Sanix Incorporated (4651)

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Sanix Incorporated (4651)
SR Research Report
2014/3/10
Sanix Incorporated (4651)
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will
always present opinions from company management as such. Our views are ours where stated. We do not try to
convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
[email protected] or find us on Bloomberg.
Sanix Incorporated (4651)
SR Research Report
2014/3/10
Contents
Recent Updates ....................................................................................................... 4
Highlights ............................................................................................................ 4
Trends & Outlook ................................................................................................. 5
Business ............................................................................................................... 16
Description ........................................................................................................ 16
Market and Value Chain ...................................................................................... 32
Strategy ............................................................................................................ 36
Historical Performance ........................................................................................ 37
Income Statement ............................................................................................. 38
Balance Sheet .................................................................................................... 42
Cash Flow Statement .......................................................................................... 44
Other Information ................................................................................................. 45
History .............................................................................................................. 45
News & Topics ................................................................................................... 46
Top Management ............................................................................................... 47
Major Shareholders ............................................................................................ 48
Company Profile................................................................................................. 49
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Sanix Incorporated (4651)
SR Research Report
2014/3/10
Income Statement
(million yen)
Total Sales
YoY
Gross Profit
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
25,234
24,539
28,980
31,454
43,366
84,500
-4.8%
-2.8%
18.1%
8.5%
37.9%
94.9%
10,559
9,918
10,276
10,442
13,370
YoY
-9.8%
-6.1%
3.6%
1.6%
28.0%
GPM
41.8%
40.4%
35.5%
33.2%
30.8%
-597
390
502
410
1,870
6,300
-
-
28.6%
-18.3%
356.4%
236.8%
-
1.6%
1.7%
1.3%
4.3%
7.5%
-620
225
430
348
1,789
6,000
235.4%
Operating Profit
YoY
OPM
Recurring Profit
YoY
-
-
91.2%
-19.1%
414.1%
RPM
-
0.9%
1.5%
1.1%
4.1%
7.1%
-4,145
-3,676
50
14
1,575
3,600
Net Income
YoY
-
-
-
-
-15.0%
0.2%
0.0%
3.6%
48,919
48,919
48,919
48,919
48,919
-86.9
-77.1
1.0
0.3
33.0
EPS (Fully Diluted)
-
-
-
-
-
Dividend Per Share
-
-
-
-
-
224.3
147.2
148.2
149.0
184.6
Net Margin
-71.8% -
128.6%
4.3%
Per Share Data
Number of Shares (thousands)
EPS
Book Value Per Share
75.4
-
Balance Sheet (million yen)
Cash and Equivalents
Total Current Assets
Tangible Fixed Assets, net
Other Fixed Assets
Intangible Assets
1,065
1,255
1,138
1,366
3,559
3,895
5,153
5,890
6,964
14,652
15,328
11,828
11,763
11,724
12,326
1,570
1,991
1,843
1,802
1,533
77
1,023
910
796
685
20,869
19,996
20,407
21,286
29,196
Accounts Payable
530
1,159
868
1,386
5,460
Short Term Debt
5,316
5,345
2,425
2,325
3,338
8,536
9,342
6,961
8,381
14,873
Total Assets
Total Current Liabilities
Long Term Debt
16
1,726
4,319
3,560
2,820
1,603
3,599
6,343
5,770
5,486
Total Liabilities
10,139
12,941
13,304
14,151
20,359
Net Assets
10,730
7,055
7,103
7,135
8,837
5,351
7,380
7,505
6,714
7,056
Total Fixed Liabilities
Interest Bearing Debt
Cash Flow Statement (million yen)
Operating Cash Flow
-89
563
55
1,260
2,185
Investment Cash Flow
815
-2,304
-214
-151
-222
-696
1,946
43
-882
230
ROA
-
-
0.2%
0.1%
6.2%
ROE
-
-
0.7%
0.2%
19.8%
51.3%
35.1%
34.7%
33.4%
30.2%
Financing Cash Flow
Financial Ratios
Equity Ratio
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
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Sanix Incorporated (4651)
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2014/3/10
Recent Updates
Highlights
On March 10, 2014, Sanix Incorporated announced monthly sales data for February 2014; please see
the monthly trends section for further details.
On March 6, 2014, the company announced the construction of a new factory for manufacturing
machinery associated with photovoltaic (PV) power generation systems.
Sanix provides comprehensive service for commercial PV systems, including design, sales, installation,
and maintenance. Although the company has strong business fundamentals, keeping up with increasing
demand has been a challenge. To cope with this, and to reduce costs, the company will construct new
facilities for manufacturing machinery associated with PV power generation systems. The new factory will
strengthen and expand production capabilities.
Factory summary
Product to be manufactured: Power conditioners for PV systems
Investment amount: JPY845mn (JPY170mn for the acquisition of real estate and buildings)
Operations begin: August 2014 (tentative)
On February 28, 2014, SR Inc. updated comments on the company’s earnings results for Q3 FY03/14
after interviewing management; please see the results section for further details.
On February 13, 2014, the company announced Q3 FY03/14 results and revisions to its full-year
earnings forecasts.
On February 10, 2014, the company announced monthly sales data for January 2014.
On January 10, 2014, the company announced monthly sales data for December 2013.
For corporate releases and developments more than three months old, please refer to the
News & Topics section.
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Sanix Incorporated (4651)
SR Research Report
2014/3/10
Trends & Outlook
Monthly Trends
FY03/14
Consolidated Monthly Sales
Total Sales
YoY
Apr.
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
5,521
5,091
5,141
5,274
5,349
5,316
6,184
6,631
7,025
7,810
8,460
107.9%
68.6%
71.7%
63.8%
92.8%
57.8% 124.8% 134.8%
92.9%
77.8%
58.2%
-
2,401
2,450
2,604
2,634
2,380
3,620
5,391
5,562
6,109
-
-
-
-
-
-
-
3,842
1,091
1,059
1,079
971
917
824
Mar
Total
67,802
Sales by Category
Commercial Photovoltaic (PV) Solution
YoY
Home Sanitation (HS)
YoY
3,949
797
723
179.0% -26.1% -25.4% -28.2% -21.2% -39.9% -27.4% -27.7% -35.6%
Establishment Sanitation (ES)
YoY
Environmental Resources Development
YoY
398
311
491
408
70.1%
31.8%
93.8%
64.6%
411
619
431
1,281
1,288
1,407
1,183
1,333
1,344
1,309
22.7%
8.8%
2.7%
-8.2%
13.1%
-0.2%
14.3%
37,100
- 633.6% 161.8% 125.7%
688
727
12,718
-5.7% -31.1%
437
445
328
501
88.1% 135.3% 125.8% 57..3%
26.8%
-7.0%
30.6%
1,448
1,446
1,232
1,123
32.7%
0.9%
3.8%
-6.7%
4,780
14,394
Source: Company data, SR Inc. Research
Figures in the category breakdown are preliminarly and their sums may differ from finalized monthly sales figures.
Quarterly Trends & Results
Quarterly Performance
(million yen)
Sales
YoY
GP
YoY
GPM
SG&A
YoY
SG&A / Sales
OP
YoY
OPM
RP
YoY
RPM
NI
YoY
NPM
FY03/13
Q1
8,823
17.6%
2,554
11.2%
28.9%
2,670
2.1%
30.3%
-116
-116
-171
-
Q2
9,362
17.8%
3,292
6.3%
35.2%
2,652
5.6%
28.3%
640
6.8%
625
6.7%
550
5.9%
Q3
9,218
16.0%
2,902
9.6%
31.5%
3,260
33.5%
35.4%
-358
-424
-505
-
FY03/14
Q4
15,964
98.1%
4,622
92.4%
29.0%
2,918
18.4%
18.3%
1,704
10.7%
1,705
10.7%
1,701
10.7%
Q1
Q2
15,753 15,939
78.6% 70.3%
4,631
4,372
81.3% 32.8%
29.4% 27.4%
3,666
3,842
37.3% 44.8%
23.3% 24.1%
966
530
- -17.2%
6.1%
3.3%
925
518
- -17.0%
5.9%
3.3%
779
273
- -50.3%
4.9%
1.7%
Q3
19,841
115.2%
5,065
74.5%
25.5%
4,140
27.0%
20.9%
925
4.7%
743
3.7%
249
1.3%
Q4
-
FY03/14
% of FY
FY Est.
61.0%
84,500
94.9%
38.4%
6,300
236.8%
7.5%
36.4%
6,000
235.4%
7.1%
36.1%
3,600
128.6%
4.3%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
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Sanix Incorporated (4651)
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2014/3/10
Segment Sales and Profit
FY03/13
(million yen)
FY03/14
1Q
2Q
3Q
4Q
1Q
2Q
3Q
8,823
9,362
9,218
15,964
15,753
15,939
19,841
17.6%
17.8%
16.0%
98.1%
78.6%
70.3%
115.2%
360
535
1,362
7,351
7,455
7,700
11,961
-
-
-
-
-
-
778.2%
4,140
4,282
3,365
3,033
3,114
2,973
2,360
-
-
-
-
-24.8%
-30.6%
-29.9%
723
729
819
1,693
1,196
1,403
1,312
-
-
-
-
65.4%
92.5%
60.2%
3,597
3,814
3,670
3,885
3,986
3,861
4,205
-
-
-
-
10.8%
1.2%
14.6%
Operating Profit
2,554
3,292
2,902
4,622
4,631
4,372
5,065
YoY
11.2%
6.3%
9.6%
92.4%
81.3%
32.8%
74.5%
58
104
420
1,961
1,803
1,873
2,742
-
-
-
-
-
-
552.9%
16.1%
19.4%
30.8%
26.7%
24.2%
24.3%
22.9%
1,413
1,880
1,560
1,148
1,548
1,522
877
-
-
-
-
9.6%
-19.0%
-43.8%
34.1%
43.9%
46.4%
37.9%
49.7%
51.2%
37.2%
223
252
243
362
272
337
303
-
-
-
-
22.0%
33.7%
24.7%
30.8%
34.6%
29.7%
21.4%
22.7%
24.0%
23.1%
857
1,055
677
1,149
1,006
637
1,141
-
-
-
-
17.4%
-39.6%
68.5%
23.8%
27.7%
18.4%
29.6%
25.2%
16.5%
27.1%
-116
640
-358
1,704
966
530
925
-
9.5%
-
-
-
-17.2%
-
-43
-16
-407
993
554
398
1,004
-
-
-
-
-
-
-
-
-
-
13.5%
7.4%
5.2%
8.4%
164
711
521
171
601
567
-73
-
-
-
-
266.5%
-20.3%
-
Operating Profit Margin
4.0%
16.6%
15.5%
5.6%
19.3%
19.1%
-
Establishment Sanitation
11
39
-1
89
31
51
25
Sales
YoY
Commercial Photovoltaic (PV) Solution
YoY
Home Sanitation
YoY
Establishment Sanitation
YoY
Environmental Resources Development
YoY
Commercial Photovoltaic (PV) Solution
YoY
Gross Profit Margin
Home Sanitation
YoY
Gross Profit Margin
Establishment Sanitation
YoY
Gross Profit Margin
Environmental Resources Development
YoY
Gross Profit Margin
Operating Profit
YoY
Commercial Photovoltaic (PV) Solution
YoY
Operating Profit Margin
Home Sanitation
YoY
YoY
Operating Profit Margin
Environmental Resources Development
-
-
-
-
181.8%
30.8%
-
1.5%
5.3%
-
5.3%
2.6%
3.6%
1.9%
294
498
134
640
439
78
568
-
-
-
-
49.3%
-84.3%
323.9%
8.2%
13.1%
3.7%
16.5%
11.0%
2.0%
13.5%
YoY
Operating Profit Margin
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Q3 FY03/14 Results (announced on February 13, 2014; please refer to the table
above)
Cumulative Q3 sales were JPY51.5bn (+88.1% YoY), operating profit was JPY2.4bn (+1,357.2%),
recurring profit was JPY2.2bn (+2,494.9%), and net income was JPY1.3bn (against a net loss of
JPY126mn the previous year).
The Commercial Photovoltaic Solution (CPS) segment saw increases in sales in the solar power system
wholesale business and in the commercial solar power systems business—which began full operations in
Q4 FY03/13. However, sales decreased in the Home Sanitation (HS) segment as the company moved
employees to the CPS segment. In the Establishment Sanitation (ES) segment, sales of solar power
systems increased to the operators of multistory buildings and residential properties. In the
Environmental Resource Development (ERS) segment, sales increased in plastic fuel, electricity sales from
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Sanix Incorporated (4651)
SR Research Report
2014/3/10
the Tomakomai Power Plant, and organic waste liquid processing services.
Sales of solar power systems and wholesale sales in the CPS segment contributed to increases in profits.
Results by segment were as follows.
Commercial Photovoltaic Solution (CPS)
Sales were JPY27.1bn (JPY2.3bn the previous year) and operating profit was JPY2.0bn (against an
operating loss of JPY587mn the previous year).
Sales of commercial solar power systems were JPY22.3bn (JPY443mn the previous year). Wholesale sales
of components for photovoltaic (PV) modules were JPY4.8bn (+164.9% YoY).
There was no change in the trend since Q1 that order receipts grew more and more month by month.
Order receipts in December 2013 expanded to as high as around six times the level in April 2013.
Monthly index of orders received for commercial PV systems (direct sales) since October 2012 (April 2013 = 100)
2013
February
114.1
March
April
May
June
July
August
September
October
November
December
January
86.0
100.0
150.5
236.6
258.2
260.1
333.3
436.4
499.0
600.7
611.5
Source: Company data, SR Inc.
* Orders received are for systems for which an equipment approval application has been filed with the Ministry of Economy, Trade and Industry (METI).
