sluggish. The market scale is estimated to be 489 billion yen in 2020, with average annual growth rate being only 1.1%.
(Domestic and global markets)
Based on the information in the website of the Japan Association of Clinical Reagents Industries, A&T Corporation estimated that the scale of the Japanese market of related devices and reagents is about 530 billion yen. The market scales of clinical chemistry and hematology tests are 175.9 billion yen and 27.5 billion yen, respectively.
On the other hand, also according to the Fuji Research Institute, the global market scale reached about 62.3 billion US dollars (6.23 trillion yen under the assumption that 1 dollar is equivalent to 100 yen) in 2015, and is projected to keep growing at an annual rate of 2.4%, and reach about 70.4 billion US dollars (7.04 trillion yen under the assumption that 1 dollar is equivalent to 100 yen). It is expected that Eastern Europe, Russia, Asia, South America, and Africa, where the testing environment is still to be developed, will lead the growth. It was mentioned that as the Japanese market was already saturated, Japanese manufacturers would try to operate their business in the global market by utilizing their advanced technology and quality based on their stable business bases in Japan.
(Trend in each testing field)Immunoserological testing formed the largest market (37.1%; about 23.1 billion US dollars; about 2.31 trillion yen), and the market of tests mainly for infectious diseases is growing.
The blood testing market, in which A&T Corporation operates business, accounts for 7.5% and has a scale of about 4.7 billion US dollars (about 470 billion yen). In North America, Europe (especially western Europe), and Japan, blood testing has been already diffused, and the market growth is stagnant or slightly increasing. In Asia and other regions, the market is growing, and expected to keep growing steadily, according to the survey.
(Trend of IVD devices)According to "Statistical Survey on Trends in Pharmaceutical Production" by the Ministry of Health, Labour and Welfare, the scale of the Japanese medical products market (domestic production amount + import amount - export amount) in 2014 was about 2.7 trillion yen. Products for medical treatment is dominant, and medical laboratory testing equipment, which is handled by A&T Corporation, has a market scale of 57.3 billion yen (production: 169.4 billion yen, import: 20.3 billion yen, export: 132.3 billion yen).
While there is a significant excess of imports of medical product, there is an excess of exports of IVD devices. This indicates how competitive Japanese companies are. Like Hitachi and Toshiba supply testing equipment to Roche in Switzerland and Abbott in the U.S., respectively, as OEMs, A&T Corporation supplies OEM products to Siemens. Namely, testing equipment made in Japan is now indispensable in the global clinical testing field.
1-4 Business contentsIn addition to the development, manufacturing, and sale of products, including testing devices and reagents used in the clinical testing rooms of hospitals, A&T Corporation offer customer support. The company also offers comprehensive consulting services, including the proposal for the layout of a laboratory, installation and operation.
(What is clinical testing?)Clinical tests can be classified into "clinical imaging test" for directly examining the body with medical equipment, such as X-ray equipment, CT, MRI, electrocardiographic and ultrasonic equipment, and "laboratory tests" for examining biological samples (specimens), such as blood, urine, stool, and cells, collected from patients.
A&T Corporation handles products used for laboratory testing, especially blood tests.
There are a variety of blood tests conducted at hospitals and in comprehensive medical checkups, including the tests of the hepatic system, the renal system, uric acid, the lipid system, glucose metabolism, blood cells, and infectious diseases. A&T Corporation mainly conducts business related to "electrolyte tests" and "glucose tests."
"Electrolyte tests"The water content constitutes about 60% of the human body, as body fluids, including intracellular fluid and blood plasma. Body fluids are classified into electrolytes, which are mineral ions that dissolve in water and conduct electricity (such as sodium, potassium, calcium, and chlorine), and non-electrolytes, which dissolve in water, but do not conduct electricity (such as glucose and urea).
Each electrolyte takes important roles for keeping human beings alive while maintaining a healthy balance - "sodium" adjusts the water content of the body, "potassium" controls muscles and nerves, "calcium" forms bones and teeth, conveys nervous stimuli, and coagulates blood, and "chlorine" supplies oxygen to the inside of the body. If the concentration of electrolytes in blood is abnormal, there is a possibility that the kidneys or hormones are malfunctioning.
