〈Delayed〉 Notice of Issuance of a Sponsored Research Report

September 1, 2021

Company: Tsubakimoto Chain Co.
Representative: Kenji Kose,
President and Representative Director
(Code No.: 6371, First Section of TSE)
Contact: Tsutomu Nishida,
Manager, Corporate Planning Department
TEL +81 (6) 6441-0054




Notice of Issuance of a Sponsored Research Report

Tsubakimoto Chain Co. (hereafter “the Company”) decided to release a sponsored research report in order to
improve communication with our shareholders and investors, and to help deepen their understanding of the
Company. The research report was provided by Capital Goods Research & Advisory Co. The report does not
carry any investment recommendation – it is solely prepared to provide an easy-to-understand explanation of
the Company's business model, industry trends, performance trends, long-term business strategy, and other
information that has already been made public. For details, please refer to the attached document.
 Company Report
TSE-I / Machinery
Analyst
September 1, 2021

Shinji Kuroda

Tsubakimoto Chain (6371) Hidehiko Hoshino / CMA

Capital Goods Research &
Advisory


Under new Mid-Term Plan, the Company will plant seeds for new
businesses toward “Where Tsubaki wants to be by 2030”
 On June 14, 2021, Tsubakimoto Chain (The “Company”) announced its Long-Term Vision 2030 and Mid-Term Plan 2025
(for FY2021 - FY2025). Setting the next five years as a planting period to achieve what the Company wants to be by 2030
(“aiming to become a corporate group that contributes to solving social issues through Linked Automation technology”), the
Company is poised to allocate 60% of ¥50-60 billion FCF to be created over the next five years to new business operations.
Through the efforts of strengthening existing businesses in terms of profitability among other things, the Company aims for
¥300-320 billion net sales, 9-11% operating income margin (or ¥27-35.2 billion operating income, for reference), and 8%
or more ROE for FY2025. The Company will keep the dividend payout ratio at a 30% level as its priority is advance investment,
but intends to increase dividends in line with profit growth.
 The Company’s Chain Operations and Motion Control (MC) Operations handle a lot of parts and equipment with top market
share, such as those that transmit the power of various motors. In addition, some products in the Chain Operations and
orders in the MC Operations are linked to orders in Yaskawa Electric’s motion and robot businesses, making them hidden
FA/motor-related businesses. Among the Company’s foreign competitors in the chain and mobility businesses, Rexnord (US)
and BorgWarner (US) are shifting and diversifying their businesses through M&A transactions, while RENOLD (UK) clings to
existing businesses and falls into excess debt. Capital markets tend to highly value the Company’s capacity to adapt to
change, and we expect the seeds planted in the new Mid-Term Plan will bear fruit at the earliest date possible.
 In CGRA’s view, the reason behind the Company’s PBR=0.69 and PER=9.9 is that Mobility Operations (former Automotive
Parts Operations), which handles timing chains for automotive engines, is experiencing a structural decline in demand as
BEVs (Battery Electric Vehicles) spread, and that capital markets may be concerned about the risk of impairment of segment
assets, which account for 32% of the Company’s total assets. However, VW Europe and some of the Japanese companies
such as Toyota Motor are reinforcing their activities to develop e-fuel, which synthesizes hydrogen and CO2 catalystically,
and hydrogen engines, in an effort to reduce CO2 emissions while keeping internal combustion engines. The Company’s
focus product, Enedrive Chains, are also intended to bring a shift to “motors + chains,” which has more advantages than
“motors + gears” on BEVs. Depending on how these products are adopted, the discount on the Company’s stock in the stock
market could be reconsidered.
(Tsubakimoto Chain’s consolidated earnings and stock price data: ¥100 million/yen/%)
Trading data Earnings FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
(the Company’s forecast)

Stock price (2021/8/27) 3,340 yen Net sales 1,987 2,157 2,385 2,264 1,933 2,250
52-week range 2,620-3,585 yen Operating income 216 206 217 161 88 160
Market cap 1,279 ¥100 million Ordinary income 220 217 216 166 110 170
Number of shares issued 38,281 thousand Profit attributable to 145 146 137 115 87 125
shares owners of parent
Average trading value (20-day) 2.7 ¥100 million EPS 390.1 387.4 364.0 308.7 235.2 337.7
PER (the Company’s forecast) 9.9 times ROE 9.9 9.2 8.1 6.7 4.8 -
PBR (as of 2021/3/31) 0.69 times Dividends per share 120.00 120.00 120.00 120.00 75.00 110.00
Expected dividend per share 110.00 yen Payout ratio 30.8 31.0 33.0 38.9 31.9 32.6
Expected dividend yield 3.3 % FCF 120 102 -78 60 183 -
ROIC (2021/3) 2.8 % Net cash -3 76 -60 -85 68 -

Note: EPS and dividends per share for FY2016/FY2017/FY2018 are adjusted on a post-stock consolidation (reverse split) basis.

This report's purpose is not to solicit, recommend, or offer advice regarding investment, but is prepared from our own perspective
for the purpose of providing information about the company in question. In addition, although the contents of this report have been
prepared based on publicly-available information, we do not guarantee their accuracy or completeness. Capital Goods Research
& Advisory Co., Ltd. retains copyright to this report. Reproduction is prohibited without prior permission. The contents of this report
are subject to change without notice.
 2021-9-1




Table of Contents
(1) Tsubakimoto Chain: Three Highlights: P3-4

(2) Operations and Business Models: P5-9

• Operations: P5

• Core Products: P6

• Business Models and 6 Types of Operating Capital: P7-8

• Company History: P9

(3) Mid-Term Plan and SWOT & Five Forces Analyses:
P10-12

• Announcement of Long-Term Vision 2030 and Mid-Term
Plan 2025: P10

• CGRA Focus in Mid-Term Plan 2025: P11

• SWOT & Five Forces Analyses: P12

(4) Earnings Outlook and Segment Trends: P13-19

• Past Results and FY2021 Earnings Forecasts: P13

• Market Overview and Earnings Outlook for Chain
Operations: P14

• Market Overview and Earnings Outlook for Motion
Control Operations: P15

• Market Overview and Earnings Outlook for Mobility
Operations: P16-18

• Market Overview and Earnings Outlook for Materials
Handling Systems Operations: P19

(5) Financial and Non-Financial Analyses: P20-22

• Financial Analysis: P20

• Non-Financial Analysis and Governance Structure: P21-22

(6) Consolidated Statements of Income/Balance
Sheets/Cash Flows: P23-24




Tsubakimoto Chain (6371) 2
 2021-9-1



(1) Tsubakimoto Chain: Three Highlights
Highlight #1: The Company announced Long-Term Vision 2030 and
Mid-Term Plan 2025
On June 14, 2021, the Company announced Long-Term Vision 2030 and Mid-Term Plan 2025. The The Company
Company’s earnings continued to worsen in FY2019 and FY2020 in the wake of the trade dispute announced Mid-Term
between China and the US and the negative impact of COVID-19 on a global scale. However, they Plan 2025 (final year:
bottomed out on a quarterly basis in FY2020-1Q (April-June 2020) and are now in a recovery FY2025)
phase as automobile production and the private capital investment environment have improved.
On May 11, the Company announced strong growth guidance on profit as well as on dividends for
FY2021, with an operating income forecast of ¥16 billion (+80% year-on-year, operating income
margin: 7.1%) and dividend per share forecast of 110 yen (75 yen in the previous fiscal year).

Meanwhile, the Company aims to achieve a new record-high profit in FY2025, the final year under
the new Mid-Term Plan, with target net sales of ¥300-320 billion and target operating income
margin of 9-11% (operating income of ¥27-35.2 billion, for reference) (Figure 1). Setting the new
Mid-Term Plan period as a planting period, with a sense of impending crisis for what the Company
strives for by 2030, the Company is poised to allocate 60% of ¥50-60 billion FCF to be created
over the next five years to new business operations.

Highlight #2: Foreign competitors embark on fast-paced business
restructuring
Among the Company’s competitors are BorgWarner (US), Rexnord (US), RENOLD (UK), and Capital markets tend
Diamond Chain Company (US, unlisted). BorgWarner acquired an automotive battery company, to highly value the
ROMEO, in 2019 and an EV motor company, Delphi Technologies, in 2020, rushing to prepare for Company’s capacity to
the EV era. Rexnord also engages in the water management business through M&A deals, in which adapt to change
operating income margin reaches almost 23% for various valves and household plumbing
equipment. As shown in Figure 2, the two companies’ PER is highly valued for these fast-paced
business conversions and diversification efforts. On the other hand, RENOLD, unable to break away
from its existing businesses such as chains, has become insolvent, and its valuation estimate is not
available for the moment. Tsubakimoto Chain stock price may have been affected by the RENOLD
discount. If the Company’s operating income margin comes close to 9-11% as set out in the new
Mid-Term Plan, and if it can secure PER=15.0, as BorgWarner does, and ROE=8% or more (Mid-
Term Plan target), its PBR could be valued as high as 1.2 (= ROE 0.08 × PER 15.0).

Highlight #3: The Company’s PBR seems to discount excess
impairment risk
After dipping below 1.0 at one point when its performance weakened following the bankruptcy of We hope for the early
Lehman Brothers (2008 global financial crisis), the Company’s PBR has remained in a 1.0-1.5 range realization of non-
overall despite the impact of valuation discounts in the automotive parts industry, which continues timing chain
to be based on a low PER structure. However, it has declined significantly since FY2018 due to businesses
concerns over decreasing demand for timing chains for internal combustion engines as a result of
structural changes (electrification) in the automobile industry. As the segment assets of Mobility
Operations account for 32% of total assets, current PBR (0.69) can be considered to be a level that
discounts Mobility Operations’ impairment risk (Figure 3).

Mobility Operations is expected to maintain stable performance for the time being, and contribution
to profits by the non-timing chain business should become apparent as one of the planting effects
under the new Mid-Term Plan for 2030. (Particularly, Enedrive Chains may be adopted as an
alternative to BEV gears.) These days, debate is heating up over existing internal combustion
engines that utilize e-fuel and hydrogen engines, which are led by Toyota Motor and European
automakers such as VW. Depending on measures taken by existing automakers to reduce CO2
emissions using internal combustion engines, the Company’s EV (electric vehicle) risk and Mobility
Operations’ impairment risk, being talked about in the stock market, could be mitigated.