Operating profit improved as the large jump in sales offset increased advertising and personnel expenses.
On a quarterly basis, GPM in Q3 declined to 22.9% from 24.2% in Q1. While the ratios of materials costs
and outsourced processing expenses to sales decreased, that of labor costs to sales rose on an increase in
employees to cope with the expansion of orders.
In the business, the company boosted the number of construction workers to 1,077 in Q3 from 277 as of
end March 2013. As a result, labor costs under COGS rose to JPY1.0bn (8.4% of sales) in Q3 from
JPY356mn (4.8%) in Q1.
Home Sanitation (HS)
Sales were JPY8.4bn (-28.3% YoY) and operating profit was JPY1.1bn (-27.8%).
Sales decreased in this segment as the company moved employees to the CPS segment. Sales of
household PV systems dropped particularly sharply, at -83.9% YoY. Also, operating profit fell as fixed
costs—SG&A expenses and the like—ate up a larger proportion of falling sales.
Establishment Sanitation (ES)
Sales were JPY3.9bn (+72.2% YoY) and operating profit was JPY108mn (+119.1%).
Sales remained steady for building management and upkeep services to proprietors of multistory
buildings and residential properties. However, sales of solar power systems leaped up 315.8% YoY, after
the company carried out sales operations in the Kanto region. Operating profit also increased in line with
sales.
As of February 2014, the company’s commercial PV solution business operates direct sales and
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Sanix Incorporated (4651)
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construction of commercial solar power systems mainly in western Japan and wholesaling of PV panels
mainly in eastern Japan. The company said it plans to assign to this ES segment direct sales and
construction of commercial solar power systems in eastern Japan.
Environmental Resources Development (ERD)
Sales were JPY12.1bn (+8.8% YoY) and operating profit was JPY1.1bn (+17.2%).
In the plastic fuel business, the inward volume of waste plastic and organic waste liquid for processing
increased. Also, operations at the Tomakomai Power Plant were stable. Thus, overall sales increased,
which led to an increase in operating profit.
On a quarterly basis, both sales and operating profit in the segment decreased in Q2 because the
company suspended the operation of the Tomakomai Power Plant for about a month for a periodical
comprehensive overhaul, which cost around JPY300mn. In Q3, however, both sales and operating profit
surpassed those in Q1.
1H FY03/14 Results (announced on November 13, 2013; please refer to the table
above)
Sales in 1H FY03/14 were 31.7 billion yen (+74.3% YoY), operating profit was 1.5 billion yen (+185.3%
YoY), recurring profit was 1.4 billion yen (+183.7% YoY), and net income for 1H was 1.1 billion yen
(+177.4% YoY).
Sales increased substantially in 1H FY03/14, boosted by the full-fledged launch of installations of
commercial solar power systems in Q4 FY03/13 in the Commercial Photovoltaic (PV) Solution (CPS)
segment. In the Home Sanitation (HS) segment, the company’s shift to focus on commercial solar power
systems and workforce reduction (transferred to the CPS segment) led to a large decline in sales of
residential solar power systems. In the Establishment Sanitation (ES) segment, sales of commercial solar
power systems for large buildings and condominiums increased. The Environmental Resource
Development (ERD) segment saw increased revenues from plastic fuel and electricity generated by the
Tomakomai Power Station, which operated smoothly.
The CPS segment moved into profitability, driven by much higher sales of commercial solar power
systems. In the HS segment, although there was a large drop in sales of residential solar power systems,
operating profit increased as high-margin termite control services and products accounted for a larger
portion of the sales mix.
Results by segment were as follows.
Commercial Photovoltaic (PV) Solution (CPS)
Sales were 15.2 billion yen (896 million yen in 1H FY03/13) and operating profit was 953 million yen (loss
of 179 million yen in 1H FY03/13). Sales of mainstay commercial solar power systems were newly added
to results, and there was an increase in wholesale sales of PV modules and other components. Operating
profit improved as the large jump in sales offset increased newspaper and other advertising expenses.
According to the company, in the CPS segment, the commencement of system installation in
approximately 30 commercial PV projects has been pushed back into 2H FY03/14. This delay is
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Sanix Incorporated (4651)
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attributable to technical investigations conducted prior to connection to the electrical utility’s power
transmission grid requiring a greater number of days than initially estimated. In light of this situation, on
November 12 the company announced a revision of its 1H FY03/14 forecasts.
Technical investigation prior to grid connection: Pursuant to various laws and regulations, electrical utilities
conduct a technical investigation before connecting a PV system to its transmission grid to identify any
impact on its grid and customers. Based on the results of this investigation, if the utility needs to make
modifications to its equipment or facilities, the PV system owner must bear the related costs.
Orders for commercial PV systems were robust, with orders in October 2013 running at more than four
times the level recorded in April 2013. The company increased its CPS segment western Japan sales force
from 46 staff at end-March 2013 to 91 staff at end-September 2013. According to the company, the
growth in orders was attributable to ongoing newspaper advertising coupled with the increase in sales
staff. The company commented that it is seeing an increasing number of repeat orders as well as
introductions from existing customers.
Monthly index of orders received for commercial PV systems (direct sales) since October 2012 (April 2013 = 100)
2012
October
102.0
2013
November
December
90.7
87.3
January
February
76.1
114.1
March
April
May
June
July
August
September
October
86.0
100.0
150.5
236.6
258.2
260.1
333.3
436.4
Source: Company data, SR Inc.
* Orders received are for systems for which an equipment approval application has been filed with the Ministry of Economy, Trade and Industry (METI).
Home Sanitation (HS)
Sales were 6.1 billion yen (-27.7% YoY) and operating profit was 1.2 billion yen (+17.3% YoY). Although
sales of termite control services and floor/ceiling ventilation systems grew, there was a large decline in
sales of household solar power systems accompanying the shift in personnel to the CPS segment.
According to the company, sales of household PV systems decreased after the move from an aggressive
marketing stance to one of responding to requests from customers. The company said that by increasing
the frequency of sales calls on existing customers, it achieved a large increase in sales of termite control
services and floor and roof ventilation systems. Operating profit increased as high-margin existing
products (termite control services, floor and roof ventilation systems, etc.) accounted for a larger portion
of the sales mix.
Establishment Sanitation (ES)
Sales were 2.6 billion yen (+79.0% YoY) and operating profit was 83 million yen (+63.6% YoY). Sales and
profit rose as the segment boosted sales programs for solar power systems targeting commercial building
operators and expanded installation capacity.
Environmental Resources Development (ERD)
Sales were 7.8 billion yen (+5.9% YoY) and operating profit was 518 million yen (-34.7% YoY). Plastic fuel
revenue rose as the inward volume of waste plastic increased, and electricity sales also grew thanks to
the stable operation of the Tomakomai Power Station. Operating profit decreased YoY due to expenses
incurred for large-scale periodical maintenance at the Tomakomai Power Station. This maintenance cost
approximately 300 million yen and meant the plant was off-line for about a month. This expense was not
incurred in 1H FY03/13.
Although results in 1H fell short of the company’s initial forecasts, the company maintained its full-year
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forecasts for FY03/14 unchanged. The company expects sales and profit to increase greatly in 2H driven
by the CPS segment. The company said that commercial PV system orders are strong, and the balance of
orders on hand is increasing. Consequently, the company indicated that it is confident of achieving its
sales and profit forecasts.
SR Inc. believes that it the delay situation caused by the power utility technical investigations becomes
drawn out, the company may not reach its sales and profit forecasts.
Q1 FY03/14 Results
Sales in Q1 FY03/14 were 16.0 billion yen (+81.7% YoY), operating profit was 1.1 billion yen (operating
loss of 116 million yen in the previous year), recurring profit was 1.0 billion yen (recurring loss of 116
million yen), and net income for Q1 was 830 million yen (net loss of 171 million yen).
Sales increase substantially in Q1 FY03/14, boosted by the full-fledged launch of installations of
commercial solar power systems in Q4 FY03/13 in the Commercial Photovoltaic (PV) Solution (CPS)
segment. In the Home Sanitation (HS) segment, the company’s shift to focus on commercial solar power
systems and workforce reduction led to a large decline in sales of residential solar power systems. In the
Establishment Sanitation (ES) segment, sales of commercial solar power systems for large buildings and
condominiums increased. The Environmental Resource Development (ERD) segment saw increased
revenues from plastic fuel and electricity generated by the Tomakomai Power Station, which operated
smoothly.
In Q1 FY03/14, sales in the Commercial Photovoltaic (PV) Solution (CPS) segment increased significantly,
mainly due to shift personnel from the Home Sanitation (HS) segment to this segment. Consequently, its
sales breakdown also dramatically changed. Specifically, CPS segment sales expanded to roughly 49% of
total sales in Q1 FY03/14 compared to around 4% in FY03/13. The HS segment declined to approximately
19% of total sales in Q1 FY03/14 compared to around 47% in Q1 FY03/13.
The CPS segment moved into profitability and became the company’s profit mainstay, driven by much
higher sales of commercial solar power systems. In the HS segment, although there was a large drop in
sales of residential solar power systems, operating profit increased as high-margin termite control
services and floor and roof ventilation systems accounted for a larger portion of sales mix. In the ERD
segment, profit rose as all businesses achieved sales growth.
Results by segment were as follow:
Commercial Photovoltaic (PV) Solution (CPS)
Sales were 7.7 billion yen (361 million yen in previous year) and operating profit was 645 million yen (loss
of 38 million yen). Sales of mainstay commercial solar power systems were newly added to results, and
there was an increase in wholesale sales of solar power modules and other components. Operating profit
improved as the large jump in sales offset increased newspaper and other advertising expenses. Orders
for commercial solar systems continued to grow strongly, and nearly doubled in June from April.
The company increased sales staff in western Japan to 67 employees at the end of June 2013 from 46
employees at the end of March 2013 in its CPS segment. According to the company, the reasons for the
rise in orders are attributed to an increase in sales staff, in addition to ongoing newspaper advertisements,
coupled with referrals and repeat business from existing customers.
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Monthly index of orders received for commercial PV systems (direct sales) since October 2012 (April 2013 = 100)
2012
October
102.0
November
December
2013
January
February
March
April
May
June
July
90.7
87.3
76.1
114.1
86.0
100.0
150.5
236.6
258.2
Source: Company data, SR Inc.
* Orders received are for systems for which an equipment approval application has been filed with the Ministry of Economy, Trade and Industry (METI).
Home Sanitation (HS)
Sales were 3.1 billion yen (-24.8% YoY) and operating profit was 601 million yen (+276.7% YoY).
Although sales of termite control services and floor/ceiling ventilation systems grew, there was a large
decline in sales of household solar power systems accompanying the shift in personnel to the CPS
segment.
Establishment Sanitation (ES)
Sales were 1.2 billion yen (+65.4% YoY) and operating profit was 32 million yen (+175.2% YoY). Sales
and profit rose as the segment strengthened sales programs for solar power systems targeting
commercial building operators and expanded its installation capacity.
Environmental Resources Development (ERD)
Sales were 4.0 billion yen (+10.8% YoY) and operating profit was 439 million yen (+49.2 % YoY). Plastic
fuel revenue rose as the inward volume of waste plastic increased, and electricity sales also grew thanks
to the stable operation of the Tomakomai Power Station. The segment achieved a large rise in operating
profit driven by higher sales and cost reductions through increased productivity.
For details on previous quarterly and annual results, please refer to the Historical
Performance section.
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Full-Year (FY03/14) Outlook
1H
18,185
17.7%
FY03/13
2H
25,182
57.4%
CoGS
12,338
Gross Profit
5,846
Earnings & Outlook
(million yen)
Sales
YoY
YoY
Gross Profit Margin
SG&A
SG&A/Sales Ratio
Operating Profit
YoY
Operating Profit Margin
17,658
29,996
22,689
7,524
13,370
9,003
49.0%
32.1%
29.9%
5,322
6,178
29.3%
24.5%
28.0%
54.0%
30.8%
28.4%
11,500
FY03/14
2H Est.
52,808
109.7%
FY Est.
84,500
94.9%
7,507
26.5%
23.7%
524
1,346
1,870
1,496
4,804
6,300
96.6%
840.5%
356.4%
185.3%
256.9%
236.8%
5.3%
509
YoY
1H Act.
31,692
74.3%
8.4%
2.9%
Recurring Profit
Full-Year
43,366
37.9%
1,280
4.3%
4.7%
9.1%
7.5%
1,789
1,443
4,557
6,000
235.4%
114.5%
-
414.1%
183.7%
255.9%
2.8%
5.1%
4.1%
4.6%
8.6%
7.1%
1,052
177.4%
2,548
113.1%
3,600
128.6%
Recurring Profit Margin
Net Income
YoY
379
1,196
-
1,575
-
-
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Segment Breakdown & Outlook
FY03/13
(million yen)
FY03/14
1H
2H
Full-Year
1H Act.
2H Est.
FY Est.