The purpose of electrolyte tests is to measure the concentration of each electrolyte ion in body fluid, detect the disruption of a balance, and then diagnose a disorder in the body. Sampled blood and urine are examined with testing device.
"Glucose tests"The sugar in blood plasma (blood sugar) is composed mostly of glucose, which is the only energy source for the central nervous system, including the cerebrum. When the stomach is empty (over 5 hours after eating), the liver emits about 8 grams of glucose per hour, and the brain consumes about half of them, and muscles and red blood cells consume one fourth of them, respectively.
Blood sugar level in its normal condition is strictly controlled while keeping a balance between the increase through the absorption from the intestine and the generation in the liver and the decrease through the consumption in the muscles. If this control does not work properly, hyperglycemia or hypoglycemia will occur.
A glucose test is conducted for measuring the concentration of glucose in blood or urine.
1. Business FieldThe business of A&T Corporation is composed of the "blood testing business," in which the company develops, manufactures, and sells clinical testing devices, reagents, supplies, etc. for blood tests, and the "IT and automation support business," which facilitates the streamlining of manual work in hospital laboratories with IT and automated systems. The company comprehensively supports hospital laboratories.
(Since this company conducts this business only, neither its brief financial reports nor securities reports contain segment information. It should be noted that the company discloses the sales of each product series in reference materials for briefing results, etc., but not the sales of each type of business.)
(1) Blood testing business
(Outline)The company works on developing, manufacturing, and selling laboratory testing devices for "electrolyte tests" and "glucose tests," reagents for clinical tests (for measuring the concentrations of electrolytes, blood sugar, etc.), and supplies (such as sensors installed in analyzer), and offers customer support.
(Commercial distribution)*Inside Japan
The company directly sells analyzers, reagents, and supplies to small and medium-sized hospitals via 8 branches nationwide. As of now, about 4,000 units of equipment are in operation.
The company sells analyzers as an OEM. It supplies electrolyte units, which are the specialty products of the company, to other Japanese manufacturers, including JEOL (6951, 1st section of TSE). The OEM clients combine the unit with large-size clinical chemistry analyzers and sell them. As an OEM, JEOL supplies products to Siemens, which is one of global enterprises handling large-size clinical chemistry analyzers.
(Business model)Once laboratory testing equipment is newly installed, clinical reagents and supplies will continuously delivered, and the maintenance service for the equipment will be offered.
Once adopted, it is rare for client hospitals to change manufacturers considering the continuity of test data and usability, and so it is difficult for new manufacturers to enter the market. 7 to 10 years later, upgraded models will replace them. This characterizes this business field.
(Major enterprises in this field)Sysmex (6869, 1st section of TSE), Hitachi High-Technologies (8036, 1st section of TSE), JEOL (6951, 1st section of TSE), Wako Pure Chemical Industries (unlisted), ARKRAY (unlisted)
(2) IT and automation support business
(Outline)In the case of blood tests, it is necessary to convey patient's blood (specimen) sampled in a blood collection room to a clinical laboratory and manually set the specimen at testing equipment.
As several kinds of tests need to be conducted for many specimens at the same time, this work is extremely labor-intensive and inefficient, and the human error of taking a wrong specimen is difficult to avoid.
In these circumstances, A&T Corporation supports the streamlining of the testing process with the following 2 systems.
Through the introduction of LIS, it became possible to put together the data of test results, which had been printed out for each test item, and give feedback to medical doctors swiftly and accurately. In addition, the data mining function is helpful for reducing the number of times of abnormal value retesting and the duration of testing.
(Commercial distribution)*Inside Japan
Targeting the laboratories of medium and large-sized hospitals, the sales division of A&T Corporation sells LIS in cooperation with hospital information system manufacturers, including Hitachi, IBM, and Fujitsu, and LAS in cooperation with large-size clinical chemistry and immunoassay analyzer manufacturers, including Hitachi, Toshiba, and JEOL, as comprehensive proposals*.
*For the details of comprehensive proposals, see the section "1-5 Characteristics and Strengths."
The company sells LAS directly to Asia, including South Korea and China. In the U.S., the company sells blood aliquotting instruments to business partners as an OEM.
(Business model)In addition to the maintenance service of LIS and LAS after their installation, the company can connect additional systems, customize the system, and so on for LIS, and can offer maintenance services, sell supplies, and so on for LAS. For both of the systems, stable sales can be expected.
