BRIDGE REPORT
(6914)

東証1部

Bridge Report:(6914)OPTEX GROUP the first half of Fiscal Year December 2019

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Isamu Oguni, President and CEO

OPTEX GROUP CO., LTD. (6914)

 

 

Company Information

Market

TSE 1st Section

Industry

Electric equipment (manufacturer)

President and CEO

Isamu Oguni

HQ Address

5-8-12, Ogoto, Otsu, Shiga Prefecture

Year-end

December

Homepage

https://www.optexgroup.co.jp//en/

 

Stock Information

Share Price

Shares Outstanding

Total market cap

ROE Act.

Trading Unit

1,463

36,807,108 shares

53,848 million

12.3%

100 shares

DPS Est.

Dividend yield Est.

EPS Est.

PER Est.

BPS Act.

PBR Act.

32.50

2.2%

67.94

21.5 x

875.98

1.7 x

*The share price is the closing price on August 6, 2019. Shares Outstanding is the number of shares at the end of June 2019 excluding treasury shares. ROE and BPS are the results at the end of the previous term.

 

Earnings Trend

Fiscal Year

Sales

Operating profit

Ordinary profit

Net profit

EPS

DPS

December 2015

27,793

3,161

3,222

2,051

61.98

20.00

December 2016

31,027

3,015

3,086

1,809

54.67

22.50

December 2017

37,504

4,885

5,036

3,386

97.63

27.50

December 2018

40,113

4,989

5,038

3,775

104.85

30.00

December 2019 Est.

40,000

3,400

3,400

2,500

67.94

32.50

*The estimated values are from the company.Net profit is net profit attributed to parent shareholders. The same shall apply hereinafter. On April 1, 2018, a 2-for-1 stock split was implemented. Both EPS and DPS are revised retroactively.

 

 

This Bridge Report presents OPTEX GROUP’s earnings results for the first Half of fiscal year ending December 2019.

 

 

Table of Contents

Key Points
1.Company Overview
2.First Half of Fiscal Year ending December 2019 Earnings Results
3.Fiscal Year ending December 2019 Earnings Forecasts
4.Business Strategy: Visual Verification by sensors and cameras working in conjunction with each other
5.Conclusions
<Reference: Regarding Corporate Governance>

 

Key Points

  • The sales in the second quarter of the fiscal year ending in December 2019 were 18,593 million yen, down 5.5% year on year due to the sales decrease from all of the 3 core businesses. The sales from the FA business have a double-digit decline due to the sluggish sale of the sensors targeted at SICK and China. Domestic sales amounted to 8,072 million yen, down 1.4% year on year, and overseas sales were 10,521 million yen, down 8.4% year on year. Operating profit dropped 49.6% year on year, to 1,315 million yen. Other than the decreased sales, the increase of cost due to the factory that produces sensor products exported to the US being transferred from China to Vietnam to avoid rising tariffs caused by China–United States trade friction, the rise in costs of product mix in the SS business and the increase in SGA of acquiring subsidiary are the factors led to the decrease in operating profit. As a result, both sales and profits fell short of the initial forecast.

     

  • The forecast for the full fiscal year was revised downward. The sales for the fiscal year ending in December 2019 are expected to remain flat year on year at 40 million yen. Domestic sales are projected to be 17.1 billion yen, up 0.1% year on year, and overseas sales are forecasted to decrease 0.6% year on year to 22.8 billion yen. Operating profit is expected to drop 31.9% year on year to 3.4 billion yen. Dividends are expected to be 32.50 yen/share. The expected payout ratio would be 47.8%

     

  • The financial situation is expected to be recovered from the second half of the term. The sales would increase 3 billion yen compared to the first half. Improvement in sales of the outdoor sensors (for Southern Europe) in the SS business (security-related), release of a new model for major security companies in Japan, the increased sales of UV-related products in the MVL business and synergy generated from acquiring a French startup called Effilux are the causes projected to improve sales. In addition, cost rate is also forecasted to drop by 3 points because producing location of sensors that are exported to the US is transferred from China to Vietnam, and the local manufacturing is getting on the right track.

     

  • While sales declined and profit considerably dropped in the first half quarter, the company seems to be confident in the recovery of their financial situation from the second half period. Their confidence is reflected by their forecasts revising for not only the first half but also full fiscal year as of July. Nevertheless, as for the FA business, the effects caused by the trade friction between the U.S. and China are still unknown and unclear, consequently the report will firstly focus on the company’s performance in the third quarter.