18,185
25,182
43,366
31,692
52,808
84,500
17.7%
57.4%
37.9%
74.3%
109.7%
94.9%
Commercial Photovoltaic Solution (CPS)
895
8,720
9,617
18,481
33,566
52,047
22.8%
-
581.6%
-
284.9%
441.2%
8,422
6,390
14,814
5,368
5,297
10,665
-28.0%
Sales
YoY
YoY
Home Sanitation (HS)
YoY
3.5%
-11.9%
-3.8%
-36.3%
-17.1%
1,452
2,512
3,965
2,853
3,032
5,885
8.3%
77.4%
43.8%
96.5%
20.7%
48.4%
Environmental Resources Development
7,411
(ERD) 7,555
14,967
7,398
8,505
15,903
Established Sanitation (ES)
YoY
YoY
41.3%
13.6%
25.9%
-0.2%
12.6%
6.3%
524
1,346
1,870
1,496
4,804
6,300
96.6%
840.5%
356.4%
185.3%
256.9%
236.8%
Commercial Photovoltaic Solution (CPS)
-59
380
320
2,220
3,734
5,954
-
-
-
882.6%
-
Operating Profit
YoY
YoY
-
Home Sanitation (HS)
YoY
875
898
1,775
1,180
-162
1,018
-46.6%
29.8%
-28.5%
34.9%
-118.0%
-42.6%
Established Sanitation (ES)
50
88
139
249
67
316
-
66.0%
239.0%
398.0%
-23.9%
127.3%
YoY
Environmental Resources Development
792
(ERD)
YoY
-
774
1,567
520
1,072
1,592
38.7%
446.0%
-34.3%
38.5%
1.6%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
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Regarding the operating environment, although the price paid under the renewable energy feed-in tariff
(FIT) scheme was revised in April 2013, the scheme is being continued and the environment is favorable
for aggressive expansion of the commercial solar power business. The volume of fuel used and electricity
sold at the Tomakomai Power Station are both growing steadily, and the company is focusing on
maintaining fuel quality and aiming for high efficiency in operation the station’s operations.
Feed-in Tariff (FIT): System to promote the use of renewable energy. Under the system, electric utilities
are obliged to purchase electricity from renewable energy producers (i.e., solar, wind, hydro, geothermal,
biomass) at fixed prices for fixed durations. The prices and durations are revised every year. Generation
facilities must obtain FIT certifications from the Minister of Economy, Trade and Industry.
The company forecasts sales of JPY84.5bn (+94.9%% YoY), as the CPS segment is set to contribute to
full-year earnings and the company also expects a robust performance from the waste-to-energy (WtE)
power generation business. Operating profit is forecast at JPY6.3bn (+236.8% YoY), underpinned by
higher sales and lower solar power-related materials costs.
Revisions to full-year forecasts
The increase in employee numbers and the rise in wholesale sales and orders of commercial solar power
systems mean that the company has added to its installation capacity in the CPS segment. Therefore the
company expects to see an increase in construction starts and completions, and has made an upward
revision to its full-year sales forecast accordingly.
The company made downward revisions to its profit forecasts because of increases in fixed costs as it
employs more technicians to cope with a growing influx of orders, and expands its distribution system.
The company also expects that yen depreciation will cause some loss due to higher procurement costs of
PV modules.
FY03/14 full-year earnings forecasts
 Sales: JPY84.5bn (previous forecast: JPY71.5bn)
 Operating profit: JPY6.3bn (JPY8.0bn)
 Recurring profit: JPY6.0bn (JPY8.0bn)
 Net income: JPY3.6bn (JPY5.1bn)
The outlook for each segment is as follows:
Commercial PV Solution (CPS)
Sales are forecast to be JPY52.0bn (+441.2% YoY) and operating profit is forecast at JPY6.0bn (operating
profit of JPY320mn the previous year). The company anticipates an increase in inquiries driven by
additional orders and introductions from existing customers and the execution of efficient, ongoing
advertising and sales promotion campaigns. The company expects to achieve a large increase in sales as
it boosts its technician workforce in response to growth in orders. In addition, the company aims to
improve profitability through cost reductions and by raising the efficiency of installation operations.
Specifically, the company is working to build its procurement system for such components as PV modules
and power conditioners, and introduce a PV panel mount system developed in-house.
The company forecasts Q4 sales in the segment at JPY2.5bn, double Q3 sales of JPY12bn. Though the
company has prepared installation capacity to achieve the sales target in Q4, it said that the risk factor is
management of construction and distribution of materials for an unexperienced amount of construction
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works.
Home Sanitation (HS)
The company forecasts sales of JPY10.7bn (-28.0%% YoY) and operating profit of JPY1.0bn (-42.6%
YoY). As well as providing maintenance and other after-sales services related to termite control services
and floor/ceiling ventilation systems, the company plans to make sales approaches based on
introductions from existing customers. Sales are forecast to decline due to a fall in sales of household PV
systems. In addition, as part of costs in the commercial PV solution segment is allocated to this segment,
operating profit should decline.
Establishment Sanitation (ES)
The company forecasts sales of JPY5.9bn (+48.4% YoY) and operating profit of JPY316mn (+127.3%
YoY). In addition to aggressive sales activities targeting solar power systems for large buildings,
condominiums and group housing estates, the company plans to promote sales of high-margin anti-rust
equipment installation and other existing products and services. This is expected to lead to sales growth
and an improvement in profitability.
Environmental Resources Development (ERD)
Sales are forecast to be JPY15.9bn (+6.3% YoY) and operating income is forecast at JPY1.6bn (+1.6%
YoY). In the power generation business, the company is pursuing plastic-fuel quality improvements, and
aims to enhance generation efficiency at its Tomakomai Power Station, which underwent large-scale
repairs in July 2013. In the waste plastic processing business, plastic fuel inward shipments are expected
to be robust, however processing unit prices are anticipated to fall attributable to a growing trend of using
high quality plastics.
Future Outlook
Under the “Spring Plan 2012” medium-term management plan that was implemented from FY03/11
through FY03/13, the company developed businesses that meet society’s rising environment-related
needs, and worked to lay the foundations for further growth. As a result, the company cultivated its solar
power business and nurtured the commercial PV solution segment as a new growth driver. In the
Environmental Resources Development segment, through increased sales in waste plastic recycling and
stable operations of power generation, this segment moved into profitability and became a steady source
of earnings.
As of October 2013, the company has not released a medium-term business plan, but SR Inc. believes
that the company will implement a growth strategy centered on the expansion of the commercial solar
power business and waste plastic recycling in the ERD segment.
If the company can achieve its forecasts for FY03/14, it will deserve strong appraisal for getting the
commercial solar power business onto a growth track, and the stage will be set for ongoing expansion.
The power generation business in the ERD segment is operating steadily, and has the potential to become
a stable source of earnings. Furthermore, in the waste plastic recycling business, SR Inc. believes that
there is room for expansion through an increase in processing plants.
In FY03/13 and FY03/14, the company is working to bolster its financial base through enhanced
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profitability, and it is reasonable to assume that the company will move enter a phase in which it can
expand investment in personnel and facilities in its growth businesses.
Enhanced Growth Opportunities through Expansion of Sales Area in Commercial Solar Power Business
In the commercial solar power business, expansion of sales area is anticipated as the next future step.
Currently, sales programs are centered on full-page newspaper advertisements in the western Japan, in
addition to increased orders and introductions from existing customers. In eastern Japan, since sales and
installation structures are not yet sufficient, the company is only conducting wholesale operations.
The commercial solar power business has achieved ample price competitiveness by leveraging operations
that cover everything from procurement to installation. The business is capable of generating high
earnings, hence it is not difficult to imagine that in the near future the company is likely to boost its sales
and installation workforce, and embark on direct sales and installations in eastern Japan. Under such a
scenario, although there may be a temporary increase in expenses relating to advertisements, workforce
and facilities expansion, eastern Japan presents an extremely large potential for sales growth, and hence
increased opportunities for future growth.
Overview of Solar Power System Sales and Installation Structure
Source: Company data
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Sanix Incorporated (4651)
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Business
Description
Sanix began as a termite control services company, and from the early-2000s branched out into the
environmental resources development field, including power generation business. In March 2010, the
company commenced solar power generation business. As of October 2013, the company’s mainstay
businesses are focused on commercial solar power generation, and environmental resources
development (i.e., power generation and waste recycling).
Segments
The company’s four business segments are Commercial Photovoltaic (PV) Solution (CPS), Home
Sanitation (HS), Establishment Sanitation (ES) (targeting corporate customers), and Environmental
Resource Development (ERD).
Commercial Photovoltaic Solution (CPS)
In FY03/13, the CPS segment accounted for 22.2% of total sales and 8.4% of operating profit. This
business is involved in the sale and installation of commercial solar power systems, and wholesale solar
power modules. As one of the company’s mainstay businesses, it supplies solar power generation systems
with a capacity over 10kW.
The CPS segment is a growth engine for the company, with sales in FY03/13 reaching approximately
seven times the level of FY03/12. The segment showed operating profit of 320 million yen in FY03/13
compared to an operating loss of 265 million yen in FY03/12. In FY03/14, the company forecast CPS
segment sales at around four times the FY03/13 level and operating profit of approximately 6.0 billion yen,
or 56.4% of overall operating profit projection.
Home Sanitation (HS)
In FY03/13, the HS segment accounted for 34.2% of total sales and 46.7% of operating profit. This
segment provides sales and installation of residential solar power systems, termite control-related
installation, ceiling and floor ventilation system installation, and foundation repairing and strengthening
construction work. In July 2006, the company was ordered by regulatory authorities to suspend
operations in relation to door-to-door sales practices (see Termite Control Services and Floor/Ceiling
Ventilation Systems). Subsequently, the company ceased new customer acquisition activities and decided
to focus operations on after-sales maintenance for existing customers. From March 2013, the company is
shifting management resources to the CPS segment, and in the HS segment it plans to respond to needs
for residential solar power systems.
Establishment Sanitation (ES)
In FY03/13, the ES segment accounted for 9.1% of total sales and 3.7% of operating profit. This business
provides corporate customers with installation services relating to environmental sanitation, as well as
maintenance services relating to office building and condominium plumbing facilities. The company
intends to make solar power systems for roof tops of buildings and condominiums a mainstay product and
grow this business accordingly.
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Environmental Resources Development (ERD)
In FY03/13, the ERD segment accounted for 34.5% of total sales and 41.2% of operating profit. The main
businesses are waste plastic recycling, power generation and organic waste fluid processing. Waste
plastic recycling involves taking waste plastic from industrial customers and processing it at the
company’s plastic-resource development factory into industrial waste-based plastic fuel. The power
generation business uses this as its main fuel for generating electricity, which is sold to end-users
(undisclosed). Furthermore, the company intends to sell plastic fuel as boiler fuel to paper companies.
Main Businesses
Although the company operates a diverse array of businesses, its main businesses, explained in detail
below, are: commercial solar power; waste plastic recycling and power generation in the Environmental
Resource Development segment; and termite control services and floor & ceiling ventilation systems
installation.
Solar Power Generation
Overview
An important feature of this business is its end-to-end nature—the company does everything from solar
power system procurement through to sales and installation. Since the company sells and installs the
systems, it receives a lump fee covering both equipment and installation. Sales may be calculated by the
simple formula of installed capacity (kW) multiplied by the installation fee per kW (yen).
This business began by supplying household solar power systems, but from 2012 the company altered its
focus to commercial solar power systems. Low-voltage power-receiving equipment capable of receiving
10kW to 50kW is the main sales target, and the company makes sales proposals for the effective use of
locations such as factory and office building roofs and idle land.
PV systems of 10kW-50kW capacity, which can be installed in low-voltage power systems, do not require
notification or other administrative procedures, and qualify for full purchase of power under the Feed-in
Tariff (FIT) scheme (see Feed-in Tariff (FIT) Scheme). PV systems with capacity of 50kW and over require
declaration of compliance with safety regulations and participation of a senior licensed electrician.
Centered on western Japan, the company markets its services through full-page newspaper
advertisements, which emphasize the advantages of solar power. Most sales are with owners of idle land,
fallow agricultural plots, condominiums and factories.
Leveraging its price competitiveness, the company offers volume discounts based on the procurement of
low-cost materials, in-house production, and the receipt of stable, large-scale orders. The company’s low
prices are also underpinned by its ability to eliminate intermediary margins by performing end-to-end
services spanning procurement, sales and installation.
Four years after commencement, the company’s solar power system-related business has grown to 19.0
billion yen in annual sales (FY03/13). The company forecasts sales to grow to approximately 45.0 billion
yen in FY03/14.
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Commercial Solar Power System
S ource: C ompany data, S R Inc. Research
Photovoltaic Solution (PV) Segment Sales Breakdown
FY03/10
FY03/11
FY03/12
FY03/13
Act.
Act.
Act.
Act.
Est.
Commercial solar power systems
-
-
-
6,073
32,725
YoY
-
-
-
-
438.9%
Wholesale of solar power components
-
1,023
1,411
3,544
7,039
YoY
-
-
37.9%
151.2%
98.6%
(million yen)
Residential solar power systems
FY03/14
1,086
4,237
5,031
7,683
1,211
YoY
-
290.1%
18.7%
52.7%
-84.2%
Multi-residential solar power systems
-
297
403
1,713
4,479
YoY
-
-
35.7%
325.1%
161.5%
Total
YoY
1,086
5,557
6,846
19,015
45,459
-
411.7%
23.2%
177.8%
139.1%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Sales Method
Sales of commercial solar power systems are centered on western Japan, where the company markets its
services through full-page newspaper advertisements, which emphasize the advantages of solar power.
Most sales are with owners of idle land, fallow agricultural plots, condominiums and factories.
The advertisements include such information as estimated income from solar power installations, cost of
installing the systems, and investment payback period. For example, the installation cost for a 49kW
system is 12-13 million yen (approximately 270,000 yen per kW), and the annual income from electricity
sold back to the grid is estimated at around 1.7 million yen, giving a payback period of 7-8 years. Hence,
the advertising content is designed to be readily understood and clearly illustrate the product’s
attractiveness. Installed solar power modules’ expected lifetime is between 20 and 30 years, and the loss
of output capacity due to aging is projected at less than 10% after 20 years. As of October 2013, the
company provided a 25-year warranty on module performance.