Like laboratory testing equipment, clients are rarely motivated to shift to other manufacturer's equipment, considering usability, data continuity, etc. The price range per transaction is 10 to 50 million yen for LIS, and 10 to 100 million yen for LAS.
(Major enterprises in this field)LIS: Sysmex CNA (subsidiary of Sysmex), local vendors, etc.
LAS: IDS (unlisted), Hitachi-Aloka (unlisted), Siemens, etc.
2. Development systemsA&T Corporation adopted matrix management combining a wide array of products and element technologies for electrical, mechanical, chemical, and information systems that have been nurtured for many years.
The company is developing products for offering comprehensive solutions related to C.A.C.L. beyond product categories.
About 80 staff members are employed at the headquarters and Shonan Office.
R&D cost for the term ended Dec. 2016 was 989 million yen and the ratio of R&D cost to sales was 9.7%.
The company will continue active R&D with the ratio of R&D cost being around 10%.
3. Production systemsThere are two production sites: Shonan Factory, in Kanagawa Prefecture, for manufacturing clinical reagents and supplies and Esashi Factory, in Iwate Prefecture, for producing equipment and Laboratory Automation System (LAS).
The company manufactures high-quality, safe products with advanced equipment under rigorous management. In cooperation with the development section, the company is striving to improve quality and streamline operation.
In order to develop the foundation for expanding sales further, the company will construct a new building with a total floor area of 7,300 m2 at Esashi Factory by investing 1.7 billion yen, and strengthen capabilities considerably.
4. Sales routes and methodsAs mentioned above, A&T Corporation sells its products to client hospitals via 8 branches in Japan, by utilizing its capability of proposing comprehensive solutions.
Outside Japan, the company supplies products to overseas clients and dealers including Siemens through domestic OEM partners such as JEOL.
To expand its business scale by supplying products as an OEM like this is the basic strategy, and the company concentrates on the diversification of OEM clients.
The direct overseas sales to overseas clients and dealers and its ratio for the term ended Dec. 2016 were about 800 million yen and 7.4%, respectively.
But, as the ratio of virtual overseas sales, including the (estimated) overseas sales via domestic OEM clients, for the term ended Dec. 2015 and for the term ended Dec. 2016 was 23.4%, 24.7% respectively, the ratio of overseas sales is in upward momentum
1-5 Characteristics and strengths
◎ Capability of proposing comprehensive solutionsA&T Corporation handles products mainly for electrolyte and glucose tests, and does not handle products for other tests. However, client hospitals need to install a variety of testing instruments in their clinical laboratories.
To meet their needs, the Laboratory Automation System (LAS) has an automatic conveyor line that is compatible with not only its own products, but also other manufacturers' instruments.
There are few manufacturers that possess technologies for producing systems for connecting their own products and other manufacturers' products freely and conveying them. Accordingly, the company occupies about 30% of the Japanese market.
The sales staff of the company not only delivers equipment, but also proposes a layout for the most efficient testing with 3D CAD or the like, while considering the area and shape of a laboratory.
All above, the company can offer optimal one-stop solutions for preparing necessary products in a laboratory, installing and operating equipment while proposing a layout. This is highly evaluated by client hospitals.
◎ Advanced technologies in specific fieldsA&T Corporation handles products mainly for "electrolyte tests" and "glucose tests." Especially, its advanced technology for electrolyte analyzers can be verified by the fact that its products are supplied to JEOL, which is a leading manufacturer of measurement devices, including medical instruments, and Siemens, which is a large global company.
As mentioned in the section of the market environment, Japanese medical laboratory testing equipment is highly competent in the world, and A&T Corporation contributes to the competitiveness of Japanese products.
The estimated ratio of net income to sales for this term is 5.4%.
|Fiscal Year December 2016 Earnings Results|
Sales increase while profit decreasesSales were 10,234 million yen, up 0.9% year on year, marking a record high. Major transactions inside and outside Japan for Laboratory Automation System increased, however OEM sales of Analyzers and Diagnostic reagents were sluggish due to changes in prices, so the rise was marginal.