Tsubakimoto Chain (6371) 3
 2021-9-1


Figure 1: The Company announced Mid-Term Plan 2025
(Million yen)
（百万円） 26/3期を最終年度とする中期経営計画2025を発表
The Company announced Mid-Term Plan 2025 (final year: FY2025) (%)
（％）
350,000 16.0 “Mid-Term Plan 2025”
Consolidated net sales
連結売上高（左目盛） Consolidated operating
連結営業利益（左目盛） 営業利益率（右目盛）
Operating income margin
was announced with
300,000
(left scale) income (left scale) (right scale) 14.0 the Company aiming
FY2025 targets: ¥300-320 billion net sales, 9-11% operating income
26/3期に売上高3,000∼3,200億円、営業利益率9∼11％、 for 9-11% operating
margin, 8% or more ROE
ROE 8％以上を目指す方針 12.0 income margin for
250,000
FY2025
10.0
200,000
8.0
150,000
6.0

100,000
4.0

50,000 2.0


0 0.0
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2025

---

（会予） 22/3 26/3 （中計）
(The Company’s (Mid-Term Plan)
forecast)

Figure 2: Capital markets recognize the Company’s capacity to adapt
to change
Expected PER and average operating income margin for the last three years
各社の予想PERと過去3ヶ年平均営業利益率
16.0 Companies with
capacity to adapt to
14.0
change are highly
過去3ヶ年平均営業利益率（％）




profitable and valued
12.0

10.0

8.0 Tsubakimoto Chain

6.0

4.0

2.0

0.0
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Expected PER (times)
予想PER（倍）

Figure 3: The Company’s PBR discounts excess risk
(Million yen)
（百万円） PBRはモビリティ事業の減損リスクなどを織り込んでいる印象
The Company’s PBR seems to discount Mobility Operations’ (Times)
（倍）
The Company’s PBR
350,000 impairment risk and other risks 1.6
モビリティ事業以外のセグメント資産 assets
Non-Mobility Operations segment discounts Mobility
モビリティ事業のセグメント資産 assets
Mobility Operations segment 1.4 Operations’
300,000
PBR（右目盛）
PBR (right scale) impairment risk,
1.2 hovering at 0.69
250,000

1.0
200,000
0.8
150,000
0.6

100,000
0.4

50,000 0.2

0 0.0
FY2014
15/3 FY2015
16/3 FY2016
17/3 FY2017
18/3 FY2018
19/3 FY2019
20/3 FY2020
21/3 FY2021

---

Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 4
 2021-9-1



(2) Operations and Business Models
・Operations
A chain is a part that transfers power and converts rotational motion to linear motion in various No.1 global market
industrial machines, automobiles, and motorcycles. The Company is a leading manufacturer of share for industrial
timing chains for industrial and automotive engines. It holds the largest global market share for chains and automotive
industrial steel chains (The Company’s estimate: 16%) as well as for automotive engine timing timing chain systems
chain systems (37%).

Currently, the Company has four business segments: (1) Chain Operations, handling approx.
20,000 kinds of power transmission and conveyance chains, (2) Motion Control (MC) Operations,
supporting various equipment such as reducers, linear actuators, shaft couplings, locking devices,
clutches, and modules that change, reduce, and transmit power, (3) Mobility Operations, centering
on timing chain systems that are used in automotive engines to contribute to higher fuel efficiency
and smaller-size engines, and (4) Materials Handling Systems Operations, handling conveyance
and sorting systems and storage systems enabling automatic storage at ultralow temperature.

Since 2013, the Company has strengthened new business development activities and engaged in
“eLINK” with an EV charger function, bidirectional charger/discharger function as emergency power
supply in case of power outage, various software, IoT-based remote monitoring platforms, and
agribusiness such as plant factory automation.

Chain, MC, and Mobility Operations are a stable source of profits
For FY2020, the Company’s consolidated net sales decreased 15% year-on-year to ¥193.3 billion,
and operating income decreased 45% to ¥8.8 billion (operating income margin: 4.6%).
Consolidated net sales break down to: Chain (31%), Power Transmission Units and Components
(present MC) (10%), Automotive Parts (present Mobility) (30%), Materials Handling Systems
(28%), and other operations (1%). With regard to operating income, the Company secured ¥7.8
billion in Chain Operations (operating income margin: 12.8%), ¥3.7 billion in Automotive Parts
Operations (6.4%), and ¥0.8 billion in Power Transmission Units and Components Operations
(4.1%), while incurring ¥2.2 billion and ¥0.3 billion losses in Materials Handling Systems Operations
and other operations, respectively, and ¥0.9 billion being eliminated upon consolidation.

The Company achieved record-high net sales of ¥238.5 billion and record-high operating income
of ¥21.7 billion in FY2018. However, its highest operating income margin and ROE, 11.8% and
12.8%, respectively, were marked in FY2007.

Figure 4: Products and customer industries in major segments
Operations Percentage of Main products Main customers’ industries and
sales (%) applications
Drive chains Various manufacturing plants
Small-size conveyor chains (Automobiles, steel mills, machine tools,
Chains 31% Large-size conveyor chains LCDs, IT, beverages, foods, etc.)
Top chains Mining and related
Cable and hose carrier systems, etc. Water treatment facilities, etc.
Reducers Various manufacturing plants
Motion Control Linear actuators (Automobiles, steel mills, machine tools,
(Former Power Shaft couplings LCDs, IT, beverages, foods, etc.)
Transmission 10% Locking devices Injection molding machine
Units and Clutches Vehicle washing/inspection machines
Components) Modules Medical equipment
Various controllers Agricultural machinery
Timing chain systems Automotive engines
Mobility
(Roller & silent chains, tensioners, etc.) (ICE, HV)
(Former
30% Motorized products 4WD vehicle transfer cases
Automotive
(Enedrive Chain series) Electric vehicles (EVs)
Parts) In-vehicle one-way clutches, etc. Motorcycle starters, etc.
Logistics industry systems Distribution warehouses/centers
Life science field systems Pharmaceutical and cell research
Newspaper printing factory systems Paper mills/newspaper printing factories
Materials Automotive industry systems Automotive manufacturing plants
Handling 28% Bulk handling systems Biomass power plants
Systems Metalworking chips handling/coolant Processing plants using machine tools
processing systems
Other conveyance/sorting/storage systems Other manufacturing plants
Maintenance, etc.
Agribusiness Plant factories
Other 1%
Monitoring business, etc. Various plants

Source: Created by CGRA based on Company documents, etc. Percentage of sales: FY2020 actual
results



Tsubakimoto Chain (6371) 5
 2021-9-1


・Core Products
The Company’s No.1 global share comes from high reliability
The Company’s chains, its original primary business, have unparalleled wear resistance (wear life)
and the world’s top level of power transmission capability, with a product lineup including
environmentally resistant chains and lube-free chains. A chain mechanism is simple, but the
Company secures a 16% global share (ranked 1st) thanks to its products’ high
performance/reliability and extensive lineup. With a 37% global share (ranked 1st) for timing chain
systems for automotive engines, the Company supplies mainly chains, as well as tensioners, lever
guides, and sprockets to automakers.

Figure 5: Mechanism of roller chain/timing chain systems




Source: Company website

Electric cylinders have higher energy-saving and environmental
characteristics compared to hydraulic or pneumatic cylinders.
Electric cylinders account for about 20% of MC Operations’ net sales and help the Company hold a
76% market share in Japan (ranked 1st). The Company’s electric cylinders (product name: Power
Cylinder) are compact and easy to install and handle because they are not based on hydraulic or
air pressure. As shown in Figure 6, they are superior to hydraulic or pneumatic cylinders in terms
of (extremely low) CO2 emissions and power consumption. MC Operations also has many other
products with a top domestic market share, such as locking devices (product name: Power-Lock,
56% share), worm reducers (36%), and cam clutches (90%). MC Operations can be said to be a
hidden FA/motor-related business (est. 30% of consolidated net sales).

Figure 6: Power Cylinder’s competitive edge

CO2 Emission Electric Power Usage
CO2Emission per year(kg-CO2/y) Comparison of yearly basis Electric Power Usage
800 2000 per unit(kWh/y) 6.4x
Upper row: CO2 Emission from Operation
700 Lower row:CO2 Emission from Production 1987

---

4.6x

---

---

5.4x

---

300 584 3.8x

---

---

---

---

---

Air Cylinder Hydraulic Cylinder Power Cylinder Air Cylinder Hydraulic Cylinder Power Cylinder
Source: Company website




Tsubakimoto Chain (6371) 6
 2021-9-1


・Business Models and 6 Types of Operating Capital
Typical economically sensitive company but resistant to recessions
Demand in the three operations of Chain, MC, and Materials Handling Systems (which collectively An estimated 30% of
account for 69% of total sales) is influenced by private capital investment. However, due to their consolidated net sales
aspects of consumables, Chain and MC are linked to industrial production and US ISM index, which tend to be linked to
makes them relatively resistant to recessions. Not only MC product lines but also power demand for various
transmission chains and sprockets are often used incidentally with industrial motors, and an industrial motors
estimated 30% of sales are FA/motor-related products. Mobility Operations (30%) is linked to
global vehicle production but tends to outperform it thanks to newly acquired projects.

Looking back on past business results, operating income fell from the ¥19.8 billion recorded in
FY2007 to ¥4.7 billion in FY2009 (operating income margin: 4.2%) after the bankruptcy of Lehman
Brothers, yet an operating surplus was secured. Even when the negative impact of COVID-19 was
seen on the Company’s operating income for FY2020, a surplus of ¥8.8 billion was achieved
(operating income margin: 4.6%). This indicates that the Company has become increasingly
resistant to recessions as its profit levels tend to rise during recessions.
The Company’s business model is based on industrial chains for power transmission and
conveyance, selling various equipment such as reducers, shaft couplings, and locking devices, as
well as parts and units such as timing chains for automotive engines, and diversifying into the
materials handling business of system products. In response to changing customer needs, the
Company will vertically expand its operations by increasing the added value of products and
composite products and strengthening its capability to propose solutions.

Figure 7: Tsubakimoto Chain is resistant to recessions
（百万円）
(Million yen) （％）
Tsubakimoto Chain Historical Earnings
椿本チエインのヒストリカル業績推移 (%)
250,000 16.0
Consolidated net sales Consolidated operating income
連結売上高（左軸）
(left scale)
連結営業利益（左軸）
(left scale)
Operating income margin 14.0
営業利益率（右軸）
(right scale)
200,000
12.0


10.0
150,000

8.0

100,000
6.0


4.0
50,000
2.0


0 0.0
FY1999


FY2000


FY2001


FY2002


FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020
FY2021

Company’s
forecast)
(The

---

（会予）



Source: Created by CGRA based on Company documents, etc.

Key points about 6 types of operating capital
In terms of the production aspect as the Company’s manufacturing capital, the mother plants
are the Kyotanabe Plant for Chain Operations, the Nagaokakyo Plant for MC Operations, and the
Saitama Plant for Mobility Operations. Capital investment was ¥8.2 billion in FY2020 (4.3% of net
sales), and depreciation was ¥12.6 billion (6.6% of net sales). The Company made proactive capital
investment with the aim of achieving ¥100 billion in sales in Mobility Operations, and capital
investment reached ¥18.1 billion for FY2017 (8.4% of net sales). Capital investment has since
normalized, but depreciation has remained high. With 81 affiliates in 26 countries and regions, the
Company’s overseas sales ratio was 57% for FY2020.




Tsubakimoto Chain (6371) 7
 2021-9-1


As intellectual capital, R&D expenses were ¥4.2 billion or 2.2% of net sales for FY2020 (average
annual R&D expenses for the last five years: ¥4.4 billion or 2.1% of net sales). The Company has
approximately 400 R&D staff groupwide (about 5% of consolidated employees), who are engaged
in the development of products that differentiate from other companies’ products and meet
customer needs.