Under Japan’s current feed-in tariff (FIT) scheme, customers who install the company’s solar power
systems are almost assured of reaping benefits. After a solar power system is installed, a customer is able
to monitor the amount of electricity generated daily and subsequently receives payment from the
electricity company for the power fed back into the grid. Hence, in a short period customers can confirm
the performance of their investment. As a result, within a few months after installation Sanix often
receives new orders through introductions from existing customers or additional orders from such
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customers.
The company’s experience in selling services that require painstaking explanation—the termite control
services—appears to SR Inc. to be one of the keys to Sanix’s early success in photovoltaic installations.
The products and services sold by the company in its CPS (photovoltaic) segment require a substantial
amount of explanation, which means that differentiation depends not only on price but also sales channel.
Up to the point of installation, a sales company will need to discuss and explain a wide range of issues
with the customer—these include installation method, power generation simulations, payment method,
and the advantages of installing a solar power system. Consequently, specialist knowledge, the ability to
respond to customer needs, and skills in explaining various aspects hold the key to closing a sale. This is
not the type of product that can be simply handed over to a customer in a store, and to win a sales
contract an installer or specialist sales person must visit the customer’s site and confirm the exact location
where the solar power system will be installed and agree on a date and time for the installation work to be
carried out. Furthermore, after-sales service is also an important part of the business, which means the
company’s know-how in providing sales explanations and sales staff training programs cultivated in the
termite control business could be effectively leveraged.
From a sales point of view, solar power systems have installation benefits based on policies such as the
FIT scheme, and solar power has a positive image since it is an environment-friendly renewable power
source. Hence, compared with termite control services, solar power may be seen as having more
immediate appeal among potential customers. Since there is no need to perform a free-of-charge
inspection of the customer’s premises during the initial period of sales discussions, sales staff can achieve
efficient progress in their sales activities.
Price Competitiveness in the Commercial Solar Power Business
SR Inc. believes that one of the company’s strengths is price competitiveness. The manufacturing
technology for solar power panels is well established. Since manufacturing is relatively standardized, it is
probably difficult to achieve significant differentiation based on product quality (especially given 20-year
warranty underwritten by insurance companies). If the product is all essentially the same, selling cheaper
is a logical tactical approach. The company says it achieves lower prices thanks to the following two key
aspects. First, it works to procure solar power panels at the lowest possible price by constantly monitoring
the market for suppliers of high-quality, low-priced panels. Additionally, its own solar panel factory
stringently works to reduce its costs to the lowest level possible. Second, by operating an end-to-end
service encompassing procurement, sales and installation, Sanix can save money by eliminating multiple
intermediaries. The company says this is a substantial advantage as virtually no large providers in this
particular niche (small-scale “commercial”—i.e. producing electricity for sale—installations) offer a similar
end-to-end service.
A portion of the solar power modules are manufactured at the company’s own factory, but the majority of
production is subcontracted out to other makers Thanks to a worldwide glut of manufacturing capacity for
solar power modules, in-house production is not necessarily the lowest-price method of procurement.
Sanix is constantly on the outlook for the cheapest equipment suppliers—at the quality acceptable for the
demanding Japanese market.
Furthermore, the company’s scale provides an advantage in volume discount negotiations. Specifically,
the company focuses on small- to medium-sized solar power systems, and operates an order-based
business. Hence, based on its installation plans, the company can continually place large-lot orders with
solar power module suppliers. In contrast, given the order volume from small-scale providers that
specialize in residential solar power systems are small, major solar power module manufacturers do not
have the sales structure to deal directly with these small-lot dealers (i.e., order volume too small to make
it worth dealing directly with these small-lot customers). Major construction companies that handle
mega-solar projects are able to place large-lot order but may not be able to enjoy volume discounts given
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that such orders are done on an ad hoc basis. Sanix gathers a large number of small and medium-sized
orders (i.e., its overall order volume is high and stable), and can deal directly with manufacturers for the
best volume discounts. Furthermore, the company intends to reduce costs by producing equipment such
as inverters and panel mounts in-house.
With regard to the second aspect, generally within the sales channel, manufacturers, wholesalers and
retailers of solar power panels, panel mounts and inverters add their own margin at each stage. By the
time the product reaches the consumer, these margins add up to a substantial premium inflating the final
price. Sanix does everything more or less by itself, sharing the savings with the customer as a lower price
while earning a healthy margin. This is critically important because for the customer, a “commercial”
installation is an investment and the initial price determines the return on this investment over the years.
A Typical Solar Power Value Chain
Solar Power Value Chain
Power Controllers,
Mounts
Solar Panels
Gross margin
Wholesaler
Gross margin
Retailer
Gross margin
Installer
Installation cost
Installation margin
Final Customer
Source: SR Inc.
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A Typical Solar Power Cost Structure
Breakdown of Solar Power Costs and Profit Margin
Sales
and Installation
Margin
20%
Installation Cost
15%
Solar Power Module,
Power Controllers and
Other Materials
50%
Wholesale Margin
15%
Source: SR Inc.
As of October 2013, the company sold commercial solar power systems for approximately 270,000 yen
per kW. Although price varies depending on installation conditions, making it difficult to compare simple
averages, the government committee that determines the price paid under the FIT scheme releases
average system costs. For the October-December 2012 period, it put the average for 10kW to 50 kW
systems at 437,000 yen per kW. Hence, the company’s average price per kW was very low in comparison
with the overall market. Simulations for customers installing a solar power system supplied by Sanix show
an initial investment payback period of around eight years, a simple yield of 15% and an internal rate of
return (IRR) of about 8%.
The company assumes that the feed-in tariffs under the FIT scheme will inevitably decline in the future,
meaning that to sustain attractiveness of its offering for customers, it must work constantly to reduce
costs. As part of these efforts, in 2011 Sanix began producing solar power modules at its own factory in
Shanghai, China. In 2013, the company newly established an in-house division devoted to energy
technology development, meaning it is continuously examining ways to reduce the procurement cost of
materials. Apart from the solar power modules, Sanix has been looking at in-house production of such
peripheral equipment as inverters. The company also makes ongoing improvements to panel mounts,
which helps to enhance installation efficiency and reduce costs.
Organization of the Solar Power Business
With regard to organization, in 2010 the company established Shanri (Shanghai) Energy Science and
Technology Co., Ltd., as a solar power module manufacturing subsidiary in China. In 2012, to meet the
needs of a full-fledged commercial solar power business, the company set up Sanix Engineering Inc.
(100%-owned subsidiary) to handle planning, design, sales, installation and consulting for commercial
solar power systems. Hence, the company is building on its track record in the residential solar power
system field to establish itself in the commercial solar power market.
Sanix has also aggressively expanded its workforce in the commercial solar power business, with 58 sales
staff and 277 technicians as of the end of March 2013, and increased to 79 sales staff and 438 technicians
as of end of June 2013.
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Sales offices for the commercial solar power business are mainly located in western Japan. The company
had 63 sales offices nationwide and six sales offices in eastern Japan focusing wholesale operations.
Souce:Company Data
Factors Affecting Earnings of the Solar Power Business
A simple formula for calculating sales in the solar power business is the capacity installed (kW) multiplied
by average price per kW. Cost of sales (CoGS) comprises such items as system components, installation
labor cost and outsourced work. These include solar power modules (including those manufactured
in-house) and the other solar power system components (such as inverters, power generation monitors,
cables, and mounts).
SR Inc. believes that the price paid under the FIT scheme will at some stage be lowered and price
competition for solar power system installation will lead to gradual year-by-year declines in installation
prices. However, procurement prices for system components are expected to decrease through cost
reductions, and consequently, leading to stable gross profit margins. On the other hand, variable costs
such as installation labor expenses, are expected to rise in parallel with sales
SG&A expenses mainly comprises of fixed components, such sales force labor costs, and advertising
expenses. As sales grow, although it will be necessary to expand the sales force, SR Inc. believes that a
significant part of these are fixed costs.
Given that SG&A expenses are essentially fixed costs, SR Inc. estimates that the marginal profit ratio for
the solar power business is between 30% and 40%. Profits are basically affected by volume, (fluctuation
in solar power capacity installed), pricing and costs (i.e., effective cost reduction efforts).
Competitors in Solar Power
Direct competitors include the Hiroshima-based West Holdings Corporation (JASDAQ: 1407), which began
as a house renovation firm and expanded into the solar power business. West is shifting from residential
solar power systems toward mega-solar projects and commercial solar power systems.
Companies that compete with Sanix in a portion of their business include—in solar power modules—Sharp
Corporation (TSE1: 6753), Kyocera Corporation (TSE1: 6971), Panasonic Corporation (TSE1: 6752),
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Mitsubishi Electric Corporation (TSE1: 6503), and Solar Frontier K.K. (subsidiary of Showa Shell Sekiyu
K.K. (TSE1: 5002)). In solar power systems sales, partial competitors include Yamada Denki Co., Ltd.
(TSE1: 9831), while in installation there are competing housing equipment firms in each local area.
However, there are very few companies competing on an end-to-end basis encompassing manufacture,
sales and installation in the way Sanix does. Based on this fact, as mentioned previously, the company
may be seen as having an advantage over its competitors through its structure that allows it to offer lower
prices. It is also significant that the company has consciously chosen to focus on the 10kW to 50kW
system market, thereby avoiding competition. In other words, for small, local housing equipment
installers, the 10kW to 50kW range is beyond their capabilities, and for major construction companies, the
scale is below their business threshold, meaning excessive competition is unlikely to occur.
Environmental Resource Development
This segment’s business is divided into waste plastic recycling, power generation, organic waste water
processing, final (i.e., landfill) disposal and others. The waste plastic recycling and power generation
businesses account for a large portion of the segment’s operations and these segments exhibit high rates
of growth.
Segment Sales and Profit
(million yen)
Environmental Resources Development
YoY
Waste plastic processing
Power generation
Organic waste water processing
Final disposal
Others
Operating profit
YoY
FY03/09
Act.
7,600
1.6%
3,603
1,550
1,833
611
-1,818
-
FY03/10
Act.
7,934
4.4%
4,295
1,276
1,474
415
472
-1,112
-
FY03/11
Act.
9,511
19.9%
5,023
1,427
1,444
939
676
-216
-
FY03/12
Act.
11,890
25.0%
6,673
2,303
1,595
706
611
288
-
FY03/13
Act.
14,967
25.9%
8,665
3,370
1,602
607
722
1,568
444.8%
FY03/14
Est.
14,850
-0.8%
8,670
3,310
1,741
518
611
1,720
9.7%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Waste Plastic Processing
The waste plastic processing business collects plastic generated during the production processes of
industrial customers, and Sanix then crushes and processes this plastic at its own factory. The company
receives a processing fee for these services from customers whose waste it collects. Revenues vary
according to the volume and fee charged. An important feature of this business is that the company turns
the waste plastic it processes into fuel, which is then used in its power generation business.
The company conducts this business nationwide, and its customers span all industries, from large
companies to small enterprises. The company’s appropriate processing method and system to turn waste
plastic into regenerated fuel is appraised highly by its customers and the processing volume has
increased.
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Plastic Fuel Sales by Region
(million yen)
Western Japan
Sales
Volume processed (tons)
Unit processing price (thousand
Nagoya Region
Sales
Volume processed (tons)
Unit processing price (thousand
Kanto
Sales
Volume processed (tons)
Unit processing price (thousand
Hokkaido/Tohoku/Hokuriku
Sales
Volume processed (tons)
Unit processing price (thousand
Total plastic fuel
Sales
Volume processed (tons)
Unit processing price (thousand
Other sales
Total sales
yen)
yen)
yen)
yen)
yen)
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
407
19,256
21.1
1,109
51,530
21.5
1,282
60,292
21.3
804
38,796
20.7
3,603
169,875
21.2
612
4,215
423
24,699
17.1
1,155
67,347
17.2
1,609
87,434
18.4
1,107
61,517
18.0
4,295
241,000
17.8
472
4,768
504
30,704
16.4
1,293
82,782
15.6
1,887
102,930
18.3
1,337
74,321
18.0
5,023
290,738
17.3
676
5,700
574
36,608
15.7
1,413
93,055
15.2
2,264
128,658
17.6
2,422
90,531
19.1
6,673
348,854
19.1
611
7,284
654
43,046
15.2
1,421
94,305
15.1
2,255
125,617
18.0
4,333
109,392
40.4
8,665
370,362
23.4
724
9,389
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Souce:Company Data
The company entered the industrial waste processing business in 1994. It has established a large network
of plants nationwide, through which it processes and recycles industrial waste. As of October 2013, the
Sanix Group operated factories (waste plastic intermediate processing plants) at 15 locations throughout
Japan. The plants were set up for the purpose of processing industrial waste plastic generated by
companies and other work sites.
Its customers span all industries, from large companies to small enterprises. At the end of March 2013,
the company’s total annual amount processed was around 370,000 tons. Japan’s waste plastic processing
market is approximately 5.0 million tons each for industrial waste. The company’s processing capacity is
equivalent to about 7% of all waste plastic processed annually in Japan.
Sanix’ waste plastic recycling flow is as follows.
1. The company collects waste plastic generated by companies and other work sites and delivers it to the
processing plant
2. The plastic is separated by suitable or non-suitable use as fuel
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3. Plastic is processed in a crusher
4. After crushed, the suitable plastic is compressed into 1-meter cubes and packaged for use as plastic
fuel. The plastic not suitable for fuel is processed at cement companies, or used landfills.
Since Sanix is able to process all types of plastic, but subcontracts this to a number of waste processing
companies and provides strict guidance in the separation of such waste. All waste plastic storage and
processing are conducted in enclosed spaces (inside plants and storage areas), thereby preventing
airborne dispersion of waste, spills and noise pollution. Waste brought to the company’s plants is also
strictly managed, including through analysis and testing, throughout the processing system.