     

  • On the other hand, the company’s focus on image verification system by sensors and cameras working in conjunction with each other in the SS business which contributed to a new business model including the subscription model are noteworthy. While the business itself is considered to start officially from the next term, most investors have high expectations to its progress.

     

1. Company Overview

OPTEX GROUP Co., Ltd. is a holding company centered around OPTEX Co., Ltd. that manufactures and sells outdoor sensors (top share of 40% in the global market), automatic door sensors (30% share of the global market and 50% share of the domestic market) and environment-related products.
OPTEX GROUP holds subsidiaries including OPTEX FA CO., LTD., which deals with FA related sensing business; CCS Inc., which holds the global top share in the LED lighting business for image processing; Three Ace Co., Ltd., which specializes in the development of various systems, applications, and digital content; Optex MFG Co., Ltd., which is responsible for manufacturing Group products, RAYTEC LIMITED (UK), which has attained the largest global share (about 50 %) for supplemental lights for CCTV; and FIBER SENSYS INC. (US), which deals with optical fiber intrusion detection systems.

 

OPTEX CO., LTD.

Develops and sells sensors for various uses, such as security sensors and sensors for automatic doors

OPTEX FA CO., LTD.

Development and sales of photoelectric sensors, image inspection systems, displacement sensors and measuring instruments

CCS Inc.

Development, manufacturing and sales of LED lighting devices, and systems for image processing

THREE ACE CO., LTD.

Development of various systems, applications, and digital content

OPTEX MFG CO., LTD.

Manufactures products for the Group and provides contract manufacturing service for electronic equipment

SICK OPTEX CO., LTD.

Development of general-purpose photoelectric sensors. A joint venture of SICK AG (Germany) and OPTEX FA CO., LTD.

GIKEN TRASTEM CO., LTD.

Development, manufacturing and sales of people counting systems, customer traffic counting/management systems

ZENIC INC.

Contracted development of IC and LSI for image processing, and design and sales of FA systems

O’PAL OPTEX CO., LTD.

Management of membership sports clubs and environmental hands-on learning programs

FIBER SENSYS INC.(US)

Development, manufacturing and sales of fiber-optic intrusion detection systems

FARSIGHT SECURITY SERVICES LTD.(UK)

Security company providing remote video surveillance services

RAYTEC LIMITED. (UK)

Development, manufacturing and sales of supplemental lighting for surveillance cameras

GARDASOFT VISION LIMITED. (UK)

Development, manufacturing, and sale of LED lighting controllers for machine vision

 

1-1. Business Description

The Company’s business is composed of its main Sensing Solution (SS) business (security-related business and automatic door-related business), Factory Automation (FA) business (sensors for industrial machinery), Machine vision lightning (MVL) business (LED lighting device and system for image processing), “EMS business,” which was included in the SS business up until the previous term and provides contract manufacturing services for electronic equipment in China, and Other business (operation of sport clubs and development of applications and digital content).

 

Segment

Business Description

SS Business

Security-related

Main products include various indoor and outdoor sensors, wireless security systems and LED lighting control systems, etc. For outdoor sensors, the company has the leading share in the global market. Recently, it focuses on development of the automobile detection sensor using microwave technologies.

Automatic door-related

The company developed the world’s first automatic door sensor using infrared rays.

Main products are automatic door opening/closing sensors, shutter sensors for factories, wireless touch switches, etc.

Others

Equipment for measuring water quality. Manufacturing/marketing of measuring instruments, Transportation safety products, Customer traffic counting/management systems, developing/marketing of image processing-related products

FA Business

Main products include photoelectric sensors used for quality control and automation of production lines, displacement sensors, image sensors, LED lights, etc. In Japan, these products are provided to a wide range of industries such as food or pharmaceutical for quality control of production lines. In Europe, its products are sold broadly through its technological partner SICK AG (Germany) that has the largest share in industrial sensor market. Also, its house-brand products have been launched in Asia and North America.

MVL Business

The company has a significant share in the LED lighting business for image processing. The company offers solutions using the natural light LED developed by the company, which boasts the best color rendering property in the field.

EMS-related

Contract manufacturing services for electronic equipment, developed at a factory in China

Others

Operating sports clubs and development of applications and digital content.

 

1-2. Advantages: Diversified Technologies/Expertise on Sensing and Unique Sensing Algorithm

To produce stable and reliable sensors, it is essential to build on a number of elemental technologies and expertise, as well as “algorithms” to control physical changes. The company takes advantage of its technologies/expertise suitable for intended applications and its unique sensing algorithm to secure the largest share in the global market.