The sales of purchased products rose and the product mix caused the gross profit rate to decline and the gross margin to fall as well. SG&A expenses saw a slight rise, but it could not be offset completely; operating income was 1,015 million yen, down 15.5% year on year. The Chinese joint company recorded transfer losses due to restructuring, and net income was 651 million yen, down 22.4% year on year. Sales were slightly less than the estimate, however profit exceeded the estimate. Although profit saw a decrease, they were still at the level of their second highest ever.
◎ Clinical Testing Equipment and SystemsSales fell 6.8% year on year.
Analyzers had sluggish OEM sales due to the change in prices.
In addition to putting effort into support after new product CLINILAN GL-3 was introduced for the first time, large-scale transactions of Laboratory Information System in Japan declined in comparison to the favorable response received in the previous term.
Laboratory Automation System experienced an increase in large-scale transactions inside and outside Japan.
◎ Diagnostic reagentsSales dropped 4.8% year on year.
OEM sales were sluggish due to the change in prices. Furthermore, competitive pricing inside and outside Japan led to a further decrease.
◎ SuppliesSales increased 4.8% year on year.
Sales were robust due to a rise in operational units of Analyzers that were OEM sold.
◎ OtherSales rose 121.4% year on year.
Sales of purchased products that accompany large-scale Japanese orders of Laboratory Information System and Laboratory Automation System increased.
(3) Main InitiativesThe decision was made to upgrade Esashi Factory, and the manufacturing building of Shonan Factory was set up to increase production of reagents.
◎ Equipment Investment
They rented the design center (R&D laboratory) near the Shonan site.
◎ Chinese EnterpriseThey acquired a business permit to build a new joint company on June 1, 2016.
Moreover, they opened a Chinese representative office in Shanghai on September 1st.
◎ OtherAn endowed lecture, "Advanced Diagnostic System Investigative Research Department", was set up at Fujita Health University.
Due to the decrease in trade payables and short-term interest-bearing debts, current liabilities shrank 638 million yen from the end of the previous term. Because of the increase in long-term interest bearing debts, noncurrent liabilities rose 458 million yen from the end of the previous term, but total liabilities dropped 224 million yen from the end of the previous term to 3,888 million yen.
Due to the augmentation of retained earnings, net assets grew 512 million yen from the end of the previous term to 6,222 million yen.
Consequently, equity ratio increased by 3.4 points from 58.1% at the end of the previous term to 61.5%.
|Fiscal Year December 2017 Earnings Estimates|
Sales increase and profit decreases due to upfront investments.Sales are forecasted to be 10.4 billion yen, up 1.6% year on year. An increase in sales due to the expansion in sales of Laboratory Information System, CLINILAN GL-3, is anticipated. OEM sales will be sluggish. A rise in cost price due to equipment investments through factory relocation is expected and the gross profit rate will fall by 0.2 points.
Since an increase in SG&A expenses as upfront investment, due to large-scale module development of the Laboratory Information System's subsystem and Laboratory Automation System, is predicted, operating income is forecasted to be 820 million yen, down 19.3% year on year.
Development costs of Laboratory Information System will be a concentrated investment for this term only.
Dividends are expected to be the same as the previous term at 20 yen per share. Payout ratio is projected to be 22.3%.
OEM sales of Analyzers to decrease due to change in prices.
Recovery due to expansion of sales of Laboratory Information System CLINILAN GL-3
Same level of large-scale transactions as the previous year; focus in securing transactions outside Japan, primarily in Asia (especially China).
Slight increase in sales of purchased products that accompany large-scale Japanese transactions of Laboratory Information System and Laboratory Automation System.
(3) Initiatives for the Current TermThe current term has been designated as the year of "Aggressive Investments" and "Structure Reform" which will lead to further growth. Efforts will be made towards the following measures.
|Future Business Operation|
|Interview with President Misaka|
Q: "Could we ask you to review the term ended Dec. 2016?"
A: "It was a year where we were certainly able to take steps in our initiatives towards our business plan"
Also, one of the keywords in our business plan is "globalization" and in regard to that, we were able to make steady progress with our JV (joint venture) reform and opening a representative office (in China) for further expansion into China in the future.
Moreover, we were able to improve the production framework, which is associated with quality, by upgrading Esashi Factory into a mother factory with aims of building a strong production site.
I personally evaluate it as a year in which we were able to make steady steps into our initiatives towards the business plan.