Article 3 of Japan’s Waste Processing Law, which was amended in 2000, stipulates “A business operator
must take responsibility for waste generated in its operations and dispose of such waste appropriately.”
This means that companies generating industrial waste are responsible for the waste’s processing and
disposal. Although the law mandates processing by the companies generating waste, such companies
may contract this work out to authorized industrial waste processors. However, if an industrial waste
processor improperly processes or illegally dumps waste, the company that generated the industrial
waste and contracted the industrial waste processor may be liable to criminal penalties and obligated to
restore a damaged area to its original state. For this reason, when a waste generating company selects a
waste plastic processor, an important criterion is not only price but also whether the contractor will
process the waste appropriately. The customer usually inspects the processing facilities and confirms the
equipment and processing methods to be employed. According to the company, it has built a reputation
for its appropriate processing, and this has been a decisive factor in the growth of the business.
Competition in waste plastic recycling generally encompasses three to four operators in each of Japan’s
47 prefectures. Major operators include Taiheiyo Cement Corporation (TSE1: 5233), Mitsubishi Materials
Corporation (TSE1: 5711), and JFE Kankyo Corporation (subsidiary of JFE Holdings, Inc. (TSE1: 5411)).
In addition to its reliability for appropriate recycling methods, Sanix says that its other strength is that it
generates power after recycling; meaning customers are able to contribute to the effective reuse of waste
materials. Furthermore, the recycling capacity of each plant is high enough to accept large and steady
waste shipments.
Factors Affecting Earnings of the Waste Plastic Processing Business
Sales of the waste plastic recycling may be calculated by multiplying the volume of waste recycled by the
average recycling unit price. The recycling volume is dependent on the overall volume of industrial waste
generated in Japan. Although this volume is affected to a certain extent by the fortunes of economy,
customers use waste processing firms on an ongoing basis and the volume does not greatly fluctuate. The
recycling unit price is determined by negotiation, and may be affected by such factors as area, fluctuation
in expenses, and the level of economic activity.
Waste plastic recycling companies are also involved in the sale of plastic fuel, and although the company
sells plastic fuel to Sanix Energy Inc., these sales are eliminated as intercompany transactions at the
consolidated level. In addition, the company also sells plastic fuels as boiler fuel to paper companies.
Cost of goods sold for industrial waste recycling business mainly comprises of outsourced work and labor
costs. These two costs are essential for the operation of the processing plants, and are estimated to be
partially controlled depending on the level of capacity utilization. Consequently, the main factors affecting
profitability of the waste plastic recycling business are fluctuation in recycling volume, fluctuation in unit
processing price, sales volume of post-processed plastic fuel, and fluctuation of selling prices.
Power Generation Business
A unique feature of the company’s power generation business is use of waste plastic fuel. In this business,
revenue is proportionate to the volume of power generated and it is a stable source of earnings for the
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company. Although the power plant has experienced a variety of problems in the past, as of October 2013,
it was operating steadily. Improvements in the quality of plastic fuel has enabled Sanix to raise its power
generation efficiency and made it possible to grow revenues.
Sanix Energy Inc., which handles the power generation business, was established in October 2001, and
commenced operation of the Sanix Energy Tomakomai Power Station in Hokkaido in 2003. This facility
runs completely on waste plastic fuel and supplies electricity.
Tomakomai Power Station
Source: Company data
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Tomakomai Power Station Layout
Source: Company data
The flow of operations at Sanix Energy’s Tomakomai Power Station is as follows.
1. Plastic fuel is re-crushed at the power station into pieces up to 30mm.
2. This plastic fuel is fed into the boiler furnace to produce steam, which turns the turbine to generate
electricity.
3. Electricity is sent through transmission lines to supply the electricity purchaser.
Source: Company data
The power station has one turbine generator with the maximum output of 74,000kW (equivalent to the
power needed to supply 23,000 households). Of the 74,000 kW capacity, approximately 15% is used
within the company’s plant and the remaining 85% is sold.
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The power station’s basic design differs from the most common waste-to-energy (WtE) method, which is
called Refuse Derived Fuel (RDF). The plant adopts a method whereby finely crushed waste plastic (boiler
furnace fuel) only is directly fed through four chutes using compressed air into a single-fuel fired boiler (a
boiler fired exclusively by waste plastic). The resulting high-temperature, high pressure steam efficiently
turns a turbine to generate electricity. After power generation, the steam is recovered using an air-cooled
condenser and the water is reused. For this reason, there is absolutely no output of heated wastewater,
which is often cited as for power plants. Soot is recovered and together with the incineration ash is
detoxified and recycled or sent to its consolidated subsidiary, C&R Co., Ltd. to be used in landfills.
Through technology development, the boiler is operated with an internal temperature of over 850
degrees centigrade, and the generation of dioxins is prevented by cooling this to 200 degrees centigrade.
Sanix Energy’s Tomakomai Power Station has encountered several problems since 2005 to 2009, and
unavoidably temporarily halted operations (see History). However, the plant appears to have overcome
these problems and implemented many improvements to increase its power generation capacity. As of
October 2013, it was operating smoothly and the company believes it can steadily increase energy output
through enhancement of fuel quality and other measures.
Factors Affecting Power Generation Earnings
The simple formula for calculating sales is volume of power sold multiplied by the unit selling price. The
unit price is agreed by negotiation.
Main expenses include materials cost (such as landfill and chemicals costs), labor cost and outsourced
work cost. Fuel cost is waste plastic processed by other companies in the Sanix Group, meaning there is
no fluctuation risk for materials cost. Labor cost may also be assumed as essentially fixed, meaning profits
are steady when the plant is operating smoothly.
However, since regular inspections and maintenance are necessary, profit is potentially affected if the
plant does not operate for the number of days planned or if there is a rise in maintenance costs. In
addition, generation efficiency deteriorates based on fuel quality attributable to the mixture of metal and
chlorine, leading to a risk of not being able to meet its electricity sales volume target.
Termite Control Services and Floor/Ceiling Ventilation Systems
Termite control services and floor & ceiling ventilation systems are included in the Home Sanitation (HS)
segment and the termite control service is its original business since the company’s founding. The
company applies termite eradication agents to the wooden-structured houses of customers and installs
ventilation systems. Revenue is derived from the provision of services and construction work, as well as
anti-termite agents and other products.
At its peak, this business served 400,000 customers, but in October 2013, the company provided
after-sales maintenance services to approximately 300,000 existing customers and did not solicit any new
business.
In July 2006, the company was the subject of administrative sanctions ordered by the Ministry of Economy,
Trade and Industry (METI) for violations of the Act on Specified Commercial Transactions (see History).
Since then, in addition to thorough measures to prevent recurrence of these problems, the company
stopped acquiring new customers, and mainly focused on providing after-sales maintenance to existing
customers.
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Segment Sales and Profit
(million yen)
HS segment
YoY
Termite control services
Floor/ceiling ventilation systems
Others
Operating profit
YoY
FY03/09
Act.
14,657
-6.6%
5,288
2,549
6,820
3,470
-16.9%
FY03/10
Act.
14,056
-4.1%
4,775
2,996
6,285
3,365
-3.0%
FY03/11
Act.
16,657
18.5%
4,095
2,568
9,994
2,608
-22.5%
FY03/12
Act.
15,395
-7.6%
3,498
2,092
9,805
2,469
-5.3%
FY03/13
Act.
14,814
-3.8%
2,690
1,310
10,814
1,776
-28.1%
FY03/14
Est.
10,273
-30.7%
3,190
1,323
5,760
2,250
26.7%
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Demand for termite control services is on a declining trend. Since termites mainly affect wooden houses,
and given that many new houses include concrete foundations and sheet construction methods, the
necessary frequency for termite control work has declined. In recent years the incidence of termite
infestation has also decreased, and price competition among termite control firms has become intense.
Since 2006, sales have continued to decline in the termite control services and floor/ceiling ventilation
systems, but it is likely the company will continue this business centering on after-sales maintenance for
existing customers. The company has adopted a strategy focusing on the commercial solar power
business, which will require an expanded workforce. Consequently, even if sales decrease in the HS
segment, staff can be shifted into the commercial solar power business, enabling the company to make
effective use of its personnel.
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Strengths, Weaknesses
Strengths:
 Low-priced solar power producer: In the solar power business, the company provides attractive
services at low prices based on its system for procuring low-priced components—including those
manufactured in-house—and its end-to-end operations covering all aspects from procurement to
installation (refer to “Price Competitiveness in the Commercial Solar Power Business”).
 Niche market player with strong sales know-how: Commercial solar power systems with
capacities between 10kW and 50kW—suitable for installation in low-voltage power systems—are too
large to be handled by small, local housing equipment installers but are below the size threshold
handled by major construction groups. Since the company started out selling termite control services
and installing floor/ceiling ventilation systems, it has ample experience in door-to-door sales and a
workforce proficient in small- to medium-scale installation projects. Hence the foundations already
existed on which the company could build its commercial solar power business focusing on 10kW to
50kW systems ahead of potential competitors. This is also one of the reasons the company is able to
gain volume discounts when procuring solar power modules (refer to “Price Competitiveness in the
Commercial Solar Power Business”).
 Stable earnings source: The waste plastic processing business, once a customer enters a service
contract, the probability of the customer changing service providers is quite low. In addition, stable
operations in the power generation business have enabled the company to secure sales and profits.
The company has a stable source profits from its Environmental Resource Development segment.
Weaknesses
 Management culture that historically tended to incorrectly discount risk: Sanix’s earnings
slumped for 10 years after peaking in FY03/02. One of the causes of this slump was a full-scale entry
into the power generation business in FY03, which involved capital investment of 12.0 billion yen—an
amount greater than the entire operating profit at the time. The Environmental Resource Development
segment with its power generation business, lost money every year till FY03/11 (see “Segment
Breakdown”). SR Inc. feels that while the company is prone to move aggressively, in hindsight it often
underestimated the risks, both to its reputation and bottom line. The Sanix’s new focus is the
commercial PV business. The company has been allocating a large portion of its existing resources to
this business as well as aggressively adding staff. While this expansion does look to SR Inc. as an
astute move to meet demand in a growing market and secure a first-mover advantage, it may also
indicate that the management attitude to risk has not changed.
 Organizational Structure Concentrated in Western Japan: Its sales offices and personnel in the
CPS segment are heavily concentrated in western Japan. The company has a wholesale business in
eastern Japan, but does not have noticeable business presence in sales and installation of solar power
systems in this area. It operates 63 sales offices in western Japan, but only has six sales offices in
eastern Japan. On the other hand, the National Institute of Population and Social Security Research
forecasts 22.7 million households in western Japan (including Aichi and Gifu prefectures), while the
number of households in eastern Japan are expected to be much larger at 27.9 million households in
2015. The company does not appear to be expanding its business in eastern Japan, capturing on the
potential household expansion amidst a growing solar power market.
 Sustainable cost competitiveness: SR Inc. believes that Sanix’s The company’s competitive
advantage in solar power business is providing both sales and installation, focused on solar power
generating system of less than 50kW. The company has developed a system where it can provide a
stable volume of orders to solar power generating equipment makers by bundling small lot orders
together and offer competitive low prices. On the other hand, Sanix’s strategy is based on being cost
competitive, and consequently, may lose its competitiveness if competitors and new entrants with
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greater financial strength, initiates a low-priced strategy with a disregard for profits in the short term.
In addition, the company’s cost competitiveness is not based on commanding an overwhelming market
share through production volume, and this low-price strategy may be imitated by competitors. Going
forward, it is likely that a competitor can initiate the company’s business model, and when that
happens, the company may loss its low-price competitive advantage.
Group Companies
The
The



Sanix Group comprises of the parent company and 10 consolidated subsidiaries.
main subsidiaries are listed below (shareholding ratio in parentheses).
Sanix Engineering Inc. (100%): sales and Installation of commercial PV systems
Shanri (Shanghai) Energy Science and Technology Co., Ltd. (100%): Manufacture of PV modules
Sanix Energy Inc. (97.9%): Purchasing of processed plastic fuel (processed by the parent company
for use in its power station), and sales of the electricity
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Market and Value Chain
Market Overview
The Solar Power Market
The solar power market has a significant impact on the company’s earnings. The following is an overview
of Japan’s solar power market, promotion policies, and feed-in tariff (FIT) schemes.
Outlook for Japan’s Solar Power Market
Driven by such issues as global warming and rises in the price of crude oil in recent years, clean energy
sources are capturing significant attention as an alternative to fossil fuels. Nuclear power is one field that
has attracted much interest, but from a safety perspective it fails to live up to the “clean energy” label.
One of the most promising up-and-coming energy fields is photovoltaic (PV) power generation,
sometimes simply referred to as solar power. Solar power generation uses solar cells to convert sunlight to
electrical energy, and does not result in any CO2 emissions.
Underpinned by government policies promoting the spread of solar power systems in Japan, the amount
of solar power system installations is rising annually. According to the solar power roadmap published by
the New Energy and Industrial Technology Development Organization (NEDO), by 2020 the Japanese
government is targeting solar power capacity 20 times that of 2005 (29 GW), and 40 times (53 GW) by
2030. If the target for 2030 is met, it will be equivalent to approximately 10% of Japan’s total generating
capacity.
NEDO is an incorporated administrative agency (affiliated with METI) that aims to contribute to solving
energy and environmental problems as well as the enhancement of Japan’s competitiveness in industrial
technology. To realize these goals, NEDO promotes collaboration among the public, private and academic
sectors and utilizes an international network.
According to METI, in FY03/13 solar power generation accounted for just 0.4% of total electricity
generated in Japan. In FY03/12, solar power generation was just 0.2% of the total.