 

Noise abatement technology

・Hardware design to minimize various noises

・Conduct a number of environmental assessments based on its own standard, and launch products that passed the assessments

Sophisticated optical design

・Make use of optical simulation to achieve high-density areas eliminating blind spots

・Packaging technologies to enable downsizing

Compliant to public standards for reliability

・Adapted and compliant to any global standards

・Adapted and compliant to industry standards and guidelines

(CE marking, EN standard [TUV certified], ANSI, JIS, etc.)

Environment friendly design

・By identifying 15 restricted-use materials and 10 self-control materials, the company succeeded in excluding toxic substances in all products

・Compliant to RoHS directive, lead-free solder alloy

・Design to minimize the effect from CO2 when in use

Secure & safe control

・Adopt self-diagnosis functions in emergency or in failure to prevent system outage, and fail-safe devices for sensors

・Propose preventive maintenance measures to maintain functions

Unique sensing algorithm

・Unique algorithm to eliminate the impact of noise ineliminable by hardware, detect, scan and analyze only the intended events

・Various automatic correction functions to maintain performance in the field

 

1-3. Corporate History

OPTEX was established in 1979 and developed the world's first automatic door sensors using infrared rays in the following year. Back then, most of the automatic doors were using pressure sensitive rubber mats, which contained sensors, and sensors using infrared rays were very innovative. The company also showed unrivaled abilities in product maintenance and implementation, and captured the top share in the automatic door sensors market in only three years since its foundation (currently, about 60% share in the domestic market). The company expanded operations and got listed on the over-the-counter market (equal to listing on JASDAQ) in 1991. Then it got listed on the second section of Tokyo Stock Exchange in 2001 and moved to its first section in 2003.
Recently, it has been working on enhancement of solutions based on image processing technologies and high-end security systems. In 2008, it acquired ZENIC INC., which specialized in contracted development of IC/LSI for image processing systems. Furthermore, it acquired FIBER SENSYS INC. (US) in 2010 and RAYTEC LIMITED (UK) in 2012, respectively. Also, CCS Inc. (6669, JASDAQ), which holds the largest market share in the world for LED lighting for image processing, was reorganized into a subsidiary in May 2016 (and became a wholly owned subsidiary in July 2018). On January 1, 2017, the company shifted to the holding company system, with the aim of advancing to next-generation management and pursuing group synergy.

 

1-4. ROE analysis

 

FY 12/ 11

FY 12/ 12

FY 12/ 13

FY 12/ 14

FY 12/ 15

FY 12/ 16

FY 12/ 17

FY 12/ 18

ROE (%)

6.0

4.6

8.2

8.6

8.7

7.4

12.6

12.3

 Net profit margin (%)

5.58

3.99

6.87

7.39

7.38

5.83

9.03

9.41

 Total asset turnover [times](x)

0.85

0.91

0.92

0.89

0.91

0.91

0.95

0.95

 Leverage [times](x)

1.27

1.28

1.30

1.31

1.30

1.41

1.48

1.38

 

ROE in FY December 2018 achieved “10% or more” as targeted for two consecutive terms. Net profit margin for the current fiscal year is projected to be 6.3%. It is expected that the high ROE will continue due to accumulation of profits even if total assets and capital increase.

 

1-5 Efforts on ESG

The company actively responds to ESG issues and strives to improve corporate value.

 

E: Environment

In the SS business (automatic door-related), the company develops and sells the “e-Smooth Sensor” which is an automatic door sensor that controls unnecessary opening. This product improves the air conditioning efficiency of the building and reduces electricity consumption by about 30%.

In the SS business (water quality measurement-related), the company has developed and marketed products to measure water quality such as turbidity. These products, which enable water quality management using IoT, contribute to global warming countermeasures globally.

S: Society

The company’s head office is located by Lake Biwa. Taking advantage of its location, one of its subsidiaries, O'PAL OPTEX Co., Ltd. implements the “Lake Biwa Active Learning Program” as part of social contribution activities. Approximately 10,000 people participate annually to experience sports such as canoes and learn the water environment such as lakeside creatures.

G: Governance

To enhance the quality of strategies through active discussions at the Board of Directors and realize further enhancement of corporate value, the company appoints external directors with diverse backgrounds and skills.

In addition, there are four independent external directors accounting for more than one-third of the 11 directors and auditors. They constitute a management structure that balances management functions and monitoring functions of management.