As human capital, the Company had 8,535 employees on a consolidated basis as of the end of
FY2020 (+956 over the last five years). Based on a merit system by function/role, the Company
is promoting personnel system reforms, with a keyword being “diversity,” and is committed to
global human development by establishing an “overseas trainee program.” About 50% of the
Company’s consolidated workforce are foreign nationals, helped in part by the acquisition of US
CCC (Central Conveyor Company). Further, the Company is committed to increasing the
percentage of female employees and their promotion to managerial positions. “Tsubaki Techno
School” was opened to train young engineers and raise the level of their skills. The Company’s net
sales per employee of ¥22 million for FY2020 was relatively low compared to NSK’s ¥25 million,
Yaskawa Electric’s ¥30 million, and Daifuku’s ¥40 million.

As financial capital, total assets were ¥307.3 billion (interest-bearing debt: ¥41.1 billion, net
cash: ¥6.8 billion), while shareholders’ equity was ¥185.7 billion with 60.5% equity ratio for
FY2020. As financial capital-based outputs, the Company has a profit structure that generated in
FY2020 consolidated net sales of ¥193.3 billion, operating income of ¥8.8 billion (operating income
margin: 4.6%, equivalent to 41% of record-high operating income ¥21.7 billion marked in FY2018),
ROE of 4.8%, operating CF of ¥27.8 billion (average for the last five years: ¥25 billion), and free
CF of ¥18.3 billion (average for the last five years: ¥7.7 billion).

As social capital, the Company seeks to turn its corporate activities based on “advancing the ‘art
of moving’ and surpassing society’s expectations” as set out in its corporate philosophy, “TSUBAKI
SPIRIT,” into the realization of a sustainable society, and enhance its corporate value through
technological innovation, and contribution to SDGs.

As natural capital, the Company already developed the “Group Basic Environmental Policy” in
2000, having been committed to manufacturing and supplying eco-friendly products from a
medium and long-term perspective in an effort to contribute to the realization of a sustainable
society. In order to achieve the long-term environmental targets by 2030, environmental
accounting has been introduced at production sites, with various KPIs set for environmental impact
reduction. At the same time, the Company indirectly contributes to global environmental
conservation by developing and supplying products that take into account CO2 reduction from the
perspective of the product life cycle, and by actively supplying products to the SDGs market.
Specifically, the Company authorized about 17% of FY2020 consolidated net sales or about ¥32
billion (a total of 254 products) as eco-products (SDG-oriented products) to expand sales. (Note:
Applicable only to domestic production in Japan. Overseas production is excluded.)

Figure 8: Tsubakimoto Chain outputs and outcomes
Outputs & outcomes Outputs & outcomes
About 2,000 patents. Net cash: ¥6.8
Providing products Securing investment
Intellectual World’s No.1 market
and services that Financial billion, average
capacity and
share in industrial capital investment for
capital chains/timing chains meet customer capital last five years:
maintaining stable
manufacturing needs credit ratings
¥14.1 billion

Average operating Strengthening
Manufacturing cash flow for last
Providing stable Social sustainability by sharing Focusing on
and high-quality
corporate philosophy/
capital five years:
products/services capital SDGs and ESG
¥25 billion basic policy


Overseas employees Developing global 2030 goal: Reduce Contributing to a
Human (%): about 50% human resources Natural domestic CO2 recycling society
capital Female employees and promoting
capital emissions by 46% Helping curb
(%): 9% female employees from 2013 levels global warming


Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 8
 2021-9-1


・Company History
Mobility Operations are faced with challenges for the second time
In 1917 amidst World War I, Setsuzo Tsubakimoto, the Company’s founder, began manufacturing New risks and
bicycle chains. That was the Company’s beginning. With a catalog of foreign chains as inspiration, opportunities for
the Company began manufacturing industrial machine chains in 1923, ceased bicycle chain exponential growth
production, and switched to machine chain production in 1928. In 1937, the Company delivered a both seen in Mobility
large-scale conveyor plant incorporated with Company chains for the first time and launched the Operations
conveyor (present Materials Handling Systems) business. In 1957, the Company started
manufacturing timing chains for automotive engines, and entered the automotive parts (present
Mobility) business. In 1958, the Company developed a large chain reducer, and launched the power
transmission units and components (present MC) business. Since 2013, the Company also focused
on developing new businesses. In the first half of the 1980s, the Company was faced with a
structural problem, that timing chains for automotive engines were being replaced by rubber belts,
and then around 1995 a countertrend (revival of chains) gained momentum. Currently, a new
automotive industry trend, “CASE” (Connectivity, Autonomous, Shared, and Electric) has emerged
as a new challenge.

Figure 9: Company history and major events (by segment)
Materials Handling
Tsubakimoto Chain Chains Motion Control Mobility New Business
Systems
Founded in Oyodo-ku (present Kita-

---

ku), Osaka
1928 Shifted to industrial chain production
1931 Became a designated naval factory
Entered the materials handling

---

business
Construction of Tsurumi Plant in Osaka

---

City completed
Marine roller chains approved by the
1949 Listed on OSE and TSE
Lloyd’s Register
Exported roller chains to the US for the

---

first time
1953 Became a JIS certified plant
1957 Started production of timing chains
1958 Developed a large chain reducer
Supplied overhead traveling conveyors to

---

automobile factories
Completed construction of the Saitama

---

Plant
Established a joint venture with

---

BorgWarner
Completed construction of an automotive

---

parts factory within the Saitama Plant
1966 Released small-size gear motors
1967 Released Power Cylinders
1970 Established first overseas base in Taiwan
Completed construction of the Kyoto
1971 Established a sales company in the US
Plant (present the Nagaokakyo Plant)
Established subsidiaries in the
1972 Netherlands, Canada, and other
countries
Achieved the highest quality RS roller

---

chains in the world
Late 1970s Supplied multiple advanced FA systems
1980 Started supply of timing belts
Completed construction of the Hyogo

---

Plant
1984 A shift from chains to belts advanced
1985 Released linear actuators
Started local production in North

---

America
Started in-house production of plastic

---

chains
Started production of timing chains in

---

North America
Construction of Okayama Plant Released a high-speed automatic sorting

---

completed machine “LiniSort”
1993 Released hypoid motors
A return from belts to chains
Around 1995 Amazon began operations
advanced
1996 Released paper-feeding AGVs
1998 Released LiniPower Jacks
1998 Released silent chains
Formulated Group Basic

---

Environmental Policy
Completed construction of the

---

Kyotanabe Plant
Spun off Precision Machinery Business Released life science support equipment

---

Unit “LaboStocker” series
Formulated Group Basic Risk
2003 (Established Tsubakimoto Emerson) Tesla Motors (US) began operations
Management Policy
Introduced a corporate executive

---

officer system
2006 Acquired Yamakyu Chain Co. Released starter clutches for motorcycles Released PD chains for 4WD vehicles
Achieved record-high operating income

---

in FY2007
2008 Developed and released zip chain lifters
2009 Created Auto Engineering Laboratory
2010 Acquired Kabelschlepp (Germany)
Commercialized environmentally friendly
2011 Released Lift Master New businesses
Zerotech series
Established a manufacturing subsidiary
2012 Acquired Mayfran Holdings (US)
in China
Made Tsubakimoto Emerson wholly- Released an EV charging system “eLINK”

---

owned subsidiary
Formulated “Long-Term Vision Completed construction of a plant in
2014 (Renamed to Tsubaki E&M) Entered the agribusiness in full scale
2020” Indonesia
Released the 100th anniversary model Marked new record-high operating Released IoT-based remote monitoring

---

“G8” series income in FY2016 software
Formulated “Tsubaki Spirit” to mark Established a “12 plants in 8 countries”
2017 Merged Tsubaki E&M
the Company’s centennial system
Marked new record-high operating Marked new record-high operating Marked new record-high operating CASE automotive debate gained Acquired Central Conveyor Company

---

income in FY2018 income in FY2018 income in FY2018 momentum (US)
Completely separated strategy
2019 formulation/supervision and
business execution (functions)
Formulated Group Basic

---

Sustainability Policy

Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 9
 2021-9-1


(3) Mid-Term Plan and SWOT & Five Forces
Analyses
Announcement of Long-Term Vision 2030 and Mid-Term Plan 2025
On June 14, 2021, the Company announced Long-Term Vision 2030 and a new 5-year “Mid-Term
Plan 2025” (FY2021-FY2025).
Describing what the Company strives for by 2030 as “aiming to become a corporate group that
contributes to solving social issues through Linked Automation technology, the Company presented
the following three themes as its social issues to address: “creating a people-friendly society,”
“building a safe and secure living infrastructure,” and “creating an Earth-friendly society.”
The Mid-Term Plan basic policy is to “strengthen the profitability of existing business fields and use
the next five years to plant seeds for new business fields that will lead to sustainable growth toward
realizing Long-Term Vision 2030.” The numerical targets are as shown in Figure 10. As a capital
efficiency KPI, the target ROE of 8% or more is clearly stated for the first time.

<Specific policies>
(1) Create next-generation businesses that will enable sustainable growth: Enter new business
fields that address social issues, and create and develop new products and technologies
(2) Further establish market position and strengthen profitability of existing businesses:
Maintain and strengthen competitive advantage of leading global/niche products, and
expand sales by improving price competitiveness
(3) Strengthen business foundation through manufacturing reforms and enhanced human
resource development
(4) Strengthen ESG initiatives: Reduce total CO2 emissions (E), enhance social value through
products (S), and strengthen governance and business infrastructure (G)
<Create next-generation businesses that will enable sustainable growth
(specific measures)>
(1) Human assist: Develop and provide automated and labor-saving equipment for general
consumers, such as for the medical welfare and agriculture sectors
(2) Maintenance: Strengthen maintenance services, and enhance and expand “service sales”
business
(3) Agribusiness: Propose automated/smart agriculture for agriculture businesses such as plant
factories
(4) Life science: Participate in the field of regenerative medicine, and manufacture and sell
automated equipment for cell culture processes
(5) Energy infrastructure: Enter the EV charging infrastructure market, and propose a system
linking V2X charging/discharging equipment, solar power generation, and storage batteries
(6) Mobility: Strengthen the mobility parts business, such as clutches and Enedrive Chains for
EVs, and various driving parts
(7) New business search: Create a new independent and dedicated department to continuously
generate seeds for new businesses
(8) Strengthen profitability: Enhance competitiveness and utilize human resources by linking
market information with manufacturing
(9) Manufacturing DX: Manufacturing DX Reform (visualization of production, AI-based data
analysis, etc.)
Figure 10: Mid-Term Plan 2025 numerical targets




Source: The Company’s briefing materials on Long-Term * Excluding expenses related to other operations groups and new business development
Vision 2030 and Mid-Term Plan 2025



Tsubakimoto Chain (6371) 10
 2021-9-1


・CGRA Focus in Mid-Term Plan 2025
Proactively plant seeds for new growth over the next five years
Long-Term Vision 2030 and Mid-Term Plan 2025 announced this time cover the following four key
points:
(1) With SDGs at the forefront, the Company will “aim to become a corporate group that
contributes to solving social issues through Linked Automation technology” (What Tsubaki
Strives for by 2030).
(2) In the next five years, the Company will “expand the scale of existing businesses through
innovative methods including M&A transactions, as well as pursuing their growth. In addition,
the next five years will be used to plant seeds for new growth to achieve sales of ¥500 billion
in 2030. The Company will expand its business fields through new technology development,
M&A, forming alliances, etc.”
(3) This time, a new target ROE (8% or more) is set as a KPI. Financial analysis will be dealt
with later, but a relatively large room for improvement in the Company’s B/S is seen. The
Company’s corporate value can be expected to increase if profitability and capital efficiency
are improved with management indicators broken down to the department level.
(4) For the next five years, the Company projects to generate ¥50-60 billion cumulative FCF,
invest ¥30-36 billion in new business development, and distribute ¥20-24 billion dividends
(DPS: 110-130 yen) based on a 30% payout ratio. For strategic growth investment, the
Company will also consider raising funds from external sources.