According to Fuji-Keizai Group, annual market for solar power modules in Japan in 2030 is forecast to be
3.4 times the size of the market in 2012 on the basis of capacity of modules shipped, and 1.5 times the
size on a module-value basis. This translates to a robust long-term annual average growth rate of around
13% on a module-capacity basis, but on a value basis the forecast long-term growth rate falls to around
3% due to an anticipated downward trend in the prices of raw materials as well as peripheral and
manufacturing equipment.
Domestic Solar Power Market (capacity of solar power modules shipped)
2011
Total Capacity
Residential
Commercial
2012 Est.
2030 Forecast
Change 2030/2012
1,450MW
2,500MW
8,500MW
340%
1,200MW
1,500MW
5,000MW
333%
250MW
1,000MW
3,500MW
350%
220 billion yen
250 billion yen
380 billion yen
152%
Source: Fuji Keizai data, SR Inc. Research
In the shorter term, according to HIS Inc. of the United States, driven by the FIT scheme, new solar
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power installations in Japan in 2013 are forecast to expand 2.2 times compared with 2012, to 5.3 million
kW. The combined value of equipment sales and installation costs gives an estimated market size of 19.8
billion dollars (approximately 1,910 billion yen), which would put Japan ahead of Germany as the world’s
largest market.
Policies to Promote Solar Power in Japan
In the past, as a policy to promote the spread of renewable energy, electricity companies voluntarily
purchased power; the Renewable Portfolio Standard (RPS) Law and subsidy programs at the local
government level were also utilized. Based on these initiatives, by 2004 Japan installed the most solar
power cells in the World. However, after the subsidy program operated by the New Energy Foundation
was terminated in 2005, the domestic market shrank.
Renewable Portfolio Standard (RPS) Law is the abbreviated name for a law enacted in Japan in June
2002—the Special Measures Law concerning the Use of New Forms of Energy, etc. by the Electric Power
Industry. The law was designed to promote the use of new energy by mandating minimum usage volumes
for electricity derived from new energy sources by electrical utilities.
For this reason, based on an urgent proposal in January 2009, METI reinstated a subsidy program. In
February 2009, the Ministry of the Environment also announced estimates for the cost and economic
benefits of adopting renewable energy sources. As a promotion measure, the ministry proposed a feed-in
tariff (FIT) scheme, which subsequently commenced in November 2009 covering surplus power
generated by households.
Following that, the Act on Special Measures Concerning Procurement of Renewable Electric Energy by
Operators of Electric Utilities (often abbreviated to “FIT Act”) was enacted in August 2011 and
implemented in July 2012, and became fully eligible for the FIT scheme.
Feed-in Tariff (FIT) Scheme
Under the FIT scheme, to promote the use of renewables, electric utilities are fundamentally required to
purchase all the power generated by five types of renewable energy sources, including solar and wind.
Solar power was popular in Spain and Germany attributable to the introduction of a similar system. A high
tariff is designed to stimulate the development of renewables. As of October 2013, surplus power
produced from solar power generated from less than 10kW systems are bought, while all the power
generated from solar power generated from systems over 10kW are bought under the FIT scheme.
For less than 10kW solar power generated systems, the FIT scheme is applied, and surplus solar power
generated by household are sold to electric utility companies. When the scheme was launched in 2009,
the feed-in tariff for surplus power was 48 yen/kWh. The tariff remains fixed for 10 years from installation
of the solar power system. The scheme envisages annually lowering the tariff for newly installed
generation capacity. As of October 2013, the FIT for new installations was 38 yen/kWh (including tax).
Separate from the surplus power FIT scheme, which is sometimes called “net metering,” a different
scheme covering all power generated by a renewable electricity producer has also been established. This
scheme enables producers to sell all power generated regardless of their own consumption. In Japan, an
FIT scheme for over 10kW capacity was launched on July 1, 2012, while the surplus power FIT scheme for
10kW less capacity producers remained in place.
The tariff and purchase period set under the FIT schemes are set each year by the Minister of Economy,
Trade and Industry prior to the commencement of the fiscal year. The minister is required to take into
account the opinions of a neutral, third-party committee (Feed-in Tariff Calculation Committee), which
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conducts public deliberations. To promote the growth of solar power, supplementary provisions in the law
also require power producer profits to be taken into consideration when determining the feed-in tariff for
three years from the commencement of the scheme.
The cost of purchasing power is recouped by utilities as an extra amount on electricity charges. However,
when the minister sets the feed-in tariff, he or she is required to ensure that the extra charge is not an
excessive burden on electricity users.
In the case of solar power, the FIT for commercial solar power systems with a capacity of 10kW or more
in FY03/13 was 42 yen/kWh (including tax), but in FY03/14 this was reduced to 37.8 yen/kWh (including
tax).
The Feed-in Tariff Calculation Committee proposal took into account a range of conditions, and set a level
that would allow producers to achieve a 6% IRR. This was in line with the law, which provides for higher
returns in the scheme’s first three years, meaning IRR is set 1-2% higher than normal.
The Feed-in Tariff Calculation Committee proposal for the over 10kW FIT is formulated using assumptions
for a mega-solar business model, and the IRR calculations include various running costs, such as rent and
labor costs. In the case of a producer that has installed a PV system with a 10-50kW capacity on idle land,
no actual rent or labor costs are incurred. Hence, if the PV system can be installed at low cost, it is
possible to obtain profits at a much higher level than the Feed-in Tariff Calculation Committee’s IRR
model.
Proposal for FY03/14 by the Feed-in Tariff Calculation Committee
Solar power (10kW or more)
FIT
Capital Cost
Running Cost
FY03/13
FY03/14
Price before tax
40.0 yen
36.0 yen
Price after tax
42.0 yen
37.8 yen
System Unit Cost
325,000 yen/kW
280,000 yen/kW
Land Modification Cost
1,500 yen/kW
1,500 yen/kW
Land Leasing Fees
150 yen/sq.m. per annum
150 yen/sq.m per annum
Maintenance Cost
1.6%/year of construction cost
1.6%/year of construction cost
General Expense
14%/year of maintenance cost
14%/year of maintenance cost
Labor Expense
3.0 million per annum
3.0 million per annum
6.0%(before tax)
6.0%(before tax)
Internal Rate of Return (IRR)
Source: Feed-in Tariff Calculation Committee, SR Inc. Research
As of October 2013, Sanix charges approximately 270,000 yen per kW for the solar power systems it
installs. At this price, based on various assumptions, system owners have a potential IRR of around 8%.
At this price, the company’s commercial solar power business forecasts an operating profit ratio of around
15% in FY03/14.
In FY03/16, after the FIT law’s initial three-year period mandating higher producer returns expires, even
if the FIT is set at a level to give an assumed IRR of 4%, it will still be possible for Sanix to offer solar
power system buyers attractive prices. This assumption is based on price reductions by Sanix made
possible by cost reductions for peripheral equipment and other items as well as a slightly reduced profit
margin. Hence, the company is likely to be able to avoid a drastic fall in sales.
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Potential Solar Energy “Bubble”?
It is necessary to mention the bubble in Spain caused by the feed-in tariffs (FIT) when considering the
potential risks for solar power demand. In 2007, a solar power bubble occurred in Spain as the purchase
price of power was significantly increased in order to promote the use of solar power.
Subsequently, Spain’s government changed its policy for solar energy such as the lowering of purchase
price, setting a purchase ceiling, establishing a purchase price limit, shortening the purchase time period,
and eliminating subsidies, including retroactive subsidiaries, resulted in a significant decline in the number
of solar power users.
In 2001, the European Union (EU) adopted a directive for the purpose of promoting renewable energy,
and Spain issued new measures in 2004 and 2007 for the significant increase in usage of renewable
energy. Measures introduced in 2007, focused on the purchase period for feed-in tariffs (FIT) was set at
25 years, the purchase price was set at an IRR of 17%, and the annual purchased volume of solar power
was increased to 2,708 MW in 2008 from 102MW in 2006.
As a result, generating capacity of solar power significantly surpassed the government’s target, and
consequently, led to transmission companies suffering significant losses, and forced the government to
reduce the fixed rate for solar power in September 2008. In 2009, the bubble burst for Spain’s solar power
market, with new installations collapsing to a mere 17 MW.
Japan’s feed-in tariffs (FIT) scheme is set at a ration level with the purchase period for FIT set at 20 years,
and the purchase price set at an IRR of around 6%, a significant difference from the excessive measures
of Spain’s solar power policies. Even taking into account a possible reduction in the purchase price for the
FIT scheme, which is required following the third year since implementation in 2015, demand for solar
power in Japan does not appear likely to experience a similar decline as in Spain.
In Germany, the government introduced the Renewable Energy Law to develop its solar power market in
2000. Under this system, the electric utility companies are required to purchase all of the solar power
produced at a fixed price for 20 years. Consequently, solar power equipment achieved strong growth, and
installed capacity was the highest in the world in 2005. A large amount of equipment continued to be
installed, and reached 31% of the cumulative total volume or approximately 32GW of the worldwide
amount for 2012, according to the European Photovoltaic Industry Association. The installed volume
reached 7GW per annum during the three year period from 2010 to 2012.
However, electricity prices increased sharply attributable to the promotion of solar power, and
consequently, the German government significantly revised its purchase price in June 2012 due to the
large burden placed on its citizens. Germany’s Federal Ministry of the Environment stated that it expects
purchased volume to be reduced between 2.5 GW to 3.5 GW due to the reduction in the purchase in
2013.
Barriers to Entry
There appears to be an oversupply of PV modules and earnings opportunities may be limited, as evident
with the bankruptcy of Suntech Power of China in March 2013. Unless a maker has the proper sales
channels, it is extremely difficult to turn a profit in the solar power industry. It is possible that a local home
builder could go into the solar power business tomorrow. However, given that Sanix (involved in the whole
process from manufacturing to sales, to installation and maintenance), has already achieved low prices of
sources, generated some brand equity, and gained scale to leverage advertising costs, new entrants may
find it difficult to compete with the company.
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Significant capital investment and operating know-how are required in the plastic waste recycling
business. Consequently, given the additional capital investment and know-how needed post-recycling,
there appears to be little merits for a new company to enter into this business field.
Strategy
The Sanix’s corporate mission since its founding has been “To Make the Dirty Clean” and has been focused
on businesses where a few others would fear to tread. The company has gained valuable know-how and
competitive advantage in being the first mover. An example of this ability was the company’s termite
control services that developed into a substantial business and continued to grow until FY03/02.
After the company was ordered by regulatory authorities to suspend operations for three months in its
termite control services and floor/ceiling ventilation systems operations, Sanix’s management made the
decision to stop soliciting new business for good and focused on providing maintenance services to
existing customers only. Facing declining sales, the company reduced headcount and started searching
for the next business opportunity.
Since 2009, Sanix looked at solar power as its next frontier and consequently changed the business focus.
The company believes that the solar power business allows it to leverage its original strengths. For
instance, it has experience in technically complex sales and installation work (in the termite control
business the company would install building ventilation systems reducing dampness) and that translates
well into solar installation sales and setup. The company’s know how is in working with individuals and
small businesses and that prompted the focus on small scale solar installations (under 50KW). That helps
to avoid lengthy and expensive approval processes and generates stable but sizeable flow of business, in
turn leading to increased bargaining power vis-à-vis panel and equipment suppliers.
Sanix shifted its entire focus to commercial solar power business in 2012. According to company, to
respond to booming demand it quickly created a new organizational structure capable of handling large
volume procurement, sales, and installation of solar power systems. The company believes this initiative
gave it a competitive advantage over the peer group both in terms of pricing and installation capacity,
while also allowing to learn about and seamlessly implement best practices.
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Historical Performance
FY03/13 Results
Sales were 43.4 billion yen (+37.9% YoY), operating profit 1.9 billion yen (+356.4% YoY), recurring profit
1.8 billion yen (+414.1% YoY), and net income 1.6 billion yen (net income of 13 million in FY03/12).
Sales in the Commercial Photovoltaic Solutions segment jumped 581.6% YoY to 9.6 billion yen, boosted
by the full-fledged launch of installation of commercial solar power systems during the fiscal year.
Sales in the Home Sanitation segment declined 3.8% YoY to 14.8 billion yen, mainly attributable to a
decline in sales of termite control services, affected by a reduction in personnel due to an organizational
change, despite an increase in sales of residential solar power systems.
Sales in the Establishment Sanitation segment increased 43.8% YoY to 4.0 billion yen, supported by
favorable demand for PV systems from commercial users such buildings and condominiums operators.
Sales in the Environmental Resources Development segment grew 25.9% YoY to 15.0 billion yen,
attributable to increased waste volume leading to a rise in plastic fuel revenues, coupled with enhanced
generation efficiency at its Tomakomai Power Station, contributing to higher sales of power generation.
As a result, consolidated sales totaled 43.4 billion yen (+37.9% YoY).
Sanix increased adverting on commercial solar power systems to stimulate demand, given the
implementation of the renewable energy feed-in tariff (FIT) scheme, and improved sales structure and
installation process. As a result, the Commercial Photovoltaic Solutions segment became profitable during
the term. Home Sanitation segment profit declined mainly attributable to a decline in sales of termite
control services, affected by a reduction in personnel due to an organizational change, and a shift to
commercial solar power. Profit in Establishment Sanitation segment increased due to a rise in sales. A rise
in revenues from plastic fuel and power generation, together with cost reductions, contributed to a
significant profit increase in the Environment Resource Development segment. As a result, consolidated
operating profit was 1.9 billion yen (+356.4% YoY), recurring profit was 1.8 billion yen (+414.1% YoY),
and net income was 1.6 billion yen (net profit of 13 million yen for the previous year).