 

2. First Half of Fiscal Year ending December 2019 Earnings Results

(1)Business Results

 

1H FY 12/ 18

Ratio to sales

1H FY 12/ 19

Ratio to sales

YoY

Compared with the initial forecasts

Sales

19,674

100.0%

18,593

100.0%

-5.5%

-13.9%

Gross profit

10,960

55.7%

10,040

54.0%

-8.4%

-

SG&A

8,351

42.4%

8,725

46.9%

+4.5%

-

Operating profit

2,609

13.3%

1,315

7.1%

-49.6%

-50.4%

Ordinary profit

2,573

13.1%

1,237

6.7%

-51.9%

-54.2%

Net Profit

1,950

9.9%

923

5.0%

-52.7%

-53.9%

*Unit: million yen. The Net profit is the profit attributable to owners of the parent company. The same shall apply hereinafter.

 

 

Sales and profit decreased.
Sales were 18,593 million yen, down 5.5%, year on year due to the sales decrease from all of the 3 core businesses. The sales from the FA business have a double-digit decline due to the sluggish sale of the sensors targeted at SICK and China. Domestic sales amounted to 8,072 million yen, down 1.4% year on year, and overseas sales were 10,521 million yen, down 8.4% year on year.
Operating profit dropped 49.6% year on year to 1,315 million yen. Other than the decreased sales, the increase of cost due to the factory that produces sensor products exported to the US being transferred from China to Vietnam to avoid rising tariffs caused by China–United States trade friction, the rise in costs of product mix in the SS business and the increase in SGA of acquiring subsidiary are the factors led to the decrease in operating profit. As a result, both sales and profits fell short of the initial forecast.

 

Earnings result by quarter

 

 

◎Average exchange rate

 

1H FY 12/ 18

1H FY 12/ 19

USD

108.68

110.05

GBP

149.72

142.42

EURO

131.64

124.32

 

(2)Earnings by Segment

①Trends in each segment and region

 

1H FY 12/ 18

Ratio to sales

1H FY 12/ 19

Ratio to sales

YoY

SS Business

10,190

51.8%

9,821

52.8%

-3.6%

FA Business

4,273

21.7%

3,544

19.1%

-17.1%

MVL Business

4,896

24.9%

4,713

25.3%

-3.7%

EMS Business

277

1.4%

259

1.4%

-6.5%

Others

36

0.2%

254

1.4%

+605.6%

Sales

19,674

100.0%

18,593

100.0%

-5.5%

SS Business

1,225

12.0%

763

7.8%

-37.7%

FA Business

790

18.5%

293

8.3%

-62.9%

MVL Business

630

12.9%

304

6.5%

-51.7%

EMS Business

41

14.8%

-32

-

-

Others

0

0.0%

-9

-

-

Adjustments

-77

-

-3

-

-

Operating profit

2,609

13.3%

1,315

7.1%

-49.6%

*Unit: million yen

 

②Trends in each segment and region

 

1H FY 12/ 18

Ratio to sales

1H FY 12/ 19

Ratio to sales

YoY

SS Security

6,939

100.0%

6,581

100.0%

-5.2%

Japan

943

13.6%

1,151

17.5%

+22.1%

AMERICAs

1,584

22.8%

1,310

19.9%

-17.3%

EMEA

3,638

52.4%

3,437

52.2%

-5.5%

Asia

774

11.2%

683

10.4%

-11.8%

 

 

 

 

 

 

SS: Automatic door

2,170

100.0%

2,173

100.0%

+0.1%

Japan

1,094

50.4%

1,037

47.7%

-5.2%

AMERICAs

524

24.1%

609

28.0%

+16.2%

EMEA

472

21.8%

466

21.4%

-1.3%

Asia

80

3.7%

61

2.8%

-23.7%

 

 

 

 

 

 

SS: Other

1,082

100.0%

1,068

100.0%

-1.3%

Japan

930

86.0%

928

86.9%

-0.2%

Asia

152

14.0%

140

13.1%

-7.9%

 

 

 

 

 

 

FA

4,274

100.0%

3,544

100.0%

-17.1%

Japan

1,828

42.8%

1,663

46.9%

-9.0%

AMERICAs

57

1.3%

56

1.6%

-1.8%

EMEA

1,569

36.7%

1,234

34.8%

-21.4%

Asia

820

19.2%

591

16.7%

-27.9%

 

 

 

 

 

 

