1

URL: www.walden.co.jp

Written by Yoshiyuki Muroya

E-mail: yoshiyuki_muroya@walden.co.jp

Phone：+81 3 3553 3769

MonotaRO (3064)Consolidated FY Sales OP RP NP EPS DPS BPS

(Million Yen) (Yen) (Yen) (Yen)

FY12/2012 28,742 2,925 2,941 1,689 28.2 8.0 91.0

FY12/2013 34,556 3,885 3,901 2,289 37.7 12.0 119.5

FY12/2014CoE 42,647 4,210 4,197 2,444 40.1 14.0 -

FY12/2013 YoY 20.2% 32.8% 32.6% 35.5% - - -

FY12/2014CoE YoY 23.4% 8.4% 7.6% 6.8% - - -

Consolidated Half Year Sales OP RP NP EPS DPS BPS

(Million Yen) (Yen) (Yen) (Yen)

Q1 to Q2 FY12/2013 15,991 2,061 2,074 1,336 - - -

Q3 to Q4 FY12/2013 18,565 1,823 1,826 952 - - -

Q1 to Q2 FY12/2014CoE 20,084 1,898 1,893 1,101 - - -

Q3 to Q4 FY12/2014CoE 22,563 2,312 2,304 1,343 - - -

Q1 to Q2 FY12/2014CoE YoY 25.6% (7.9%) (8.7%) (17.6%) - - -

Q3 to Q4 FY12/2014CoE YoY 21.5% 26.7% 26.1% 41.0% - - -

Consolidated Quarters Sales OP RP NP EPS DPS BPS

(Million Yen) (Yen) (Yen) (Yen)

Q1 FY12/2013 7,739 954 956 658 - - -

Q2 FY12/2013 8,251 1,107 1,118 677 - - -

Q3 FY12/2013 8,596 943 945 474 - - -

Q4 FY12/2013 9,968 880 881 478 - - -

Q1 FY12/2014 10,831 1,217 1,229 735 - - -

Q1 FY12/2014 YoY 39.9% 27.6% 28.6% 11.7% - - -

Source: Company Data, WRJ Calculation

1.0 Executive Summary (26 May 2014)

Reacted Not Much

MonotaRO, running Internet store of indirect materials (diverse consumables but for raw materials), e.g.,

tools, mainly for small-&-medium-sized corporates, maintains high sales growth rates. In our analysis of

sales with the Company (more than 70% accounted for by inventory merchandises to cope with day

shipment, 126,000 in number as of the end of Q1 FY12/2014) on a 12-month moving average basis, the

Company’s sales growth rates are rather accelerating most recently. In early April 2014, sales with the

Company temporarily saw slack growth in reaction to hurried purchases of merchandises by own customers

towards the end of March 2014 ahead of April 2014 introduction of consumption tax rate hike. But this did

not persist, having resulted in monthly sales in April 2014, a touch better than assumptions of Company

forecasts. Meanwhile, the Company has been getting ready for starting up a new distribution center to cope

with ongoing increases in prospective demand for some time and this new operation is expected to start up

on a full-fledged basis in July 2014. Basically, in Q2 is the Company to start suffering from add-on costs in

line with this, while benefiting from sequentially improving efficiency in shipment of merchandises in Q3

and Q4 also in line with this. In fact, the Company is going for prospective sales ¥100,000m, more than

doubled from the current levels as a midterm milestone target, suggesting that there is still a great room to

2

cultivate in the mainstay domestic market in Japan. On top of this, there are meaningful developments in

regards to developments of overseas markets, as found in most recent trends such as steady sales growth in

Korea and increasing contribution to earnings from the United States.