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Income Statement
Income Statement
(million yen)
Total Sales
YoY
CoGS
Gross Profit
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
FY03/14
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
25,234
24,539
28,980
31,454
43,366
84,500
-4.8%
-2.8%
18.1%
8.5%
37.9%
94.9%
14,675
14,621
18,704
21,013
29,996
10,559
9,918
10,276
10,442
13,370
YoY
-9.8%
-6.1%
3.6%
1.6%
28.0%
Gross Profit Margin
41.8%
40.4%
35.5%
33.2%
30.8%
SG&A
SG&A/Sales ratio
Operating Profit
YoY
11,155
9,528
9,774
10,032
11,500
44.2%
38.8%
33.7%
31.9%
26.5%
-597
390
502
410
1,870
6,300
-
-
28.6%
-18.3%
356.4%
236.8%
-2.4%
1.6%
1.7%
1.3%
4.3%
7.5%
Non-Operating Income
122
124
126
133
138
Non-Operating Expenses
146
290
198
195
219
-620
225
430
348
1,789
6,000
-
-
91.2%
-19.1%
414.1%
235.4%
-2.5%
0.9%
1.5%
1.1%
4.1%
7.1%
613
162
75
4
143
3,995
3,779
153
10
19
136
283
302
329
337
-3.4%
-8.3%
85.8%
96.3%
17.6%
-4,145
-3,676
50
14
1,575
3,600
-
-
-
-71.8%
-
128.6%
-16.4%
-15.0%
0.2%
0.0%
3.6%
4.3%
Operating Profit Margin
Recurring Profit
YoY
Recurring Profit Margin
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Net Income
YoY
Net Margin
Figures may differ from company materials due to differences in rounding methods.
Source: Company Data, SR Inc. Research
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Segment Sales and Profit
(million yen)
Sales
YoY
Commercial Photovoltaic (PV) Solution
YoY
Composition
Commercial PV systems
Wholesale of PV components
Home Sanitation
YoY
Composition
PV systems
Termite control services
Floor/ceiling ventilation systems
Foundation repairing treatment
Others
Establishment Sanitation
YoY
Composition
Environmental Resources Development
YoY
Composition
Waste plastic recycled
Power generation
Organic waste water recycled
Final disposal
Others
Operating Profit
YoY
Commercial Photovoltaic (PV) Solution
Home Sanitation
Establishment Sanitation
Environmental Resources Development
FY03/04
FY03/05
FY03/06
FY03/07
FY03/08
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
43,987
-12.7%
28,059
-19.2%
63.8%
10,990
9,015
4,064
3,990
7,191
-11.1%
16.3%
8,737
15.5%
19.9%
4,995
874
1,419
1,449
-4,699
3,093
-257
-4,047
44,084
0.2%
26,841
-4.3%
60.9%
10,407
8,564
3,972
3,898
6,934
-3.6%
15.7%
10,309
18.0%
23.4%
5,392
1,734
1,954
1,229
45
5,072
558
-2,428
36,510
-17.2%
20,905
-22.1%
57.3%
8,842
6,447
2,364
3,252
5,406
-22.0%
14.8%
10,198
-1.1%
27.9%
5,988
1,002
2,201
1,005
-3,383
1,552
-261
-1,601
28,908
-20.8%
15,205
-27.3%
52.6%
7,083
4,352
1,395
2,374
4,091
-24.3%
14.2%
9,612
-5.7%
33.3%
5,064
1,138
2,106
1,302
-1,568
1,992
-211
-914
26,511
-8.3%
15,691
3.2%
59.2%
5,023
1,902
7,388
1,378
3,341
-18.3%
12.6%
7,479
-22.2%
28.2%
3,777
769
1,889
422
596
4,176
-202
-1,269
25,234
-4.8%
14,657
-6.6%
58.1%
5,288
2,549
4,374
2,033
2,976
-10.9%
11.8%
7,600
1.6%
30.1%
3,603
1,550
1,833
611
-597
3,470
-90
-1,818
24,539
-2.8%
14,056
-4.1%
57.3%
1,086
4,775
2,996
2,977
2,219
2,547
-14.4%
10.4%
7,934
4.4%
32.3%
4,295
1,276
1,474
415
472
390
3,365
211
-1,112
28,980
18.1%
16,657
18.5%
57.5%
5,261
4,095
2,568
2,110
2,620
2,811
10.4%
9.7%
9,511
19.9%
32.8%
5,023
1,427
1,444
939
676
502
28.6%
2,608
154
-216
31,454
8.5%
1,411
4.5%
1,411
15,395
-7.6%
48.9%
5,031
3,498
2,092
1,614
3,158
2,757
-1.9%
8.8%
11,890
25.0%
37.8%
6,673
2,303
1,595
706
611
410
-18.3%
-265
2,482
41
288
43,366
37.9%
9,617
581.6%
22.2%
6,073
3,544
14,814
-3.8%
34.2%
7,683
2,690
1,310
831
2,298
3,965
43.8%
9.1%
14,967
25.9%
34.5%
8,665
3,370
1,602
607
722
1,870
356.4%
320
1,776
139
1,568
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Operating profit peaked in FY03/02, and has been on a declining trend for the past ten years, mainly due
to deterioration in the Home Sanitation segment, and continued operating losses in the Environmental
Resources Development.
Past Earnings of the Home Sanitation (HS) Segment
The industry was marred by a crackdown on fraudulent inspection methods and prosecutions of
unscrupulous operators since 2002. Segment operating profit peaked in FY03/02 at 13.9 billion yen, and
declined for two straight fiscal years, recording an operating profit of 3.1 billion yen in FY03/04. Operating
profit temporarily recovered in FY03/05 due to restructuring and measures to improve operating
efficiencies.
In July 2005, following media reporting on widespread scams involving fraudulent home renovation
operators, the issue grew into a social problem. The negative attention impacted the segment
performance for Sanix with operating profit falling to under 1.6 billion yen in FY03/06.
In July 2006, the company faced administrative sanctions from the Ministry of Economy, Trade and
Industry (METI) based on the Specified Commercial Transactions Act, which included a three-month
suspension of operations at six stores. In the aftermath of the sanctions that threatened the very
existence of the company, Sanix reviewed its compliance system, and changed its organization to prevent
any incidents from recurring. Furthermore, the company cut costs by closing sales offices, reducing
workforce, and cutting compensation for remaining staff. That lowered the break-even point but segment
operating profit stagnated at roughly 2.0 billion yen in FY03/07.
In FY03/08, earnings bottomed as new services such as foundation repairs and reinforcement, and full
effect from previous cost reductions helped profitability. However, segment operating profit declined
again in FY03/09 as the company stopped soliciting new high-margin termite control business and instead
focused on maintenance for existing customers.
In FY03/10, the company began selling residential solar power systems in this segment (photovoltaic
installations were made a separate segment from FY03/11). This helped to partially offset the decline in
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segment sales but negatively impacted profit margins due to start-up costs and initially low profitability of
the new business.
In FY03/13, segment operating profit declined to 1.8 billion yen as Sanix continued to deemphasize the
former core business, focusing entirely on maintenance for the gradually shrinking base of existing
clients.
Past Earnings of Environmental Resources Development (ERD) Segment
The Environmental Resources Development segment remained unprofitable till FY03/11.
In FY03/01, the company invested 11.3 billion yen in its power generation operations focusing on recycled
plastic fuel. Upfront development costs related to the Tomakomai Power Station, expenses related to trial
runs, and increase in depreciation expense caused segment operating loss to expand to a record level of
4.0 billion yen in FY03/04. The Tomakomai Power Station was completed in October 2003.
Operating losses started to improve from FY03/05 to FY03/07. The company gradually increased power
generation and sales volume, and improved the quality of plastic fuel. In addition, it wrote off 9.6 billion
yen for impairment losses in FY03/05, which contributed to a significant reduction in depreciation
expense (a 1.7 billion yen decline in FY03/06 compared to FY03/05), and also resulted in significant
reduction in operating losses. On the other hand, a fire at the Tomakomai Power Station caused the plant
to suspended operations for several months during FY03/06, and trouble continued as the plant suffered
another fire in Q4 FY03/07.
In FY03/08, together with safety measures taken following the fire in Q4 FY03/07, the plant suspended
operations again in November 2007 after flue gas concentration exceeded the level specified in the plant’s
pollution prevention agreement. As a result of these plant suspensions, the company restrained its
volume of waste plastic to avoid a build-up of fuel inventories, which contributed to a decline in revenues
for power generation and plastic processing services. Consequently, segment operating losses once again
expanded.
In FY03/09, despite an improvement in plant operations on back of the plant suspension caused by the
fire in FY03/08, and a doubling of power generation revenue related to an increase in unit price
attributable to a change in end-user, operating losses in this segment further expanded due to an increase
in personnel expense attributable to strengthening of headcount in anticipation of increased waste plastic
processing volume, coupled with added expenses related to chemical treatment agents used in organic
waste water recycling plants.
Power generation revenues declined due to a reduction in unit prices attributed to sluggish electricity
demand related to production adjustments from manufacturer during FY03/10. However, a change in
end-user in FY03/11, power generation revenues significantly increased due to improved utilization rates
from stable operations, and increase in unit selling prices. Furthermore, volume in waste plastic
operations expanded favorably during this period, and together with cost reductions and improvement in
production, the Environmental Resources Development segment achieved an operating profit in FY03/12.
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Company Forecasts versus Actual Results
Initial CE vs. Results
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
Cons .
Cons .
Cons .
Cons .
Cons .
Sales (initial CE)
Sales (actual)
29,297
25,234
25,000
24,539
27,500
28,980
38,000
31,454
38,000
43,366
Initial CE vs. Results
-13.9%
-1.8%
5.4%
-17.2%
14.1%
1,922
750
1,240
1,300
2,000
-597
-
390
-48.0%
502
-59.5%
410
-68.5%
1,870
-6.5%
1,882
720
1,150
1,250
1,970
-620
225
430
348
1,789
Initial CE vs. Results
Net Profit (initial CE)
1,680
-68.8%
600
-62.6%
900
-72.2%
830
-9.2%
1,820
Net Profit (actual)
-4,145
-3,676
50
14
1,575
-
-
-94.5%
-98.3%
-13.5%
(million yen)
Operating Profit (initial CE)
Operating Profit (actual)
Initial CE vs. Results
Recurring Profit (initial CE)
Recurring Profit (actual)
Initial CE vs. Results
CE=Company estimate; figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Past trends show a significant difference between the company’s forecasts and actual results.
Management’s earnings forecasts are unreliable and frequently revised several times a year. In addition,
its actual results are significantly different than revised earnings forecast. This can be attributed to the
company’s inability to accurately forecast sales and profits in solar power systems, due to its lack of
experience in the business, and the unpredictability of power generation operations, which often incurs
significant unexpected expenses such sudden rises costs.
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Sanix Incorporated (4651)
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Balance Sheet
Balance Sheet
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
Cons.
Cons.
Cons.
Cons.
Cons.
Cash and Equivalents
1,065
1,255
1,138
1,366
3,559
Accounts Receivable
1,678
2,056
2,521
3,309
7,357
Inventories
617
1,221
1,642
1,767
2,898
Deferred Tax Assets
111
288
299
245
299
Other Current Assets
423
334
290
278
539
Total Current Assets
(million yen)
ASSETS
3,895
5,153
5,890
6,964
14,652
Buildings
9,515
9,420
9,705
9,738
9,706
Acc. Depreciation
6,474
7,171
7,445
7,647
7,815
Equipment, Plant
13,210
11,662
11,710
11,769
11,982
Acc. Depreciation
10,717
11,500
11,565
11,529
11,424
9,535
8,980
8,980
8,980
8,890
15,328
11,828
11,763
11,724
12,326
Land
Total Tangible Fixed Assets
Investments
369
367
405
501
317
1,070
960
820
781
706
20
318
233
129
96
112
345
385
391
415
1,570
1,991
1,843
1,802
1,533
77
1,023
910
796
685
Total Fixed Assets
16,975
14,843
14,516
14,322
14,545
Total Assets
20,869
19,996
20,407
21,286
29,196
Deposits Made
Deferred Tax Assets
Other
Total Other Fixed Assets
Total Intangible Assets
LIABILITIES
Accounts Payable
530
1,159
868
1,386
5,460
5,316
5,345
2,425
2,325
3,338
19
309
761
760
848
Other Current Liabilities
2,671
2,529
2,907
3,910
5,227
Total Current Liabilities
Short Term Debt
Current Portion of Long Term Debt
8,536
9,342
6,961
8,381
14,873
Long Term Debt
16
1,726
4,319
3,560
2,820
Corporate Bonds
-
-
-
70
50
Other Fixed Liabilities
Total Long Term Liabilities
Total Liabilities
1,587
1,873
2,024
2,141
2,616
1,603
3,599
6,343
5,770
5,486
10,139
12,941
13,304
14,151
20,359
14,042
14,042
14,042
14,042
14,042
1,759
-
-
-
-
-3,524
-5,441
-5,391
-5,377
-3,733
Shareholder Equity
Issued Capital
Reserves
Retained Earnings
Total Shareholder Equity (Net Assets)
10,730
7,055
7,103
7,135
8,837
Working Capital
1,765
2,117
3,296
3,690
4,794
Interest Bearing Debt
5,351
7,380
7,505
6,714
7,056
Net Debt
4,286
6,125
6,367
5,349
3,497
Figures may differ from company materials due to differences in rounding methods.
Source: Company Data, SR Inc. Research
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Sanix Incorporated (4651)
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Assets
The company’s assets are mostly land and buildings, followed by accounts receivables. Solar
power-related operations do not require large amounts of capital expenditures, but additional land may
be required for increased capacity at its plastic waste processing facilities and power generation plants. In
FY03/13, an increase in accounts receivables was attributed to expansion of operations.