MVL

4,896

100.0%

4,713

100.0%

-3.7%

Japan

3,261

66.6%

2,952

62.6%

-9.5%

AMERICAs

412

8.4%

418

8.9%

+1.5%

EMEA

649

13.3%

770

16.3%

+18.6%

Asia

574

11.7%

573

12.2%

-0.2%

 

 

 

 

 

 

EMS Business

277

100.0%

260

100.0%

-6.1%

Japan

98

35.4%

87

33.5%

-11.2%

Asia/Oceania

179

64.6%

173

66.5%

-3.4%

*Unit: million yen

 

◎SS Business
(Security-related)
Japan :Sales increased as the sales of the outdoor security sensors for security companies and important large-scale facilities such as airports were healthy.
AMERICAs :Sales dropped as the sales of the sensors for important large-scale facilities by the sales subsidiary in North America were sluggish.
EMEA :Sales decreased as the sales of the sensors for general residence in Southern Europe region by the sales subsidiary in the U.K. were sluggish.
Asia :Sales dropped as the sales of the sensors for Australia and South-east Asian countries were stagnant

 

The sale of sensors targeted at domestic security companies is on the track of recovery. New products are planned to be introduced in the second half quarter.
The sales of the outdoor sensors in Southern Europe had been sluggish until new products being introduced recently, which shows a recovery in the number of orders.

 

(Automatic door-related)
Japan :Sales decreased as the sales of the sensors of automatic doors for major domestic customers were sluggish.
AMERICAs :Sales increased due to the steady sale of automatic door sensors targeted at major clients in North America.
EMEA :While the sales of automatic door sensors targeted at major clients in Europe had been steady, sales decreased due to fluctuation of exchange rates.

 

Orders related to Tokyo Olympic and Paralympic games have not contributed to sales yet.

 

◎FA Business
Japan :Sales declined as the growth of sales of the products for semiconductor, rechargeable battery and electronic parts-related industries was sluggish, while sales were steady for automobile-related industries.
EMEA :Sales dropped as the sales of the products to OEM were stagnant due to declining business confidence of the world’s economy.
Asia :Sales decreased due to the sluggish growth of sales of displacement sensors as a result of deceleration of demand for capital investment caused by economic slowdown in China.

 

The business was considerably affected by the ongoing problems between the U.S. and China.
Decline in the sales quantity of displacement sensors which have high margin also resulted in the decrease of profit.

 

◎MVL lighting business
Japan :Sales dropped because of a slowdown in demand for capital investment mainly in semiconductor and smartphone industries.
AMERICAs :Even though new transactions has increased, sales remained flat after because backlash from large-scale projects for the existing customers occurred.
EMEA :A French LED lighting manufacturer for image inspection, which was made into a subsidiary in the fourth quarter in 2018, contributed to increased sales.
Asia :Sales remained flat as the growth of sales by the local subsidiaries was stagnant due to deceleration in demand for capital investment in China.

 

The total Sales dropped, but the sales of UV-related sensors rose in performance.
The company is actively investing in testing rooms to strengthen solution providing capability.

 

(3)Financial Conditions and Cash Flow

◎Main BS

 

FY 12/ 18

FY 6/ 19

 

FY 12/ 18

FY 6/ 19

Current Assets

29,530

28,804

Current liabilities

6,470

6,771

 Cash

11,563

11,682

 Payables

1,997

1,779

 Receivables

8,938

8,187

 LT Interest Bearing Liabilities

1,409

2,380

 Inventories

7,339

7,439

Noncurrent liabilities

4,477

3,675

Noncurrent Assets

13,760

14,172

 ST Interest Bearing Liabilities

1,706

579

 Tangible Assets

4,678

5,381

 Net defined benefit liabilities

1,219

1,197

 Intangible Assets

4,243

4,048

Liabilities

10,945

10,447

 Investment, Others

4,837

4,743

Net Assets

32,345

32,529

Total assets

43,291

42,976

Total Liabilities and Net Assets

43,291

42,976

*Unit: million yen

 

Total assets were 42,976 million yen, down 315 million yen from the end of the previous term due to a decline in receivables.
Total liabilities dropped 498 million yen from the end of the previous term to 10,447 million yen, as a result of decreased payables.
Net assets augmented 184 million yen from the end of the previous term to 32,529 million yen.
Equity ratio improved 0.9 points from the end of the previous term to 75.4%.