In CGRA’s view, taking growth opportunities or transforming businesses through M&A transactions
is effective as exemplified by the Company’s competitors BorgWarner (US) and Rexnord (US), but
that must come with the disclosure of quantitative risks and countermeasures as presented by
Mitsubishi Chemical in its “KAITEKI Report,” as well as TCFD scenario analysis and the execution
of systematic ESG management.

Figure 11: Mid-Term Plan 2025 financial strategy




Figure 12: Allocation of funds for next five years




Source: Briefing materials on the Company’s Mid-Term Plan 2025


Tsubakimoto Chain (6371) 11
 2021-9-1


・SWOT & Five Forces Analysis
Demonstrating the strengths of the component manufacturer with a
high market share
The following SWOT and five forces analysis of the Company was put together by taking into Extended explanation
account its characteristics, external environment, and domestic/international competitors. Figure about MC Operations’
13 below displays the Company’s Strengths, Weaknesses, Opportunities, and Threats. As far competitive edge,
as the valuation of the Company’s stock price goes, capital markets seem to view the Company’s etc., for capital
explanations on measures to deal with its weaknesses and risks as inadequate. As for its strengths, markets is awaited
the Company’s presentation (explanations) to the public on its high market share and technological
edge in Chain and MC Operations seems to be inadequate as well.

Price competition risk likely to be low
Although the five forces analysis is similar to the SWOT analysis, the former is more effective in
understanding the position of buyers and sellers in the industry, including their bargaining power.

Competition within the industry: Although the competitive environment appears to have eased
relatively for Chain Operations, it is still intense for MC and Mobility Operations. Materials Handling
Systems Operations, despite its severe competitive environment, carries out a strategy specializing
in offering solutions mainly with core products. Threat of newcomers: Nothing in particular to be
noted. Threat of substitutes (alternative products): Electric vehicles (EVs) that do not require
internal combustion engines is a structural problem to the Company’s timing chains, but even EVs
without internal combustion engines could help sustain demand for chains if “motors + gears”
shifts to “motors + chains.” There are no substitutes for industrial chains. Sellers’ bargaining
power: Rising cost of various steel materials is a risk and already discounted in the Company’s
earnings forecasts for FY2021. In the past, however, the Company actually raised the prices of its
products. Buyers’ bargaining power: In the automobile industry, the Company normally incurs
a risk of lower selling prices. However, in the industrial machinery industry, the Company has
raised the prices of products. The Company seems to have strong bargaining power over buyers
using its high market share and productivity improvement measures as a weapon.

Figure 13: Tsubakimoto Chain SWOT & Risk/Challenge Analysis

<Strengths> <Weaknesses>
・High market share and extensive ・Capability to diversify • Risk: Rising material prices, etc.
track record (to be addressed under new Mid- Chain • Challenge: Establishment of production bases in
・High-level knowhow in production Term Plan) Europe/after-sales service systems
reforms
・Strong B/S and high profitability

• Risk: High dependency on the domestic market for
SWOT profits
<Opportunities>
Analysis <Threats> Motion Control • Challenge: Exploration of overseas markets,
development of composite/new products, and
・Expansion of applications of by CGRA
Source: Created the
industrial chain market ・Structural extinction of timing chain rebuilding of profit structure
・Automation/labor-saving/energy- markets
saving needs in the manufacturing and ・Intensifying competition in the
non-manufacturing industries materials handling systems market • Risk: Structural extinction of timing chain markets
・Development and sale of differentiated Mobility • Challenge: Development of differentiated/new
products for BEVs products




Materials • Risk: Volatile profits from overseas subsidiaries and
intensifying competition
Handling • Challenge: Strengthening and expansion of
Systems systems integration/after-sales service businesses



Source: Created by CGRA




Tsubakimoto Chain (6371) 12
 2021-9-1



(4) Earnings Outlook and Segment Trends
・Past Results and FY2021 Earnings Forecasts
Past sales trend: Capability to create demand is increasing
Following the bankruptcy of Lehman Brothers, consolidated net sales dropped to ¥112.7 billion in As Company-specific
FY2009 before doubling (x2.1) over the next nine years. In addition, net sales for FY2020 fell 19% factors, decreasing
from the most recent peak in FY2018 to ¥193.3 billion. After the bankruptcy of Lehman Brothers, depreciation and
net sales sank 33% from the FY2007 peak, which indicates that the Company’s capability to create improvement of
demand (= resistance to recessions) has increased compared to the past. Consolidated operating CCC’s profitability can
income reached a record high of ¥21.7 billion (operating income margin: 9.1%) in FY2018, be expected
expanding 4.6-fold in nine years from the bottom of ¥4.7 billion recorded in FY2009 after the
bankruptcy of Lehman Brothers (the Company’s stock price surged nearly 5.6-fold over the same
period). Operating income for FY2009 following the bankruptcy of Lehman Brothers fell 76% to
¥4.7 billion from the peak operating income of ¥19.8 billion for FY2007, whereas operating income
for FY2020 decreased only about 59% to ¥8.8 billion from the latest peak of FY2018.

The recent slowdown in operating income margin is partly due to heavy
burden of fixed costs
On the other hand, the Company marked a record-high operating income margin of 11.8% in
FY2007, but it dropped to 9.1% in FY2018 when record-high operating income was posted. The
main factors are: (1) the burden of fixed costs associated with proactive capital investment,
particularly in Mobility Operations, was heavy, and (2) Materials Handling Systems Operations’
operating income margin was 11.9% in FY2007 (cf. Daifuku’s was 8.9%). Now that depreciation
reached a peak in FY2019 and Materials Handling System’s profitability is expected to improve, the
margin should pick up going forward.

The Company’s FY2021 earnings forecasts seem conservative
For FY2021, the Company forecasts net sales of ¥225 billion (+16% year-on-year), operating FY2021 earnings
income of ¥16 billion (+80%, operating income margin: 7.1%), and net income of ¥12.5 billion forecasts and
(+44%, EPS: 337.7 yen). Dividend per share is expected to increase 35 yen year-on-year to 110 expected dividend
yen (payout ratio: 32.6%). Seemingly, the Company forecasts significant increases in earnings, per share both seem
but sales and operating income are both at the same levels as they were two years ago in FY2019. conservative
Most of the automakers, including Toyota Motor, automotive parts makers, and bearing makers,
project their FY2021 earnings to surpass FY2019 levels. In addition, the Company’s expected
dividend per share is 110 yen (payout ratio: 32.6%), which is lower than actual dividend paid for
FY2019, 120 yen (payout ratio: 38.9%, initially projected at 30.0%). In CGRA’s view, not only
earnings forecasts but also expected dividend per share is still relatively conservative.

Figure 14: Consolidated orders/net sales/operating income

(Million yen) (Million yen) (Million yen)
（百万円）
Annual orders, net sales, and operating income
年度ベースの受注高、売上高、営業利益の推移
（百万円）
（百万円） 四半期ベースの売上高と営業利益の推移
Quarterly net sales and operating income (Million yen)
（百万円）
300,000 35,000 70,000 7,000
Consolidated net sales Operating income
Consolidated Consolidated net Operating income 連結売上高（左軸） 営業利益（右軸）
連結受注高（左軸）
orders (left scale)
連結売上高（左軸）
sales (left scale)
営業利益（右軸）
(right scale)
(left scale) (right scale)
30,000 60,000 6,000
250,000


25,000 50,000 5,000
200,000

20,000 40,000 4,000

150,000
15,000 30,000 3,000

100,000
10,000 20,000 2,000


50,000 10,000 1,000
5,000

---

FY2010
11/3 FY2011
12/3 FY2012
13/3 FY2013
14/3 FY2014
15/3 FY2015
16/3 FY2016
17/3 FY2017
18/3 FY2018
19/3 FY2019
20/3 FY2020
21/3 FY2021
22/3 （会予） 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QA 1QA
(The Company’s
forecast) 16/3
FY2015 17/3
FY2016 18/3
FY2017 19/3
FY2018 20/3
FY2019 21/3
FY2020 22/3
FY2021




Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 13
 2021-9-1


・ Market Overview and Earnings Outlook for Chain
Operations
As consumables, stable demand creation can be expected
For industrial chains, there is a demand for them to be installed in new facilities or equipment and The Company’s
demand for them to be delivered as consumables (replacement parts) for existing facilities and stable profit center
equipment. For this reason, the demand for chains tends to be linked to industrial production, and with a consumable
it sometimes increases more than expected due to the stock building effect by distributors when aspect
capital investment demand, such as machine tools orders, surges. Figure 15 shows Chain
Operations’ net sales and combined orders for machine tools (based on the Japan Machine Tool
Builders’ Association data) and transportation machinery (based on the Japan Society of Industrial
Machinery Manufacturers data), on an annual basis. With the aspect of consumables, Chain
Operations orders are obviously less volatile compared to combined orders. The new Mid-Term
Plan also sets out “strengthening the after-sales service business,” which should stabilize the
Company’s net sales further.

Demand for chains is expected to grow steadily partly due to expanded
applications
In CGRA’s view, global demand for industrial chains can grow at a 3-5% annual rate on the back
of: (1) global population growth, improved living standards in countries, and GDP growth; (2)
expansion of use of lube-free chains, environmentally resistant chains, and zip chains; and (3)
increasing labor-saving and automation needs in manufacturing and non-manufacturing industries.

The Company’s most profitable segment in the last three years
For FY2020, Chain Operations’ net sales were ¥61.3 billion (-9% year-on-year) or about 31% of
consolidated sales, while operating income was about ¥7.8 billion (-7% year-on-year, operating
income margin: 12.8%) or 88% of consolidated operating income. Mobility Operations used to
account for more than half of the Company’s consolidated operating income, but in recent years,
Chain Operations has become the Company’s main source of earnings, helped by increases in the
number of new customers, market share, and productivity improvement effects.

Lower earnings projections for FY2021, but appears conservative
The Company’s FY2021 projections for Chain Operations are: Net sales of ¥65.8 billion or +7% With various risks
year-on-year (1H: ¥33 billion, 2H: ¥32.8 billion), operating income of ¥6.7 billion or -15% year- taken into account,
on-year (1H: ¥3.5 billion, 2H: ¥3.2 billion), and operating income margin of 10.2%. Net sales are the Company’s
projected to be slightly lower than the ¥67.5 billion recorded in FY2019, while operating income is FY2021 projections
projected to be significantly lower than the ¥8.4 billion recorded in FY2019 (operating income seem conservative
margin: 12.4%). CGRA attributes the Company’s conservative projections to such things as (1)
normalization of selling, general and administrative expenses and personnel expenses, which were
squeezed amid the COVID-19 pandemic, (2) rising prices of various materials, and (3) dwindling
demand from the United States, which is a highly profitable market.