Liabilities
Interest-bearing debt continued to increase until FY03/10 due to stagnant earnings but, such debt has
been on declining trend ever since. Furthermore, the balance of the company short- and long-term
interest-bearing debt is well balanced, as the company shifted from overemphasis on short-term debt to
taking advantage of longer term interest-bearing debt. Given a recovery in earnings, it can be concluded
that company has reduced its financial risk. Net debt (interest-bearing debt minus cash and cash
equivalents) significantly improved in FY03/12 and FY03/13.
Net Assets
Net losses since FY03/03 continued to negatively impact net assets until FY03/10. Net assets have been
on a gradual recovery since FY03/11 due to an improvement in earnings.
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Sanix Incorporated (4651)
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2014/3/10
Cash Flow Statement
Cash Flow Statement
FY03/09
FY03/10
FY03/11
FY03/12
FY03/13
Cons.
Cons.
Cons.
Cons.
Cons.
-89
563
55
1,260
2,185
(million yen)
Operating Cash Flow (1)
Investment Cash Flow (2)
Free Cash Flow (1+2)
Financial Cash Flow
Depreciation & Amortization (A)
Capital Expenditures (B)
Working Capital Changes (C)
Simple FCF (NI + A + B - C)
815
-2,304
-214
-151
-222
726
-1,741
-159
1,109
1,962
-696
1,946
43
-882
230
910
583
416
371
387
-358
-472
-176
-93
-616
-219
352
1,178
394
1,105
-3,374
-3,917
-889
-102
241
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
Operating Cash Flow
Operating cash flow is largely influenced by changes in its pretax income. However, given that pretax
income is largely impacted by its sales, these changes are partially offset by the increase or decrease of its
working capital.
Investment Cash Flow
Tangible fixed assets impact the company’s investment cash flow. Its solar power-related operations do
not require large amounts of capital expenditures, but additional capacity at its plastic waste recycling
facilities and power generation plants may necessitate a temporary increase in capital investment. Total
investment for its Tomakomai Power Station surpassed 12.0 billion yen.
Financial Cash Flow
Free cash flow has been on an improving given the earnings recovery. The company forecasts a
significant improvement in net income for FY03/14. From FY03/14, capital expenditures should be kept
within free cash flow, barring a large decline in earnings, and a portion of free cash flow used to reduce
interest-bearing debt. It is appropriate to expect that financial cash flow will remain negative.
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Sanix Incorporated (4651)
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Other Information
History
Sanix Inc. was established in April 1975 in Sasebo City, Nagasaki Prefecture, to provide termite control
and corrosion-proof services to home owners.
Shinichi Munemasa, the founder and current president saw a business opportunity in “dirty jobs”, work
that most people wouldn’t want to do. His mission became “To Make the Dirty Clean.” Munemasa took
upon himself to visit the U.S. and receive the necessary job training to expand his business. In 1982,
Sanix established a foothold in western (Kansai) Japan, and expanded to eastern (Kanto) Japan in 1992.
In the 1990s, the company sought to branch out into new business fields and expand operations. In 1994,
Sanix started operations to recycle and reduce industrial waste, as well as render such waste harmless. In
1999, it established a factory in Okazaki City, Aichi Prefecture, to process plastic waste into fuel. Sanix
listed its shares on the second sections of the Tokyo Stock Exchange, Osaka Stock Exchange and Fukuoka
Stock Exchange, respectively, in 1997. Its shares advanced to the first sections of the Tokyo Stock
Exchange and the Osaka Securities Exchange, respectively, in 1999.
The company continued to expand in the early 2000s, and established Sanix Energy Inc. (currently a
consolidated subsidiary) to sell generated power from plastic fuel in 2001. In 2003, Sanix Energy
completed the construction of the Sanix Energy Tomakomai Power Station, in Tomakomai City, Hokkaido.
When discussing the company’s history, a business suspension order (also discussed elsewhere in this
report) in 2006 must be mentioned. In July 2006, the company received administrative sanctions from the
Ministry of Economy, Trade and Industry (METI) for violations of the Act on Specified Commercial
Transactions (a misrepresentation, failure to clearly state the purpose of solicitation, forceful solicitation,
act of taking advantage of the impaired judgment of a person and having such person conclude a sales
contract, violation of the principle of suitability). The sanctions were imposed after the company was
found to have pressed insistently to obtain contracts during door-to-door sales. Under the guise of a
free-of-charge check, sales staff reported to householders that there were problems that required
addressing when in fact no such problems existed. Such cases were said to include contracts signed with
incapacitated individuals (dementia and schizophrenia sufferers). As a preventive measure, the company
stopped new sales of termite control and floor-ceiling ventilation systems, and introduced a new business
structure to only satisfied requests from existing customers. As a result, the company has not
encountered any such similar problem has not occurred.
At the same time, the company encountered several problems at Tomakomai power plant from 2005 to
2009 as follows.
 In August 2005, there was a fire in a waste plastic fuel delivery tank.
 In FY03/07, there was a fire, and operation of the plant was suspended until June to enable extra fire
prevention systems to be installed and management to be strengthened.
 For approximately two weeks in November 2007, operations were suspended after flue gas
concentration exceeded the level specified in the plant’s pollution prevention agreement.
 In 2009, the plant voluntarily suspended operations after dioxins were detected in the soot and smoke
from two power-generating boilers at levels exceeding the plant’s pollution control rules. Regulators
ordered the plant to rectify the problem.
After the administrative sanctions by the METI, Sanix scaled back its termite termination operations, while
its power generation business was operating at a loss. Unable to find new business opportunities,
earnings struggled until FY03/09.
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Sanix Incorporated (4651)
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In 2009, the company began selling solar power systems to residential customers as the government
established a system in which excess power could be sold back to the electric power companies, as well
as an increasing awareness of protecting the environment. In fact, the company’s involvement in the solar
power business goes back 25 years earlier, when it started to install solar panels for individual homes as a
power source for under the floor ventilation systems. By the time the company began full-scale solar
power operations in 2009, it had already installed solar power related systems (ventilation system) to
approximately 320,000 homes.
Sanix began wholesale operations in January 2010, and started selling solar power systems to multiple
housing complexes such as apartment buildings and condominiums in July of that year. In July 2012, the
company began providing solar power for commercial uses following the introduction of the Feed-in Tariff
(FIT) scheme for 10kW or more solar power systems, as well as offering solar power systems for the
commercial sector.
In 2010, the company established a company in Shanghai to produce solar cell modules. Sanix
Engineering was established in 2012 as a wholly owned subsidiary to full provide support for the
commercial solar power business, in addition to offering consulting services, and design, sales,
installation and manufacture of solar power systems for the commercial sectors.
As of August 2013, the company’s main focus was on commercial solar power business.
News & Topics
November 2013
On November 12, 2013, the company announced revisions to its 1H FY03/14 forecasts.
Company forecasts for 1H FY03/14
 Sales: 31.7 billion yen (Previous forecast: 34.1 billion yen)
 Operating profit: 1.5 billion yen (2.8 billion yen)
 Recurring profit: 1.5 billion yen (2.8 billion yen)
 Net income: 1.1 billion yen (1.7 billion yen)
According to the company, in the Commercial Photovoltaic (PV) Solution (CPS) segment, the
commencement of system installation in several commercial PV projects has been pushed back into 2H
FY03/14. This delay is attributable to technical investigations related to connection to the electrical
utility’s power transmission grid requiring a greater number of days than initially estimated. Consequently,
the company revised its 1H sales forecast downward. Operating profit, recurring profit and net income
forecasts have also been reduced, reflecting the lower sales forecast.
The company maintained its full-year forecasts for FY03/14.
On the same day, the company made announcements regarding inappropriate accounting procedures in
Q1 FY03/14 and the restatement of Q1 earnings results.
According to the company, the results of an internal company investigation into the booking of a fictitious
sales transaction at consolidated subsidiary Sanix Engineering Inc. in relation to a commercial PV system
were as follows.
 With regard to a single installation project for a commercial PV system (capacity over 10kW), for which
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Sanix Incorporated (4651)
SR Research Report
2014/3/10
a sales transaction was booked in May 2013, the shipped materials were found to be stored in a nearby
leased warehouse. Despite the installation not being carried out, a sales transaction of approximately
100 million yen was booked for the project.
 The sales amount for one further commercial PV system installation project (capacity over 10kW) that
should have been booked in July was found to have been booked in June. The amount in question was
84 million yen.
 For 12 projects, it was found that although installation was largely completed, some of the components
necessary for completion of the project were not yet installed. Hence, these sales should have been
booked in July rather than June. The amount in question was 89 million yen.
In accordance with the results of this investigation, the company restated its earnings results for Q1
FY03/14 as follows.
 Sales: 15.8 billion yen (16.0 billion yen prior to restatement)
 Operating profit: 965 million yen (1.1 billion yen)
 Recurring profit: 924 million yen (1.0 billion yen)
 Net income: 778 million yen (830 million yen)
The company said that it is implementing a range of measures to prevent recurrence of such incidents in
the future. These measures include improvements in internal controls relating to procedures used for the
booking of sales; strengthening of organizational control systems; and improvement of compliance
awareness at subsidiaries and strict enforcement of internal rules.
On November 7, 2013, the company released a statement regarding fraudulent activity by an employee
at its subsidiary.
The company discovered that a single employee at its consolidated subsidiary was involved in a fictitious
transaction related to the installation of a commercial solar power system in May 2013. The supposedly
shipped materials for a commercial solar power system were found at an unrelated warehouse, thus
causing alarm that the recorded sale was fictitious.
According to the company, the impact from this incident on FY03/14 earnings is still unclear. However, the
company forecast that the impact on sales for Q1 FY03/14 will be around 100 million yen, while the
impact on operating profit, recurring profit and net profit will be around 50 million yen, respectively.
The Sanix group will continue to investigate other contracted orders conducted by its consolidated
subsidiaries, as well as work to determine the cause and implement appropriate measures to prevent
such a recurrence, and disclosure its findings at the appropriate time.
Top Management
President Shinichi Munemasa is forward thinking and proactive, having gone to the United States alone to
receive training and learn management skills at the time of establishing the company. Mr. Munemasa has
a knack for recognizing business trends and put thought into action, having started residential solar
power services in 2009, and then shifting to commercial solar power in 2012.
Mr. Munemasa created Sanix Sports Foundation from the profits derived after taking Sanix public, and
established Global Arena in hopes of promoting youth development in Fukuoka, Japan. Global Arena is a
comprehensive sports facility that can accommodate 2,000 people, and is a place where children can go
to enrich themselves. The facility can handle world tournaments for soccer and rugby, and may be used
as a “prep” school for training high school students to become future leaders.
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Sanix Incorporated (4651)
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Major Shareholders
Amount
Held
17.69%
15.22%
Top Shareholders (as of June 30, 2013)
BION CO., LTD.
Shinichi Munemasa
CB Hong Kong Korea Securities Depositary Trade
Japan Trustee Services Bank, Ltd. (Trust account)
Hiroshi Munemasa
The Master Trust Bank of Japan, Ltd. (Trust account)
Sanix Employees Stock Account
Sanix Mutual Benefit Association
Bank of New York GCM Client Account JPRD ISG (FE-AC)
6.48%
4.58%
3.46%
3.07%
2.37%
2.25%
2.22%
Nomura PB Nominees Limited Omnibus-Margin (CASHPB)
1.58%
Source: Company data, SR Inc. Research
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Sanix Incorporated (4651)
SR Research Report
2014/3/10
Company Profile
Company Name
Sanix Incorporated
Head Office
2-1-23, Hakata Ekimae Higashi,
Hakata-ku, Fukuoka
Phone
Listed On
+81-92-436-8870
Tokyo Stock Exchange 1st Section, Fukuoka Stock Exchange
Established
Exchange Listing
September 12, 1978
Website
September 13, 1996
Fiscal Year-End
http://sanix.jp/index_e.htm
March
IR Contact
Management and Planning Division
IR Web
IR Mail
IR Phone
[email protected]
Main Consolidated Segments (% of total sales)
+81-92-436-8882
Commercial PV
Home Sanitation
Establishment Sanitation
Environmental Resources Development
(as of March 2013)
22.2
34.2
9.1
34.5
%
%
%
%
Directors
Shares Outstanding (including treasury shares)
Shinichi Munemasa, President, Representative Director
Hiroshi Munemasa, Vice President
48,919 thousand shares
Shareholders Capital
(as of March 2013)
Kenichi Shimamura, Executive Managing Director
14,042 million yen
(as of March 2013)
Kenji Kamata, Executive Managing Director
Masahiro Shimojo, Executive Managing Director
Main Subsidiaries
Sanix Energy Incorporated
Tetsuya Takano, Managing Director
Shanri (Shanghai) Energy Science and Technology Co., Ltd.
Michimasa Masuda, Managing Director
Kazuya Kinoshita, Managing Director
Sanix Engineering Incorporated
Kazushi Yamamoto, Managing Director
Naoki Kawasaki, Managing Director
Kenji Kaneko, Managing Director
Yoshikazu Ikegaki, Director
Seigou Shuto, Auditor
Genichirou Yasui, Outside Auditor
Hiroaki Matsuoka, Outside Auditor
Others
5 directors
Main Banks
(as of June 2013)
The Nishi-Nippon City Bank, Ltd.
Mizuho Bank, Ltd.
Employees (consol.)
1,823
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Employees (parent)
Average age (parent)
1,235
40.5 years
Auditors
Deloitte Touche Tohmatsu LLC
Average salary (parent)
4.4 million yen
(as of March 2013)
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