 

◎Cash Flow 

 

1H FY 12/ 18

1H FY 12/ 19

Increase/decrease

Operating Cash Flow

-82

1,674

+1,756

Investing Cash Flow

-181

-531

-350

Free Cash Flow

-263

1,143

+1,406

Financing Cash Flow

8

-816

-824

Term End Cash and Equivalents

11,755

11,682

-73

*Unit: million yen

 

Operating CF and Free CF turned positive due to a decline in receivables, etc.
The decrease in cash-inflow from long-term debt caused Financing CF to turn negative.
The cash position was nearly unchanged.

 

(4)Topics

◎ Acquisition of treasury shares
The company decided to acquire treasury shares nor only to improve shareholders’ return, but also to implement a flexible capital policy in response to changes in the business environment.

 

Amount

Up to 1 billion yen

No. of shares

Up to 800,000 shares. 2.17% of the total number of outstanding shares (excluding treasury shares).

Period of acquisition

August 6, 2019 – October 31, 2019

 

◎Dividends payment plan in celebration of the company’s upcoming 40th anniversary.
The company decided to distribute a dividend of 2.50 yen/share along with the interim dividend for the fiscal year ending December 2019 in celebration of its upcoming 40th anniversary to show their gratitude to the shareholders. The annual dividend is expected to be 32.50 yen per share, including the year-end dividend of 15 yen per share.

 

3. Fiscal Year ending December 2019 Earnings Forecasts

(1)Business Results

 

FY 12/ 18

Ratio to sales

FY 12/ 19 Est.

Ratio to sales

YoY

Revision rate

Progress rate

Sales

40,113

100.0%

40,000

100.0%

-0.3%

-7.0%

46.5%

Operating profit

4,989

12.4%

3,400

8.5%

-31.9%

-35.8%

38.7%

Ordinary profit

5,038

12.6%

3,400

8.5%

-32.5%

-37.0%

36.4%

Net profit

3,775

9.4%

2,500

6.3%

-33.8%

-37.5%

36.9%

*Unit: million yen. Ratio to sales equals to Sales Profit margin.

 

Performance forecast was revised downward. Sales and profit are projected to decline.
The company revised its financial performance forecast downward. The sales for the fiscal year ending in December 2019 are expected to remain flat year on year at 40 million yen. Domestic sales are projected to be 17.1 billion yen, up 0.1% year on year, and overseas sales are forecasted to decrease 0.6% year on year to 22.8 billion yen. Operating profit is expected to drop 31.9% year on year to 3.4 billion yen.
Dividends are expected to be 32.50 yen per share as described above. The expected payout ratio would be 47.8%

 

 

1H FY 12/ 19

2H FY 12/ 19 Est.

Change from 1H

YoY

Sales

18,593

21,407

+15.1%

+4.7%

Operating profit

1,315

2,085

+58.6%

-12.4%

Ordinary profit

1,237

2,163

+74.9%

-12.3%

Net profit

923

1,577

+70.9%

-13.6%

*Unit: million yen

 

The financial situation is expected to be recovered from the second half of the term.
The sales would increase 3 billion yen compared to last half term. Improvement in sales of the outdoor sensors (Southern Europe) in the SS business (security-related), release of a new model for major security companies in Japan, the increased sales of UV-related products in the MVL business and synergy generated from acquiring Effilux (France) are the causes projected to contribute to improve sales.
In addition, cost rate is also forecasted to drop by 3 points because producing location of sensors that are exported to the US is transferred from China to Vietnam, and the local manufacturing is getting on the right track.

 

(2)Trends in each segment and region

 

FY 12/ 18

Ratio to sales

FY 12/ 19 Est.

Ratio to sales

YoY

Revision rate

Progress rate

SS Security

14,382

100.0%

14,267

100.0%

-0.8%

-5.1%

46.1%

Japan

2,377

16.5%

2,659

18.6%

+11.9%

+5.9%

43.3%

AMERICAs

2,991

20.8%

2,934

20.6%

-1.9%

-3.6%

44.6%

EMEA

7,407

51.5%

7,114

49.9%

-4.0%

-5.0%

48.3%

Asia

1,607

11.2%

1,560

10.9%

-2.9%

-21.4%

43.8%

 

 

 

 

 

 

 

 

SS: Automatic door

4,455

100.0%

4,704

100.0%

+5.6%

+3.7%

46.2%

Japan

2,308

51.8%

2,358

50.1%

+2.2%

+0.4%

44.0%

AMERICAs

1,099

24.7%

1,237

26.3%

+12.6%

+8.7%

49.2%

EMEA

896

20.1%

969

20.6%

+8.1%

+10.7%

48.1%

Asia

152

3.4%

140

3.0%

-7.9%

-20.0%

43.6%

 

