Company Overview

1. Company Overview

Quanzhou Electric Co., Ltd. <9824> is a comprehensive trading company for electric wires and is among the top in the industry as an independent entity. Its history dates back to its founding in 1947. There are about 250 suppliers, including major ones, and it has dealings with more than half of the domestic electric wire manufacturers. The number of stock items is approximately 0.05 million, demonstrating exceptional procurement capabilities in the domestic market.

2. History

The company's history is long, having expanded its operations nationwide and to various countries in Asia since its establishment as Nishimura Electric Trading Company in 1947. As of the end of October 2024, the group has a total of 825 employees, 7 domestic consolidated subsidiaries, and 7 overseas consolidated subsidiaries (1 in Thailand, 2 in China, 1 in Taiwan, 1 in the Philippines, 1 in Vietnam, and 1 in the USA), with 18 domestic bases.

Regarding stocks, it was listed on the Osaka Securities Exchange, Market Second Section (Special Designated Securities) in June 1991. Subsequently, it was listed on the Tokyo Stock Exchange (hereinafter, TSE) Second Section in November 2002, and further designated to the TSE First Section in November 2017. It has now transitioned to the TSE Main Board.

3. Business Description

(1) Supplier and Sales System

The company is a comprehensive specialized trading company for electrical wires and is among the industry's top players as an independent entity. There are about 250 suppliers, and among approximately 400 domestic electrical wire manufacturers, including small and medium-sized enterprises, the company sources from more than half of the manufacturers. With about 0.05 million items in stock, it has outstanding procurement capability in the domestic market. The main suppliers are SFCC Corporation of SWCC <5805> and Sumitomo Electric HST Cable Co., Ltd.

Regarding the sales system, there are a total of 18 branches and sales offices in the country, each equipped with logistics centers, and operates nationwide with a team of 200 sales employees. Additionally, factories for processing products (including outsourced factories) are established near the delivery destinations, which enables a just-in-time delivery system and inventory management capability characterized by "delivering just the necessary products in the right amount at the right time." The inventory level is strictly regulated to be "within 0.8 months" to always maintain an optimum inventory level to respond to fluctuations in copper prices. There are about 3,700 customers including electrical material sales companies, manufacturers, and electrical construction companies, with the largest customer's revenue composition ratio being around 3% and about 15% combined for the top 10 customers, indicating a low dependency on specific customers and a characteristic of engaging in business with a wide range of clients.

(2) Sales Channels

The company's sales channels can be divided into three segments: "Direct Demand," "Electrical Materials," and "Electrical Construction."

"Direct Demand" refers to the route through which the company sells directly to manufacturers of electricity and machinery, as well as companies related to Automobiles. In some cases, electrical wire manufacturers may also sell directly to these destinations.

"Electrical Materials" refers to the route targeting electrical equipment suppliers. From these electrical equipment suppliers, sales are made to electrical construction contractors, and further to manufacturers of electricity and machinery, as well as companies related to Automobiles.

"Electrical Construction" is the route through which the company sells to common electrical contractors.

In the fiscal year ending October 2024, the proportions of each sales channel were as follows: Electrical Materials 46.4%, Direct Demand 26.3%, Electrical Construction 22.3%.

(3) Commodity Composition Ratio

For the fiscal year ending October 2024, the revenue composition ratio by product (on a standalone basis) is as follows: power cables account for 38.4%, making it the largest segment, followed by equipment and communication wires at 32.9%, general purpose coated wire at 10.0%, other wires at 5.1%, and non-wire products at 13.6%.

When comparing the revenue composition ratio by product for the company against the industry overall, the ratios for equipment and communication wires and power cables are higher. This is due to the fact that the company does not engage in the high ratio segment of transport wires (mainly wire harnesses for automobiles), which is significant in the overall industry. Excluding transport wires, the industry total's composition ratio shows approximately 20% for equipment and communication wires and about 33% for power cables. While the ratio for power cables is similar to that of the company, the composition ratio for equipment and communication wires is higher in the company, which can be considered a distinctive feature.

(4) Industry Share

The company's industry share, when viewed through the lens of its demand sector, which is "Construction and Electrical Sales Division", is approximately 15% (as estimated by the company). Many of its competitors are manufacturer-related trading companies, and it is the only independent listed company in this field.

Currently, in the wire industry, there is ongoing price competition in the power cable sector, which continues to create a challenging environment for independent trading companies that operate in this sector. It seems that trading companies without financial strength or distinctive products are increasingly being absorbed or integrated under large manufacturer-related trading companies.

(Written by FISCO guest analyst Noboru Terashima)