Q: "Could we ask you about the current state and progress of your strategy in China?"
A: "I believe expanding in a more multilateral manner is necessary in order to cope with changes in the market environment and open a door to a massive market, so we set up a framework. We will make serious progress in both Laboratory Automation System (LAS) and Laboratory Information System (LIS)."
We see China having approximately 14,300 hospitals, and the target of our company's business is mid to large tier-2 or tier-3 hospitals with 100 or more beds, of which there are around 8,300.
In addition, major Western companies control an overwhelming share of the Chinese clinical testing market so far, but in recent years, some Chinese manufacturers have risen to prominence. They are improving the level of their technology and are greatly changing their industrial map.
We founded a joint company in 2012 and started selling Analyzers (electrolyte units); we tried selling OEM to one local Chinese manufacturer, but we believed that to open a door into a massive market within such an ever-changing market environment, we needed to expand in a more multilateral manner, so we acquired a business permit for a new joint company in June 2016, set up a Chinese progress center, built a framework which invested serious effort into Chinese business, and opened a representative office in Shanghai in September.
The Shanghai representative office will work to gather more meticulous information. The Chinese testing market has a strong preference for domestically produced products and possesses different sales channels, so independent business expansion would have greater risk. It is difficult to progress without partners or JV, so we are continuing our search for a suitable partner. Several potential candidates are being found.
In terms of our Analyzers business, we have narrowed down three biochemical analytic equipment manufacturers to be new OEM suppliers and are in the progress of negotiations with them.
Moreover, we will be making efforts into full-fledged Laboratory Information System (LIS) and Laboratory Automation System(LAS) sales.
With Laboratory Automation System (LAS), we were able to introduce one of our core products - CLINILOG V4 - into one major Chinese hospital facility last term.
The examination room at this hospital has a showroom-like atmosphere and we will be able to have many hospital personnel and companies see how CLINILOG V4 actually works; the response has been superb. We are in the middle of finalizing a contract with a potential company to be a business partner.
Although we have introduced Laboratory Automation System (LAS) to hospitals in South Korea, we have sold Laboratory Information System only in Japan, so it may still take time, however we have approached a major Chinese IT firm and we explore the potential in the future.
We will show to the Chinese market our company's strength in having the comprehensive solutions that can offer necessary products for examination rooms and comprehensive packages - being able to provide the perfect solution from introduction to operation, including layouts, in an all-in-one package and we will open our way into the enormous market.
Q: "How about your other mid- to long-term initiatives?"
A: "Business development from the perspective of POCT(*) - in other words, we cannot stop at the comprehensive solutions limited to the examination room, but rather we need to remove ourselves from the examination room and build a new core business. We will proceed with developing products that cope with new sales channels primarily around coagulated products."
Elaborating on our Diagnostic reagents business, we will proceed with developing products to cope with new sales channels primarily in coagulated goods that we already possess. It will be rather straight-forward work, but I would like us to thoroughly incorporate clinical needs into the results we achieve.
(*) POCT (Point Of Care Testing)
A real-time examination at a medical setting using small analyzers or quick diagnosis kits. It includes all clinical tests which will take place in any location outside the examination room of the hospital or an external center. For that reason, it is assumed that it will be broad and there will be many cases in terms of implementation places and practical use.
It is said that it contributes to prompt and adequate diagnosis/nursing care, prevention of ailments and promotes health, as well as add to improving the QOL (quality of life) of patients by using the advantages of shortened examining time and the intimacy that the patient feels towards the examination arising from medical care providers having beside the patient.
He said that he would like to find prominent partners in Analyzers, Laboratory Information System (LIS) and Laboratory Automation System (LAS), and plans to start full-fledged expansion in the term ending Dec. 2018, so he would like all shareholders and investors to have high expectations.
Share prices continued to move in a lackluster manner after the announcement of the February financial results. PBR also fell short of 100%, but we would like to draw attention to when the market begins to incorporate expansion in the following term onwards.
|<Reference: Regarding corporate governance>|
◎ Corporate Governance ReportLast Update : March 31, 2016.
As a JASDAQ listed company, the company fully follows the 5 items of basic principles of the corporate governance code.
DisclaimerThis report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright (C) 2017 Investment Bridge Co., Ltd. All Rights Reserved.