In Q1 FY12/2014, sales came in at ¥10,831m (up 39.9% YoY), operating profit ¥1,217m (up 27.6%) and

operating profit margin 11.2% (down 1.1% points). Steady increases in the number of incoming new

customers resulted in persistently increasing number of registered accounts, while sales per registered

account increased. Monthly sales in Mach came in at levels 20% higher than assumptions of Company

forecasts, driven by hurried purchases of own merchandises by customers ahead of consumption tax rate

hike and by those of fiscal-yearend-related demand. Meanwhile, operating profit margin came in at 11.2%

(down 1.1% points), as a result of gross profit margin 28.9% (down 1.9% points) and the ratio of SG&A

expenses to sales 17.7% (down 0.8% points). Due to yen’s depreciation, the Company saw increasing

procurement prices for both imported merchandises and those procured domestically. Meanwhile, surging

sales of national-brand merchandises, newly introduced, are increasing exposure to themselves in the

Company, on the expense of private-brand merchandises which carry gross profit margin than

national-brand ones. Still, surging sales as a whole was a key positive factor to have decreased the ratio of

SG&A expenses to sales.

Company forecasts in FY12/2014 have remained unchanged, calling for prospective sales ¥42,647m (up

23.4% YoY), operating profit ¥4,210m (up 8.4%) and operating profit margin 9.9% (down 1.4% points). Here

do they assume collective add-on costs ¥550m (equating to 1.3% of sales) associated with new distribution

center. As mentioned earlier, the Company is to book costs like those, basically starting in Q2, while

redundantly in a sense is the Company to book costs associated with existing distribution center at the same

time as far as Q2 is concerned. Due mainly to this, Company forecasts are going for increasing sales but

decreasing earnings in H1. Still, recent trading has been more buoyant than initially expected as mentioned

earlier.

IR Representative: Tomoko Yamazaki (+81 6 4869 7190 pr@monotaro.com）

3

2.0 Company Profile

Internet Store to Support Procurement by Manufacturers, etc.

Company Name MonotaRO Co., Ltd.

Company Website (Japanese only)

IR Information

Share Price

Established 19 October 2000

Listing 6 December 2006, Tokyo Stock Exchange First Section (Ticker: 3064)

Capital ¥1,829m (As of the end of March 2014)

No. of Shares 61,540,000 shares, including 532,026 treasury shares (As of the end of March 2014)

Main Features A major US indirect material company (W.W. Granger Inc.), the parent company

Main customers: small-&-mid-sized corporates belonging to sectors, e.g.,

manufacturing, construction & engineering, etc.

Persistently replacing small-sized retailers of tools, hardware stores, traders of

automotive parts, Internet stores, etc.

Businesses Ⅰ. Sales of Factory-Use Indirect Materials

Top Management Representative Executive President: Masaya Suzuki,

Director and Chairman: Kinya Seto

Shareholders Grainger Group 50.8%, State Street 6.0% (As of the end of December 2013)

Headquarters Amagasaki-city, Hyogo-pref. JAPAN

No. of Employees Consolidated: 192, part-time and temporary employees: 579 (As of the end of March

2014)

Source: Company Data

3.0 Recent Trading & Prospects

Q1 FY12/2014 Results

In Q1 FY12/2014, sales came in at ¥10,831m (up 39.9％ YoY), operating profit ¥1,217m (up 27.6%),

recurring profit ¥1,229m (up 28.6%) and net profit ¥735m (up 11.7%), while operating profit margin 11.2%

(down 1.1% points). On a parent basis, sales came in at ¥10,751m (up 38.9%), operating profit ¥1,269m (up

28.5%) and operating profit margin 11.8% (down 1.0% points). Thus, consolidated performance with the

Company hinges on that of the parent company to a large extent.

Based on a simple calculation basis, consolidated add-ons are ¥80m in sales and negative ¥51m in operating

balance, totally attributable to those from the only consolidated subsidiary in Q1, which is based in Korea

(NAVIMRO Co., Ltd., established in January 2013 while locally run by similar business model as on a

parent basis), as far as we could gather. Although this subsidiary remains insignificant in terms of impacts

to the consolidated accounts, we recognize sequentially increasing sales with this. Meanwhile, details of

business performance on a parent basis are as follows:

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Compared with some 20,000 in FY12/2013 for monthly average number of incoming new customers, the

Company saw as much as some 22,100 in Q1, having resulted in the number of registered accounts

1,186,714 (up 25.4%) as of the end of Q1. On top of this, increasing sales per registered account led to sales

increases with the Company higher than those of the number of registered accounts. In our estimate, sales

per registered account came in at ¥2,851 (up 6.7% YoY) in January 2014, ¥2,871 (up 3.0%) in February and

¥3,578 (up 21.0%) in March.