 

 

 

 

 

 

 

SS: Other

2,320

100.0%

2,489

100.0%

+7.3%

-1.7%

42.9%

Japan

1,952

84.1%

2,049

82.3%

+5.0%

-0.1%

45.3%

Asia

368

15.9%

440

17.7%

+19.6%

-8.5%

31.8%

 

 

 

 

 

 

 

 

FA

8,548

100.0%

7,606

100.0%

-11.0%

-14.6%

46.6%

Japan

3,763

44.0%

3,513

46.2%

-6.6%

-11.5%

47.3%

AMERICAs

123

1.4%

161

2.1%

+30.9%

+2.5%

34.8%

EMEA

3,218

37.6%

2,475

32.5%

-23.1%

-23.1%

49.9%

Asia

1,444

16.9%

1,457

19.2%

+0.9%

-6.5%

40.6%

 

 

 

 

 

 

 

 

MVL

9,485

100.0%

9,759

100.0%

+2.9%

-8.8%

48.3%

Japan

6,207

65.4%

5,851

60.0%

-5.7%

-10.8%

50.5%

AMERICAs

796

8.4%

906

9.3%

+13.8%

+3.2%

46.1%

EMEA

1,342

14.1%

1,849

18.9%

+37.8%

-11.4%

41.6%

Asia

1,140

12.0%

1,153

11.8%

+1.1%

-2.7%

49.7%

 

 

 

 

 

 

 

 

EMS Business

565

100.0%

590

100.0%

+4.4%

-7.7%

44.1%

Japan

194

34.3%

169

28.6%

-12.9%

-12.9%

51.5%

Asia/Oceania

371

65.7%

421

71.4%

+13.5%

-5.4%

41.1%

*Unit: million yen

 

 

4. Business Strategy: Visual Verification by sensors and cameras working in conjunction with each other

The company aims to realize well balanced growth between SS and FA businesses, so they established a new business model in the SS (security-related) field.
The company will release the new model in this year, under the expectation of the business contributing to sales and profits from the next term.

 

(1) Scale of the alarm monitoring market

The number of contracts for alarm monitoring using outdoor sensors has reached 90 million worldwide. The detailed numbers are as followings: 40 million contracts in North America and 20 million contracts in EMEA (including 3 million contracts in U.K.). These data show that North America and U.K. occupy almost 50% of the total number of contracts.

 

(2) Current situation and problems regarding alarm monitoring

While alarm monitoring is widely installed overseas, still 95% of the security reports are said to be incorrect. Most of them are caused from operational mistakes by users, and some are resulted from malfunction of the outdoor sensors.

 

The current alarm monitoring systems are usually running through the processes that alarm signals from sensors and camera images from surveillance cameras are sent separately to the monitoring company, as shown in the figure below.
Therefore, the monitoring company need to look for camera images to report to users or the police even if they receive alarm signals right away.
However, depending on the situation, sometimes monitoring company reports without checking the camera images, which usually leads to false reports.
Also, in the U.S., it is the police who receive reports from monitoring companies, but the ones who get penalized for dispatch of police officers in case for false reports are usually those users. Likewise, there are various problems lie in the operation of alarm monitoring.

 

(Source: the company)

 

As OPTEX’s outdoor sensors are highly rated and trusted globally, the company decided to develop a new alarm monitoring system that would solve the problems of false reports and lead to familiarization of alarm monitoring.

 

(3) Visual Verification System

①Mechanism
The new system comes with a gateway that interlocks the alarm monitoring system and the surveillance camera system.
By adding up gateway and operation software to the existing system, monitoring companies will be able to receive alarm signals linked with camera images, which will lower the chances of false reports.

 

(Source: the company)

 

This system was made by utilizing a gateway incorporated with image verification solutions created by CHeKT (U.S.), which is a strategical alliance company with the company.
CHeKT is a startup company established in 2014, which possesses great knowledge about the security industry as its CEO is also the owner and the CEO of a security company.
Therefore, CHeKT can provide appropriate solutions that are developed based on business experiences in the security company and meet the local needs. Also, it is one of their strengths that they provide free, easy-to-use operation software in addition to establishing a system that can be connected to network cameras of the industry standards without requiring advanced IT skills.