Figure 15: Chain Operations orders and earnings
Chain orders and combined orders (Million (Million Chain Operations:
(Million yen)
（百万円） for machine tools and transportation machinery
チェーン受注高と工作機械＋運搬機械合算受注高の推移 yen)
（百万円） yen)
（百万円）
チェーン事業の売上高、営業利益および営業利益率の推移
Net Sales/Operating Income/Operating Income Margin （％）
(%)
100,000 2,800,000 80,000 16.0
Orders for chains Total orders received for machine tools + Operating Operating income margin
チェーン受注高（左軸） 工作機械＋運搬機械合算受注高（右軸） Net sales
売上高 営業利益 営業利益率（右軸）
(left scale) transportation machinery (right scale) income
90,000 (right scale)
2,400,000 70,000 14.0
80,000
60,000 12.0
70,000 2,000,000

60,000 50,000 10.0
1,600,000
50,000 40,000 8.0
1,200,000
40,000
30,000 6.0
30,000 800,000
20,000 4.0
20,000
400,000
10,000 10,000 2.0

0 0 0 0.0

---

FY2009 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 10/3
FY2009 11/3
FY2010 12/3
FY2011 13/3 14/3
FY2012 FY2013 15/3
FY2014 16/3
FY2015 17/3
FY2016 18/3
FY2017 19/3
FY2018 20/3
FY2019 21/3
FY2020 22/3
FY2021（会予）
(The Company’s
forecast)




Source: Created by CGRA based on various materials, etc.



Tsubakimoto Chain (6371) 14
 2021-9-1


・ Market Overview and Earnings Outlook for Motion
Control Operations
High dependency on capital investment increases volatility slightly
MC Operations (former Power Transmission Unit and Components) handles products installed in With most of its
the moving/driving parts of various machines, such as reducers, electric cylinders, shaft couplings, products used with
and locking devices, and products used incidentally with industrial robots or industrial motors industrial motors,
installed in various machines. Therefore, a higher percentage of products are delivered as parts to MC’s leading indicator
be installed in new facilities/equipment compared to industrial chains, which make orders for these is Yaskawa’s motion
more volatile than chains. Figure 16 shows MC Operations orders and Yaskawa Electric’s combined + robot business
orders in the motion business (servo motors + inverters) and the robot business, on a quarterly orders
basis. Clearly, they are highly linked, although MC Operations lags behind Yaskawa.

Global MC related demand is expected to grow at a 7% annual rate
CGRA predicts that global demand in MC Operations can grow at an around 7% annual rate, while
showing cyclical growth linked to macroeconomic trends, as with Chain Operations. The growth
rate of the Company’s MC Operations, however, has been lower than the global market’s as its
domestic sales ratio (FY2020: 76%) and unit-sales ratio are both high. Going forward, overseas
operations and the development and sales of smart motion units (new composite products) seem
to hold the key to growth.

Recent decline in operating income margin also implies a Company-
specific and temporary aspect
MC Operations’ operating income margin dropped to 4.1% in FY2020 (FY2019: 9.2%, FY2018:
13.1%). Temporary factors unique to the Company include: (1) some products were preemptively
discontinued in the process of product restructuring; (2) heavy burden created by increasing
number of development personnel and depreciation due to capital investment in the process of
strengthening manufacturing; and (3) the launch of new products to be released into markets was
delayed.

Keep a close eye on how much operating income margin improves in
FY2021
The Company’s FY2021 projections for MC Operations are: Net sales of ¥22.1 billion or +12% year- Development of
on-year (1H: ¥10.7 billion, 2H: ¥11.4 billion), operating income of ¥1.3 billion or +59% year-on- specific new products
year (1H: ¥0.4 billion, 2H: ¥0.9 billion), and operating income margin of 5.9% (1H: 3.7%, 2H: and disclosure of
7.9%). Also, AP Clutch (net sales: About ¥2.0 billion) was transferred from MC Operations to more information are
Mobility Operations in FY2021. Including the portion of AP Clutch transferred, sales are projected awaited
to be around the ¥23.8 billion level recorded in FY2019, while operating income is projected to be
lower than the ¥2.1 billion recorded in the same year (operating income margin: 9.2%).

Figure 16: Lagging behind Yaskawa Electric’s motion + robot orders
MC Operations orders vs. MC Operations:
(Million (Million (Million
MC事業受注高と安川電機モーション＋ロボット合算受注動向 Net MC事業の売上高、営業利益および営業利益率の推移 Margin
(%)
yen)
（百万円） Yaskawa Electric’s total orders for motion + robots yen)
（百万円） （百万円）
yen) Sales/Operating Income/Operating Income （％）

10,000 160,000 30,000 16.0
Operating Operating income
Tsubakimoto Chain MC Operations orders (left scale)
椿本チエインMC事業受注高（左軸） Net sales
売上高 営業利益 営業利益率（右軸）
9,000 income margin (right scale)
140,000 14.0
安川電機モーション＋ロボット合算受注高（右軸）
Yaskawa Electric’s total orders for motion + robots 25,000
8,000 (right scale)
120,000 12.0
7,000
20,000
100,000 10.0
6,000

5,000 80,000 15,000 8.0

4,000
60,000 6.0
3,000 10,000
40,000
4.0
2,000
20,000 5,000
1,000 2.0

---

0 0.0
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA
2QA
3QA
4QA
1QA

---

FY2009 11/3
FY2010 12/3
FY2011 13/3
FY2012 14/3
FY2013 15/3
FY2014 16/3
FY2015 17/3
FY2016 18/3
FY2017 19/3
FY2018 20/3 21/3
FY2019 FY2020 22/3（会予）
FY2021
(The Company’s
forecast)

---

FY2014 16/3
FY2015 17/3
FY2016 18/3
FY2017 19/3
FY2018 20/3
FY2019 21/3 22/3
FY2020 FY2021




Source: Created by CGRA based on various materials, etc.




Tsubakimoto Chain (6371) 15
 2021-9-1


・ Market Overview and Earnings Outlook for Mobility
Operations
Operating income margin surged close to 20% at one point...
Mobility Operations (former Automotive Parts) saw rapid growth in the trend of downsizing (= Aiming for stable
timing chains are optimized for smaller-size engines) for better fuel economy for automobiles, and operating income
record-high net sales of ¥79.5 billion were posted in FY2017 (1.6-fold in the last five years). margin of 10% or
Record-high operating income of ¥12.3 billion was posted in FY2016, with an operating income more toward 2025
margin of 16.5% (cf. record-high operating income margin: 17.8% in FY2014). As a result of
proactive investments made since FY2015 with the aim of achieving ¥100 billion sales, the
Company saw increases in depreciation and fixed costs due to a growing number of employees,
and a subsequent gradual decline in operating income margin.

For FY2020, Mobility Operations recorded net sales of ¥57.7 billion (-19% year-on-year) and
operating income of ¥3.7 billion (-36% year-on-year, operating income margin: 6.4%), but in
FY2020-4Q (January-March 2021) operating income showed a 47% year-on-year increase to ¥2.0
billion and operating income margin recovered to 11.8%. In FY2021-1Q (April-June 2021),
operating income was ¥2.1 billion (operating income margin: 12.6%), which indicates its recovery
trend is intensifying.

Operating income margin likely to stay above 10% by around 2025
Capital investment in Mobility Operations increased to ¥12.0 billion in FY2017, then decreased to Operating income
¥3.3 billion in FY2020 upon the completion of the “12 plants in 8 countries” system. Depreciation margin already at
has also been on a gradual decline, after reaching a peak at around ¥6.9 billion in FY2019. CGRA 12.6% in April-June
thus believes that keeping operating income margin stable at 10% or more is feasible, given further 2021
improvements in production efficiency and a decrease in fixed costs.

The Company’s FY2021 projections for Mobility Operations are: Net sales of ¥72.3 billion or +25%
year-on-year (1H: ¥36 billion, 2H: ¥36.3 billion), operating income of ¥8.0 billion or +115% year-
on-year (1H: ¥3.8 billion, 2H: ¥4.2 billion), and an operating income margin of 11.1%. Sales are
expected to be slightly stronger than the ¥70.9 billion recorded in FY2019, but more or less the
same after the transfer of AP Clutch is considered. Operating income is expected to be stronger
than the ¥5.8 billion recorded in FY2019 (operating income margin: 8.2%). With operating income
margin already above 12% in the most recent quarter, the Company’s projections should be
achieved.

Figure 17: Mobility Operations net sales/operating income/operating
income margin
(Million yen)
（百万円） Mobilityモビリティ事業の売上高、営業利益および営業利益率の推移
Operations: Net Sales/Operating Income/Operating Income Margin (%)
（％）
90,000 20.0
Net sales (left Operating income Operating income margin
売上高（左軸）
scale)
営業利益（左軸）
(left scale)
営業利益率（右軸）
(right scale)
80,000 18.0

16.0
70,000
14.0
60,000
12.0
50,000
10.0
40,000
8.0
30,000
6.0
20,000
4.0

10,000 2.0

0 0.0
10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3 22/3（会予）
FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
(The Company’s
forecast)



Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 16
 2021-9-1


The Company’s Mobility Operations growing faster than global vehicle
production
Sales of Mobility Operations showed rapid growth in the wake of a trend of downsizing engines for
better fuel economy for automobiles, growing at a significantly faster pace than global vehicle
production thanks to a shift from rubber timing belts to steel timing chains and capture of market
share (Figure 18).

Mobility Operations’ target customers, the ICE (Internal Combustion Engine) & HV (Hybrid Vehicle)
markets, are expected to remain steady until around 2025 at the earliest, according to automakers’
plans for the launch of new engines. With the Company’s global market share expected to continue
to grow, Mobility Operations should be able to maintain sales growth that exceeds global vehicle
production. In addition, as a shift to HVs does not involve any significant change in engine chain
mechanisms, apparently there is no particular downward trend, just because of HVs, seen in unit
prices.

EV trend (automotive electrification) likely to become
noticeable/visible after 2025
In the new Mid-Term Plan, the Company discloses its projected vehicle production and Mobility Final year (FY2025)
Operations sales by 2025. It projects net sales of ¥72.3 billion for FY2021, mainly driven by growth target under Mid-
in the existing business areas with environment-friendly products for next-generation engines, and Term Plan: ¥100
net sales of around ¥80 billion and ¥100 billion for FY2022 and FY2025, respectively. billion net sales
CGRA has analyzed automakers’ electrification strategies and the tightening of government
regulations and made the following predictions about structural changes in global vehicle
production toward 2030: (1) global ICE/HV production will remain at a high level until around
2025; (2) HV will become a major model toward 2030, accounting for approx. 40% of the market;
(3) the launch of new NEV (New Energy Vehicle = BEV: Battery Electric Vehicle+ FCV: Fuel Cell
Vehicle) models will accelerate from around 2026, reaching approx. 25% of global vehicle
production by 2030; and (4) the ICE market will visibly shrink from around 2025, with its share of
global vehicle sales down to approx. 34% by 2030.