The results in March were far larger than equivalents over the year and over the month, driven by hurried

purchases of merchandises by own customers ahead of consumption tax hike, as far as we could gather.

Meanwhile, the results in April, when the hurried purchases are gone, came in at ¥2,889 (down 2.2%),

having come down marginally over the year while sharply over the results in March when the hurried

purchases prevailed. More importantly, however, the results in April were roughly unchanged from those of

January and February, suggesting that reaction to the hurried purchases was already gone.

In estimating sales per registered account, we simple divide sales during the specified period by the average

number of registered accounts during the specified period and thus registered accounts not utilized during

the specified period are included as denominator. As a result, we believe sales per registered account on a

utilization basis or in reality are far higher than the levels already mentioned here.

In regards to large corporates conjunction, sales rose as much as 2.2 times over the year, having accounted

for some 4% of sales with the Company. The number of customers on this side came in at 140 as of the end of

Q1 versus 120 as of the end of Q4 FY12/2013. The Company does not disclose details on this side, e.g., the

number of registered accounts, etc., but we have an impression that the number of registered accounts on

this side was increasing more rapidly than the Company as a whole, while having seen higher sales per

registered account. Thus, we believe this side had a lot to do with increasing sales per registered account

with the Company.

In the first place, large corporates conjunction represents sales of own merchandises through purchasing

management systems run by large corporates, being in conjunction with the Company’s electronic

merchandise catalogue. Meanwhile, now the Company is looking to introduction own purchasing

management systems, negotiating with 10 candidates of large corporates.

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Parent Monthly Sales Trends (On a 12-Month Moving Average Basis)

1,8

89

1,9

39

1,9

81

2,0

26

2,0

75

2,1

12

2,1

65

2,2

08

2,2

48

2,3

03

2,3

49

2,3

86

2,4

16

2,4

42

2,4

75

2,5

18

2,5

55

2,5

82

2,6

32

2,6

60

2,7

06

2,7

59

2,8

09

2,8

73

2,9

42

3,0

05

3,1

24

3,1

78

+2

5.8

%

+2

6.8

%

+27

.1%

+27

.9%

+28

.4%

+2

7.5

%

+2

8.6

%

+2

8.8

%

+28

.7%

+2

9.2

%

+29

.3%

+28

.9%

+2

7.9

%

+26

.0%

+2

5.0

%

+2

4.3

%

+2

3.1

%

+2

2.2

%

+2

1.6

%

+20

.4%

+2

0.4

%

+19

.8%

+19

.6%

+20

.4%

+2

1.8

%

+23

.0%

+2

6.2

%

+2

6.2

%

0.0%

10.0%

20.0%

30.0%

0

1,000

2,000

3,000

4,000

Janu

ary

-12

Fe

bru

ary

-12

Marc

h-1

2

Ap

ril-

12

Ma

y-1

2

Ju

ne-1

2

July

-12

Au

gu

st-1

2

Sep

tem

b…

Oct

ob

er-

12

No

vem

be

…

De

cem

be

…

Janu

ary

-13

Fe

bru

ary

-13

Marc

h-1

3

Ap

ril-

13

Ma

y-1

3

Ju

ne-1

3

July

-13

Au

gu

st-1

3

Sep

tem

b…

Oct

ob

er-

13

No

vem

be

…

De

cem

be

…

Janu

ary

-14

Fe

bru

ary

-14

Marc

h-1

4

Ap

ril-

14

Ma

y-1

4

Ju

ne-1

4

Sales (Million Yen, On a 12-Month Moving Average Basis) YoY (%)

Parent Sales Trends Per Working Day (On a 12-Month Moving Average Basis)