 

②Business model
OPTEX GROUP possesses an exclusive license to sell the system mentioned above in North America and the U.K. The company will not only sell them as a separate item, but also initiate a subscription-type billing business by providing the system.
The company considers that the system is beneficial for all related groups, including users, monitoring companies and the police, as it can be installed at low cost and has less chances of false reports, and aims to familiarize this win-win business model.

 

(Source: the company)

 

③Target and quantitative goal
The company will provide the system for high-end customers such as commercial facilities, offices and high-class houses in North America and EMEA region.
The sales targets are 2.5 billion yen in 2023 (2 billion yen in North America and 500 million yen in the U.K.), and 10 billion yen in 2028 (8 billion yen in North America and 2 billion yen in the U.K.)

 

5. Conclusions

While sales declined and profit considerably dropped in the first half quarter, the company seems to be confident in the recovery of their financial situation from the second half period. Their confidence is reflected by their forecasts revising for not only the first half but also full fiscal year as of July. Nevertheless, as for the FA business, the effects caused by the trade friction between the U.S. and China are still unknown and unclear, consequently the report will firstly focus on the company’s performance in the third quarter.
On the other hand, the company’s focus on visual verification by sensors and cameras working in conjunction with each other in the SS business which contributed to a new business model including the subscription model are noteworthy. While the business itself is considered to start officially from the next term, most investors have high expectations to its progress.

 

<Reference: Regarding Corporate Governance>

◎Organization type, and the composition of directors and auditors

Organization type

Company with audit and supervisory committee

Directors

11directors, including 4 outside ones

 

◎Corporate Governance Report
The latest revision date : March 28, 2019

 

<Fundamental concept>
As the Group, we recognize that it is our greatest mission to continuously improve corporate value while earning the trust of our shareholders, investors, customers and society. To practice it, we consider enhancement of the corporate governance as one of important management tasks and aim to improve the transparency of management, maintain management systems accompanying fair and prompt decision making and strengthen management monitoring function.

 

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>

Principle

Items to be disclosed

[Supplementary Principle 4-11-1. Balance, diversity and scale of the Board of Directors as a whole]

We have been electing candidates for directors without regard to sex and nationality, and, consequently, we have never appointed female or foreign directors so far.

However, our company’s Board of Directors is composed of 7 (maximum number is set at 9) directors (not audit committee members), who effectively utilize their expertise in business management/administration, technological development, production, sales, overseas work experience, accounting and legal work, and 4 directors (maximum number is 4), who are audit committee members with distinguished insight and knowledge, having management or auditing experience at a major company or possessing qualifications of a certified public accountant, a licensed tax accountant, or the like and we consider that the current composition is balanced to pursue our medium-to-long-term management plan, taking the scale of our company and our corporate group into consideration.

We will continue to examine optimization for the balance of diversity and expertise.

 

 

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

Principle

Items to be disclosed

Principle 1-4 The strategically held shares

The company will hold shares after the deliberation and resolution by the board of directors, only when the shareholding is considered to contribute to the cementing of transaction relations and the improvement of corporate value under the business strategies of the company and its corporate group. Every year, the board of directors discusses the meanings of the holding of the shares, and if it is judged that the reasonable value of the shareholding is insufficient, the company will sell the shares while considering the market trend, etc. As for the exercise of the voting rights of shares the company holds, there are no specific standards, but each bill will be discussed, and dealt with based on comprehensive judgment.

Listed cross-shareholdings owned by the company: 1 brand, 38 million yen (posted on the balance sheet)

 

Regarding the exercise of voting rights for the shares, we will individually examine whether it will contribute to sustainable growth of the enterprise and enhance corporate value over the medium to long term as well as whether shareholder value is not significantly impaired. Based on the examination, we will decide approval or rejection of it in a comprehensive manner.

Principle 5-1 Policy for the constructive dialogues with shareholders

The company has the publicity and IR sections, and makes efforts to explain its managerial policy and situation in an understandable manner, so that it can talk with shareholders proactively and constructively. In addition, IR staff and officers hold briefing sessions for institutional and individual investors as planned, and respond to the request for an interview from institutional investors.

In addition, each annual meeting of shareholders is held on Saturday, so that a broad range of shareholders can attend, and after the meeting, the company holds a briefing session and a convivial party for shareholders, so that they can understand the policy of the company.

In addition, last year, the venue of the general meeting of shareholders was changed to a hotel located inside the JR Kyoto Station building, in order to make it more convenient for shareholders to participate.

 

 

This 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.

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