Figure 18: Mobility Operations sales outperform vehicle production

(10 (10
(Million yen)
Mobile Operations Sales and Global Vehicle Production
モビリティ事業売上高とグローバル自動車生産台数の推移 （万台）
Global vehicle production breakdown (right scale)
グローバル自動車生産台数の構成変化 (%)
（百万円） thousands) thousands)
（万台） （％）
100,000 15,000 12,000 30.0

90,000 Mobility Operations sales Global production 13,500
HV ICE NEV（BEV,FCV） NEV比率（右目盛）
NEV ratio (right scale)
モビリティ事業売上高（左軸） グローバル生産台数（右軸）
(left scale) (right scale) 10,000 25.0
80,000 12,000

70,000 10,500
8,000 20.0
60,000 9,000

50,000 7,500 6,000 15.0

40,000 6,000

30,000 4,500 4,000 10.0

20,000 3,000
2,000 5.0
10,000 1,500

---

---

FY2009 11/3
FY2010 12/3
FY2011 13/3
FY2012 14/3
FY2013 15/3
FY2014 16/3
FY2015 17/3
FY2016 18/3
FY2017 19/3
FY2018 20/3
FY2019 21/3
FY2020 22/3（会予）
FY2021 0 0.0
(The Company’s
forecast)
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 (Calendar year)
（暦年）




Source: Created by CGRA based on various materials, etc. / Vehicle production: Projected by CGRA




Tsubakimoto Chain (6371) 17
 2021-9-1


BEVs do not need timing chains
In the mid-1980s, automakers shifted their focus to lighter-weight and lower-noise models, and a Timing chains will not
movement to replace steel timing chains with rubber timing belts was seen. From around 1995, be needed for FCVs
however, a trend of returning to timing chains was intensifying in response to increasing needs for
smaller-size/higher-performance engines. As a result, the Company’s Mobility Operations posted
record-high operating income of ¥12.3 billion in FY2016 and record-high net sales of ¥79.5 billion
in FY2017.

However, in around 2017, a CASE (Connectivity, Autonomous, Shared, and Electric) automotive
debate set in, and countermeasures against global warming and increasingly intensifying ESG
momentum accelerated discussions on automotive electrification. BEVs (Battery Electric Vehicles),
on which only a motor is used as a driving unit (division), do not need timing chains, as no engine
is required. This could be one of the causes of a decline in the Company’s PBR. But engines are
equipped in HV and PHV models, for which timing chains should continue to be adopted as well.

Enedrive Chains, e-fuel, and hydrogen engines are the key to
Operations’ future
As the adoption of small-size and high-speed motors on BEVs is expected to increase, “motors + The “motors +
gears” should become a generally accepted mechanism. That said, compared to gears, chains have chains” mechanism
more flexibility in layout, higher power transmission efficiency, as well as more advantages in terms on BEVs has many
of quantity and cost. We should continue to closely watch the adoption of the Company’s Enedrive benefits
Chains.

An e-fuel is a liquid hydrocarbon fuel catalytically synthesizing CO2 and H2 (hydrogen), made
through water electrolysis, and its development is led by VW Europe and Toyota Motor. Automakers
are trying to keep newcomers such as Apple Inc. away by preserving their existing ICE technologies.
Japanese automakers are in an advantageous position in HV technologies, while U.S., Chinese, and
South Korean automakers are more EV-oriented. As such, mainly among European and Japanese
automakers, some moves to explore e-fuel options are seen. In addition, a hydrogen engine led
by Toyota Motor generates power by changing the fuel-supply/fuel-injection system in a
conventional gasoline engine to burn compressed hydrogen gas, thus it does not generate CO2
when driving. Depending on developments in e-fuel and hydrogen engine operations, CGRA
believes that “demand for timing chains for engines will disappear in the EV era,” about which the
stock market is concerned, could transform into “they become a stable profit center.”

Figure 19: EV chain/gear characteristic analysis and Company
products mapping




Source: Company website and briefing materials on Mid-Term Plan 2025




Tsubakimoto Chain (6371) 18
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・ Market Overview and Earnings Outlook for Materials
Handling Operations
Materials handling market will continue to grow steadily, primarily for
the e-commerce (EC) sector
The materials handling (logistics equipment) market suffered from a structural slump in demand The materials
following the burst of the bubble economy. However, with Amazon (US) starting operations in handling market has
1994 and the EC market launched full scale around 2015, the market has since grown rapidly, grown sharply
stimulated by a sharp increase in global demand for small-lot shipments and labor shortages.
Daifuku Co., Ltd., the world leader with an estimated 15% global market share, recorded net sales
of ¥267.3 billion and operating income of ¥14.9 billion for FY2014. Four years later in FY2018, they
posted record-high net sales and record-high operating income of ¥459.6 billion and ¥54.7 billion,
respectively, achieving fast growth.

Materials Handling’s operating income margin after excluding CCC is
improving
Materials Handling Operations’ net sales reached a record high of ¥64.2 billion in FY2019 in the wake Operating income
of the acquisition of US Central Conveyor Company (CCC) in June 2018 and increased investment in margin after
logistics such as e-commerce. Operating income margin after the bankruptcy of Lehman Brothers, excluding the
however, reached a peak at ¥1.9 billion in FY2014 (operating income margin: 4.3%). Subsequently, acquired CCC should
CCC’s performance worsened as it was hit by the closure of automobile factories in the US and the improve further
adverse impact of COVID-19, and the Operations fell into an operating loss of ¥2.2 billion in FY2020.
Noting that operating income margin after excluding CCC stands at 5.3%, the profitability
improvement effects seem to become apparent. With improvements in CCC’s profitability considered,
the Company’s FY2021 projections for Materials Handling Operations are: Net sales of ¥66.2 billion
or +24% year-on-year (1H: ¥28.4 billion, 2H: ¥37.8 billion), and operating income of ¥1.5 billion
(operating income margin: 2.3%, 1H: ¥0.1 billion, 2H: ¥1.4 billion). With Mr. Jeff Brinker, who was
headhunted from a competitor, Dearborn Mid-West, on board as its new president, CCC will
strengthen the project management system, pursue synergy effects as the Tsubaki Group, and
strengthen relationships with existing and emerging automakers to enhance its profit structures.

The gap in operating income margin with Daifuku lies in the service
business
Daifuku’s operating income margin is relatively high at 9.4% for FY2020. According to CGRA’s Strategies such as
calculations, Daifuku’s service business, with its operating income margin estimated at 15%, strengthening after-
supposedly earns 25% of net sales, while their overall operating income margin is estimated at about sales service business
7%. Operating income margin in Daifuku’s domestic operations (35% of net sales) is also estimated at should be adopted
around 5%, which suggests that they secure its high profitability in overseas markets. In Tsubakimoto
Chain’s case, the service (maintenance) to net sales ratio is relatively low at around 20%, despite a
high percentage of domestic sales. CGRA thus believes that strategies such as strengthening the after-
sales service business, improving US CCC’s profitability, enhancing engineering capabilities, and
expanding the systems integration business are the key to improved profitability.

Figure 20: Materials Handling Operations net sales/operating
income/operating income margin
Materials Handling Operations: Net Sales/Operating
マテハン事業の売上高、営業利益および営業利益率の推移
(Million yen)
（百万円） (%)
（％）
Income/Operating Income Margin
75,000 10.0
Operating Operating income margin
Net sales
売上高 営業利益 営業利益率（右軸）
income (right scale)
65,000 8.0


55,000 6.0


45,000 4.0


35,000 2.0


25,000 0.0


15,000 -2.0


5,000 -4.0


-5,000 -6.0
FY2009
10/3 FY2010
11/3 FY2011
12/3 FY2012
13/3 FY2013
14/3 FY2014 FY2015
15/3 16/3 FY2016 FY2017
17/3 18/3 FY2018
19/3 FY2019
20/3 FY2020
21/3 FY2021
22/3 （会予）
(The Company’s
forecast)


Source: Created by CGRA based on Company documents, etc.


Tsubakimoto Chain (6371) 19
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(5) Financial and Non-Financial Analyses
・Financial Analysis
The Company maintains strong B/S, but its challenge is how to manage
working capital
As of the end of FY2020, the Company secured a consolidated equity ratio of 60.5% (+4.6% from B/S is strong, but
five years ago) and retained earnings, to be used as the source of dividends, reached ¥96.8 billion there is still room for
on a stand-alone basis. With dividend per share for FY2021 expected at 110 yen (total dividends: improvement in
¥4.1 billion), the Company seems to have generous funds for dividends compared to a total of comparison to other
¥20-24 billion dividends set out in the new Mid-Term Plan. companies

As of the end of FY2020, tangible fixed assets turnover (=net sales / average tangible fixed assets
for the last two years) was 1.66 (which reached a peak at 2.07 in FY2018), higher than 1.32 for
OSG, a tool manufacturer, but lower than 2.43 for Aisin, a manufacturer of automotive parts such
as transmission parts, or 1.96 for NSK, a bearing maker. Proactive investments made in Mobility
Operations since FY2015, as well as a decline in revenue resulting from the trade dispute between
China and the US and the COVID-19 impact, seem to be among the factors.

Looking at working capital as of the end of FY2020, CCC (Cash Conversion Cycle = days of inventory
outstanding + days of sales outstanding - days of payables outstanding) was 154.8 days (average
for the last five years: 134.0 days). This cycle is also longer than NSK’s 120.9 days (average for
the last five years: 99.9 days). Specifically, days of inventory outstanding and days sales
outstanding are long. This figure seems to be affected by Materials Handling Operations earning
28% of the Company’s net sales, but the CCC of Daifuku, the largest materials handling company,
is 98.8 days. In CGRA’s view, the Company must have some issues other than Materials Handling
Operations. For reference, the CCC of Daido Kogyo, a manufacturer of chains for internal
combustion engines and industrial machines, was 145 days for FY2020.

On B/S, goodwill is stated at only ¥2.5 billion, whereas investment securities is at ¥28.5 billion
(approx. 15% of shareholders’ equity). This makes us wonder, in terms of corporate governance,
if there is any problem left with the Company’s unwinding of cross shareholdings.

The Company is able to create stable FCF, which ensures positive net
cash
Average operating cash flow and average free cash flow for the last five years were ¥25 billion and
¥7.7 billion, respectively. As of the end of FY2020, the Company had interest-bearing debt of ¥41.1
billion and liquidity in hand of ¥48 billion (cash and deposits ¥41.8 billion + securities ¥6.1 billion),
totaling ¥6.8 billion positive net cash. The Company had ¥7.6 billion positive net cash in FY2017,
then the figure turned negative in the last two fiscal years due to an increase in interest-bearing
debt, before recovering to a positive in FY2020 for the first time in three fiscal years, thanks to the
reduction of working capital and capital investment.

CGRA’s view: B/S reforms are needed to achieve 10% ROE
After the bankruptcy of Lehman Brothers, ROE reached a peak at 10.9% in FY2014 and fell to Cross shareholdings
4.8% in FY2020 (record high: 12.8% in FY2007). The breakdown of 4.8% ROE based on the should be liquidated
DuPont model is as follows: Net income margin: 4.5% (FY2014: 7.2%), total assets turnover (=
net sales/average total assets for the last two fiscal years): 0.6 (FY2014: 0.8), and financial
leverage (= average total assets for the last two fiscal years/average shareholders’ equity for the
last two fiscal years): 1.7 (FY2014: 1.9). This gives an impression of excess shareholders’ equity.
In fact, the Company’s shareholders’ equity increased nearly 1.3-fold from ¥140.4 billion at the
end of FY2014 to ¥185.7 billion at the end of FY2020 (while total assets increased nearly 1.2-fold).

Among other companies, NSK, for example, marked its record-high ROE at 15.2% in FY2014.
Despite its net income margin of 6.4% then, which was lower than Tsubakimoto Chain’s, NSK’s
total assets turnover was 0.9, with financial leverage at 2.6. Therefore, CGRA believes that for
Tsubakimoto Chain to improve ROE, improving profitability as well as B/S reforms, such as reducing
inventories and trade receivables, selling off cross shareholdings, using outsourcing (= reducing
tangible fixed assets), and enhancing shareholder returns, are required.




Tsubakimoto Chain (6371) 20
 2021-9-1


Figure 21: ROE breakdown by DuPont analysis model
DuPont model FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Net income margin (%) 4.7 5.0 5.7 7.2 6.3 7.3 6.8 5.8 5.1 4.5
Total assets turnover (net sales / total 0.8 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.6
assets)
Financial leverage (total assets / 2.2 2.1 2.0 1.9 1.8 1.8 1.7 1.7 1.7 1.7
shareholders’ equity)
ROE (%) 7.9 7.7 9.3 10.9 9.0 9.9 9.2 8.1 6.7 4.8

NOPAT (Million yen) 7,309 7,724 10,546 13,622 14,690 15,439 15,096 17,138 12,076 6,348
Invested capital (Million yen) 123,740 145,103 158,166 181,198 180,632 190,852 196,346 219,226 217,564 228,662
ROIC (%) 5.9 5.3 6.7 7.5 8.1 8.1 7.7 7.8 5.6 2.8


Figure 22: Room for improvement in inventories and trade receivables
(Days)
（日） 椿本チエインのCCC構成項目の推移
CCC components of Tsubakimoto Chain
180.0
Days of inventory outstanding (days)
棚卸資産回転日数（日）
160.0 Days of sales outstanding (days)
売上債権回転日数（日）
Days of payables outstanding (days)
仕入債務回転日数（日）
140.0
CCC
CCC

120.0

100.0

80.0

60.0

40.0

20.0

0.0

---

FY2011 FY2012 FY2013 FY2014 16/3 17/3 18/3 19/3 20/3 21/3
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

Source: Created by CGRA based on Company documents, etc.

・Non-Financial Analysis and Governance Structure
Advent of the age of non-financial data-based thinking
Sustainable corporate growth requires economic and social value to be improved through business
activities that involve solutions to social issues. In recent years, along with discussions over ESG
and SDGs, increasing amounts of investment funds are shifting from active to passive and flowing
into ESG funds.

The disclosure of non-financial information such as ESG and SDGs is becoming essential to all
stakeholders, not only to long-term investors. The price and performance of products and efficient
production activities are (of course) important, but an era has arrived in which the outcomes of
how to produce eco-friendly products in an environment-friendly manner is also important for
corporate branding and sales strategies. Toyota Motor has already started requiring its suppliers
to reduce their CO2 emissions, and it is likely that some automakers and industrial machinery
makers will procure parts only from carbon-neutral companies.

The Company will disclose more KPIs, while its risk analysis is left with
some issues
The Company changed the name of its Corporate Report to Integrated Report in 2019, in an effort
to enhance ESG and disclose SDGs. The “2020 Tsubaki Group Integrated Report” (71 pages) sets
materiality (key issues) in line with each ESG item and, as for the environment, it lists KPIs, with
2030 as the final target year, on items such as the reduction of total CO2 emissions (domestic
Group companies to reduce emissions by 2030 by 46% vs. 2013 levels), waste recycling rate, and
PRTR (toxic chemicals) emissions.




Tsubakimoto Chain (6371) 21
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As for governance, KPIs are defined and strengthened from the risk management and compliance
point of view. Going forward, in addition to TCFD, whose disclosure is required by the revised
Corporate Governance Code, the Company may need to provide risk disclosure and explanations
on countermeasures/opportunities from a medium and long-term perspective, as well as
strengthen ESG activities across the organization.

Governance structure to be strengthened further
The history of the Company’s governance structure is as outlined below. An executive officer We expect the
system was introduced in 2004, and one outside director was appointed and outside auditors were Company (Board) to
increased from one to two. In 2013, the number of outside directors was increased from one to disclose the skill
two. In 2015, management reform was executed, through which CEO (chief executive officer) and matrix of the Board
COO (chief operating officer) were separated. In 2017, the number of outside directors was required for the new
increased from two to three (percentage of outside directors: 30%). In 2018, the Company shifted strategies under the
to a system in which executive officers serve as general managers of business segments. In 2019, Mid-Term Plan.
strategy formulation and oversight by the Board of Directors and business execution by executive
officers were clearly separated. In addition, the dual role of director and executive officer was
abolished, and a Nomination and Remuneration Committee was established.

The Nomination and Remuneration Committee consists of three outside directors, with attendance
of the CEO as an observer. The Committee is chaired by Mr. Shuji Abe.

As of July 2021, the Company has seven directors, including three outside directors (percentage
of outside directors: 42.9%). Chaired by Mr. Ohara, Chairman and CEO, the Board of Directors
meetings are attended by seven directors, two standing Audit & Supervisory Board Members, and
two outside Audit & Supervisory Board Members. The percentage of female directors is 14% (one
person).

Mr. Shuji Abe, outside director, assumed his post as the Company’s outside director in June 2013.
He previously served as Executive Vice President and Director of Yanmar Diesel Co., Ltd(present
Yanmar Holdings Co., Ltd) and President and Representative Director of Yanmar Agricultural
Equipment Co., Ltd(present Yanmar Agribusiness Co., Ltd). Mr. Keiichi Ando assumed his post as
the Company’s outside director in June 2017. He previously served as Representative Director,
Deputy President and Executive Officer of Sumitomo Mitsui Banking Corporation and President and
Representative Director, CEO of New Kansai International Airport Company, Ltd. He also serves as
an Outside Director for Shionogi & Co., Ltd and Daihen Corporation, concurrently. Ms. Hisae
Kitayama assumed her post as the Company’s outside director in June 2020. She previously served
as Senior Executive Director of KPMG AZSA LLC. She currently serves as Representative of
Kitayama Public Accounting Office and concurrently serves as an Outside Director for Ebara
Corporation.

We expect the Company (Board) to disclose and explain the skill matrix of directors and other
information required for the consistent execution of the new Mid-Term Plan strategies.

Does stock price awareness need to be raised to increase corporate
value?
At the annual general meeting of shareholders held on June 26, 2020, the Company introduced a Apparently, the
restricted stock compensation system for directors (excluding outside directors) in order to further Company needs to
share value with shareholders. However, the percentage of fixed compensation to executive take some measures
compensation is as high as approx. 70% (up from the previous year’s 50%), which suggests that to raise stock price
the incentive effect does not work well. For reference, NSK’s fixed compensation ratio is 40%. awareness
CGRA believes that, in order to achieve the targets under Mid-Term Plan 2025 without fail, it would
be effective to create a consensus among all employees to work together to enhance corporate
and social value by, for example, increasing the Company’s directors’ shareholdings in the
Company, expanding the employee shareholding plan, and introducing a compensation system
linked to various ESG-related KPIs, in hopes of providing incentives.




Tsubakimoto Chain (6371) 22
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（6）Consolidated Statements of Income/Balance
Sheets/Cash Flows
・Figure 23：Consolidated Statements of Income
(¥ mn,%) 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3 22/3COE
Sales 144,896 150,002 178,022 196,738 203,976 198,762 215,716 238,515 226,423 193,399 225,000
yoy 4.8 3.5 18.7 10.5 3.7 -2.6 8.5 10.6 -5.1 -14.6 16.3
Cost of goods sold 104,156 107,396 126,132 137,014 142,241 138,191 152,630 171,959 166,158 145,764 -
Cost of goods sold/Sales 71.9 71.6 70.9 69.6 69.7 69.5 70.8 72.1 73.4 75.4 -
SG&A 28,657 30,027 34,536 38,296 40,164 38,924 42,392 44,767 44,118 38,737 -
SG&A/Sales 19.8 20.0 19.4 19.5 19.7 19.6 19.7 18.8 19.5 20.0 -
Operating income 12,081 12,579 17,354 21,427 21,570 21,647 20,694 21,789 16,146 8,896 16,000
yoy 9.6 4.1 38.0 23.5 0.7 0.4 -4.4 5.3 -25.9 -44.9 79.9
OP margin 8.3 8.4 9.7 10.9 10.6 10.9 9.6 9.1 7.1 4.600 7.1
Non-operating balance 59 235 639 836 539 357 1,049 -167 552 2,129 1,000
Recurring profits 12,140 12,813 17,993 22,263 22,109 22,004 21,743 21,622 16,698 11,025 17,000
yoy 9.3 5.5 40.4 23.7 -0.7 -0.5 -1.2 -0.6 -22.8 -34.0 54.2
RP margin 8.4 8.5 10.1 11.3 10.8 11.1 10.1 9.1 7.4 5.7 7.6
Extraordinary balance -233 -168 -421 321 -1,665 -429 -579 -2,189 111 1,133 -
Extraordinary profits 73 6 6 365 75 10 0 4 533 1,190 -
Extraordinary losses 306 174 427 44 1,740 439 579 2,193 422 57 -
Pretax income 11,907 12,645 17,572 22,583 20,444 21,575 21,164 19,433 16,809 12,158 -
Taxes and deferred taxes 4,469 4,750 6,856 8,163 7,643 6,721 6,422 5,577 5,123 3,377 -
Tax ratio 37.5 37.6 39.0 36.1 37.4 31.2 30.3 28.7 30.5 27.8 -
Minority interests 623 464 503 267 33 257 75 75 109 75 -
Net profits 6,815 7,431 10,213 14,153 12,768 14,597 14,667 13,781 11,576 8,706 12,500
yoy 11.8 9.0 37.4 38.6 -9.8 14.3 0.5 -6.0 -16.0 -24.8 43.6
NP margin 4.7 5.0 5.7 7.2 6.3 7.3 6.8 5.8 5.1 4.5 5.6
EPS 36.63 39.69 54.58 75.65 68.24 390.15 387.44 364.03 308.71 235.23 337.70

Segment Sales
Chain 51,692 50,250 55,828 61,721 63,998 60,600 67,338 72,023 67,526 61,312 65,800
Motion Control 21,364 19,664 21,612 22,557 21,975 21,563 24,156 25,591 23,813 19,697 22,100
Mobility 43,509 49,397 60,674 66,978 73,473 75,147 79,545 78,992 70,949 57,777 72,300
Material Handling 27,977 30,246 39,565 45,169 44,354 41,043 44,187 61,827 64,212 53,618 66,200
Others 2,913 2,846 2,719 2,968 3,186 3,001 3,331 3,548 3,542 3,941 2,200
Elimination -2,559 -2,402 -2,378 -2,658 -3,011 -2,594 -2,843 -3,469 -3,622 -2,948 -3,600
Consolidated Sales 144,896 150,002 178,022 196,738 203,976 198,762 215,716 238,515 226,423 193,399 225,000

Segment Profit
Chain 3,462 3,586 3,763 5,002 6,172 7,102 8,502 10,292 8,406 7,862 6,700
Motion Control 2,512 1,955 2,273 2,400 2,427 2,218 3,060 3,340 2,189 816 1,300
Mobility 4,846 6,494 10,119 11,916 12,258 12,385 10,258 8,734 5,791 3,714 8,000
Material Handling 878 531 1,192 1,940 659 706 416 402 647 -2,202 1,500
Others 170 143 63 123 84 -1 -40 -43 20 -330 -300
Elimination 213 -130 -56 46 -30 -763 -1,502 -936 -907 -964 -1,200
Consolidated Operating Income 12,081 12,579 17,354 21,427 21,570 21,647 20,694 21,789 16,146 8,896 16,000

Profit Margin
Chain 6.7 7.1 6.7 8.1 9.6 11.7 12.6 14.3 12.4 12.8 10.2
Motion Control 11.8 9.9 10.5 10.6 11.0 10.3 12.7 13.1 9.2 4.1 5.9
Mobility 11.1 13.1 16.7 17.8 16.7 16.5 12.9 11.1 8.2 6.4 11.1
Material Handling 3.1 1.8 3.0 4.3 1.5 1.7 0.9 0.7 1.0 -4.1 2.3
Others 5.8 5.0 2.3 4.2 2.6 0.0 -1.2 -1.2 0.6 -8.4 -13.6
Consolidated Operating Income Margin 8.3 8.4 9.7 10.9 10.6 10.9 9.6 9.1 7.1 4.6 7.1



Note: The Company renamed its segments in FY2021: Precision Machinery Operations became
Motion Control (MC) Operations, and AP Clutch was transferred to Mobility Operations. Automotive
Parts Operations was renamed Mobility Operations. Power Transmission Operations, which controls
the chain operations and the MC operations, was established.
Consolidated EPS for FY2016/FY2017/FY2018 are adjusted to reflect the value after stock
consolidation (reverse split).

Source: Created by CGRA based on Company documents, etc.




Tsubakimoto Chain (6371) 23
 2021-9-1




・Figure 24：Consolidated Balance Sheets and Cash Flows
(¥ mn, %) 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3
Current assets 86,630 96,782 100,626 116,619 116,536 125,400 132,144 143,949 134,083 145,185
Cash on hand and in banks 9,661 19,678 13,518 17,504 20,195 26,332 29,590 33,647 29,019 41,869
Receivables 42,886 41,844 44,337 47,338 48,726 50,760 55,612 59,807 57,046 55,377
Marketable securities 4,468 560 7,877 12,020 7,533 7,965 4,646 4,114 3,965 6,189
Inventories 25,893 29,298 29,625 33,574 33,153 33,875 37,676 41,884 40,278 38,389
Other current assets 3,722 5,402 5,269 6,183 6,929 6,468 4,618 4,495 3,773 3,360
Fixed assets 105,135 119,055 128,213 142,122 137,570 141,814 151,429 161,966 160,015 162,147
Tangible fixed assets 82,761 90,481 96,852 101,613 102,777 105,435 113,285 116,946 118,579 115,059
Intangible fixed assets 1,716 5,381 5,807 5,132 4,352 3,841 2,968 12,787 11,361 10,695
Investments and other assets 20,657 23,192 25,554 35,376 30,444 32,537 35,175 32,233 30,074 36,391
Total assets 191,765 215,837 228,840 258,742 254,106 267,215 283,574 305,916 294,098 307,332
Current liabilities 54,544 57,543 62,003 59,435 55,525 66,558 70,797 82,617 67,081 61,690
Notes payable - trade 27,779 26,488 25,269 25,902 24,986 25,462 34,148 33,701 27,030 25,674
Short-term borrowings 10,594 11,868 18,847 11,761 10,547 20,225 11,292 22,779 17,139 11,953
Other current liabilities 16,171 19,187 17,887 21,773 19,992 20,872 25,356 26,137 22,912 24,064
Long-term liabilities 40,885 49,696 45,208 55,014 52,766 44,439 43,012 47,844 50,961 58,147
Convertible bonds 0 0 0 10,000 10,000 10,000 10,000 15,000 15,000 15,000
Long-term debt 16,810 24,638 17,690 15,146 14,269 4,409 5,288 5,992 9,369 14,214
Other long term liabilities 24,075 25,058 27,518 29,868 28,497 30,030 27,723 26,851 26,592 28,933
Total liabilities 95,430 107,239 107,212 114,449 108,291 110,997 113,809 130,461 118,043 119,838
Minority interests 6,412 6,577 3,194 3,851 3,774 3,744 1,848 1,720 1,695 1,703
Shareholders' equity 89,923 102,019 118,433 140,439 142,041 152,474 167,917 173,734 174,360 185,791
Total liabilities and shareholders' equity 191,766 215,837 228,840 258,742 254,106 267,215 283,574 305,916 294,098 307,332

(¥ mn, %) 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3
Operating CF 11,626 15,350 19,761 22,189 19,090 25,434 27,657 24,197 20,275 27,890
Income before income taxes and minority interests 11,907 12,645 17,572 22,583 20,444 21,575 21,164 19,432 16,809 12,159
Depreciation and amotization 7,403 7,360 8,745 9,476 10,402 10,342 11,005 12,366 12,739 12,682
working capital total -2,265 832 -220 -4,110 -3,721 -2,804 720 -5,847 -3,318 3,143
Income taxes -4,667 -4,695 -6,099 -7,193 -9,785 -6,126 -6,664 -7,354 -5,089 -3,810
others -752 -792 -237 1,433 1,750 2,447 1,432 5,600 -866 3,716

Investing CF -10,487 -18,401 -17,166 -14,306 -13,593 -13,420 -17,389 -32,088 -14,241 -9,560
Purchase of investment securities -712 -512 -223 -548 -194 -229 -11 -212 -15 -252
Proceeds from sales of investment securities 3 14 665 0 0 19 0 328 215 166
Additions to property, plant and equipments -7,553 -11,121 -13,232 -9,384 -13,750 -14,151 -15,542 -17,273 -14,661 -9,723
Proceeds from sales of fixed assets 193 187 104 356 147 135 167 198 171 689
Purchase of subsidiary investment 0 -6,334 0 0 0 0 0 -15,457 0 0
Others -2,418 -635 -4,479 -4,730 207 807 -2,001 327 48 -440


FCF 1,138 -3,050 2,594 7,882 5,496 12,013 10,268 -7,890 6,034 18,329


Financial CF -5,460 6,325 -3,196 -2,647 -5,476 -4,084 -13,191 12,679 -10,385 -4,354
Net increase(decrease) in long term debt -6,151 9,880 -642 -1,239 -1,540 -688 -9,410 15,780 -2,398 1,213
Net increase(decrease) in short term debt 2,460 -1,949 -175 1,135 -190 913 1,042 1,813 376 -1,687
Cash divident paid -1,302 -1,310 -1,497 -2,432 -3,554 -3,928 -4,544 -4,731 -4,541 -3,330
Others -467 -296 -882 -111 -192 -381 -279 -183 -3,822 -550


Effect of exchange rate changes on cash and cash equivalents -118 793 1,378 741 -957 -649 374 -414 -358 730
Changes on cash and cash equivalents -4,440 4,068 776 5,976 -937 7,279 -2,548 4,374 -4,708 14,706
cash and cash equivalents at the beginning of the year 17,308 13,916 20,194 21,291 27,360 26,422 34,142 31,712 36,087 31,378
cash and cash equivalents at the end of the year 13,916 20,194 21,291 27,360 26,422 34,142 31,712 36,087 31,378 46,084


Sales/total assets (x) 0.77 0.74 0.80 0.81 0.80 0.76 0.78 0.81 0.75 0.64
Sales/fixed assets (x) 1.77 1.73 1.90 1.98 2.00 1.91 1.97 2.07 1.92 1.66
Sales/current assets (x) 1.72 1.64 1.80 1.81 1.75 1.64 1.68 1.73 1.63 1.39
Sales/inventories (days) 88.75 93.79 85.26 84.18 85.61 88.52 85.55 84.44 90.24 98.49
Sales/receivables (days) 99.48 103.09 88.35 85.04 85.95 91.35 89.99 88.31 94.19 106.09
Sales/payables (days) 61.90 66.02 53.06 47.47 45.53 46.32 50.43 51.91 48.95 49.73
Shareholders' equity ratio (%) 46.89 47.27 51.75 54.28 55.90 57.06 59.21 56.79 59.29 60.45
CCC(days) 126.33 130.85 120.55 121.75 126.03 133.55 125.12 120.84 135.48 154.85



Source: Created by CGRA based on Company documents, etc.




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 2021-9-1


Analysts Responsible for this Report
Shinji Kuroda, Partner and Senior Analyst
Kuroda joined Kankaku Research Institute (now Mizuho Securities) in April 1992, assigned to
the Industrial Research Department. He then would join Jardine Fleming Securities (now JP
Morgan Securities) in September 1999, then Goldman Sachs. Until January 2020, he worked
for Credit Suisse Securities. He served as Vice President at Goldman Sachs, and Director at
Credit Suisse Securities. In his career, he has been in charge of the machinery, shipbuilding,
and heavy machinery sectors. He joined CGRA as a partner in June 2020. Member of the
Machinery Industry Disclosure Committee, The Securities Analysts Association of Japan

Hidehiko Hoshino, CMA, Representative Director and Chief Advisor
Hoshino joined Shinko Securities (currently Mizuho Securities) in April 1987, assigned to the
Corporate Research Department. He then would join Jardine Fleming Securities (now JP
Morgan Securities) in 1997, joining Deutsche Securities in 2000 and UBS Securities in 2006,
where he would serve until April 2016. As a sell-side analyst, he has been in charge of the
machinery, shipbuilding, heavy machinery, and plant sectors for 28 years. Has served for more
than 10 years as Vice Chairman of the Machinery Industry Disclosure Committee, The
Securities Analysts Association of Japan. He served as Managing Director from 2003 to 2016.
In June 2017, Hoshino established Capital Goods Research & Advisory Co., Ltd. (CGRA), and
was appointed as Representative Director. Certified Analyst, The Securities Analysts
Association of Japan



Capital Goods Research & Advisory Co., Ltd.
An advisory company specializing in the machinery sector. CGRA's main businesses are (1)
support for creating integrated reports offering feedback to management while satisfying the
needs of capital markets, (2) advisory services for medium-term plan creation and business
strategy, as well as various IR & SR areas, (3) preparation of various materials and English
translation, and (4) drafting corporate analysis sponsored reports useful for long-term investors
and management.




This report's purpose is not to solicit, recommend, or offer advice regarding investment, but
is prepared from our own perspective for the purpose of providing information about the
company in question. In addition, although the contents of this report have been prepared
based on publicly-available information, we do not guarantee their accuracy or
completeness. Capital Goods Research & Advisory Co., Ltd. retains copyright to this report.
Reproduction is prohibited without prior permission. The contents of this report are subject
to change without notice.




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