94

95

98

10

0

10

2

10

4

10

6

10

8

11

0

11

2

11

4

11

6

11

7

12

0

12

2

12

3

12

5

12

7

12

9

13

0

13

3

13

5

13

8

14

2

14

5

14

8

15

4

15

7

+25

.8%

+25

.6%

+26

.5%

+2

6.8

%

+2

6.7

%

+26

.5%

+2

6.6

%

+2

7.1

%

+2

7.7

%

+2

7.0

%

+26

.5%

+2

6.2

%

+2

5.2

%

+2

5.4

%

+2

4.6

%

+23

.3%

+2

3.1

%

+2

2.3

%

+2

1.6

%

+2

1.0

%

+2

0.4

%

+2

0.7

%

+2

1.5

%

+22

.4%

+23

.8%

+24

.2%

+26

.9%

+2

7.4

%

0.0%

10.0%

20.0%

30.0%

0

50

100

150

200

250

Jan

uary

-12

Feb

ruary

-12

Marc

h-1

2

Ap

ril-

12

Ma

y-1

2

June

-12

July

-12

Aug

ust

-12

Sep

tem

be

r-12

Oct

ob

er-

12

Nove

mb

er-

12

Dece

mb

er-

12

Jan

uary

-13

Feb

ruary

-13

Marc

h-1

3

Ap

ril-

13

Ma

y-1

3

June

-13

July

-13

Aug

ust

-13

Sep

tem

be

r-13

Oct

ob

er-

13

Nove

mb

er-

13

Dece

mb

er-

13

Jan

uary

-14

Feb

ruary

-14

Marc

h-1

4

Ap

ril-

14

Ma

y-1

4

June

-14

Sales (Per Working Day, Million Yen, On a 12-Month Moving Average Basis) YoY (%)

Parent Sales per Registered Account

2,8

76

3,1

00

3,2

13

3,0

70

2,9

59

3,0

35

3,0

85

2,7

88

2,7

85

3,2

04

3,0

97

2,8

56

2,6

71

2,7

86

2,9

57

2,9

53

2,7

93

2,7

15

3,0

32

2,5

32

2,7

40

3,1

43

3,0

03

2,9

70

2,8

51

2,8

71

3,5

78

2,8

89

+4

.1%

+1

1.2

%

+2

.8%

+6.0

%

+8

.8%

(0.6

%)

+8.5

%

+4

.0%

+0.2

%

+4

.7%

(0.5

%)

(3.9

%)

(7.1

%)

(10

.1%

)

(8.0

%)

(3.8

%)

(5.6

%)

(10.6

%)

(1.7

%)

(9.2

%)

(1.6

%)

(1.9

%)

(3.0

%)

+4

.0%

+6

.7%

+3

.0% +2

1.0

%

(2.2

%)

(40.0%)(30.0%)(20.0%)(10.0%)+0.0%+10.0%+20.0%+30.0%

2,000

2,500

3,000

3,500

4,000

4,500

Janu

ary

-12

Fe

bru

ary

-12

Ma

rch

-12

Apri

l-1

2

Ma

y-1

2

Jun

e-1

2

July

-12

Au

gust-

12

Se

pte

mb

er-

12

Oct

obe

r-1

2

No

vem

ber-

12

De

cem

ber-

12

Janu

ary

-13

Fe

bru

ary

-13

Ma

rch

-13

Apri

l-1

3

Ma

y-1

3

Jun

e-1

3

July

-13

Au

gust-

13

Se

pte

mb

er-

13

Oct

obe

r-1

3

No

vem

ber-

13

De

cem

ber-

13

Janu

ary

-14

Fe

bru

ary

-14

Ma

rch

-14

Apri

l-1

4

Ma

y-1

4

Jun

e-1

4

Sales per Registered Account (Yen) YoY (%)

Source: Company Data, WRJ Calculation

6

Gross profit Margin, SG&A Expenses / Sales and Operating Profit Margin (On a Parent Basis)

28.2% 28.5% 28.1% 27.8% 27.8% 27.9% 27.6%30.5% 30.8% 30.7% 29.8% 29.5% 28.9%

18.1% 17.9% 18.6%21.2%

18.0% 17.0% 17.7%20.4%

18.1% 16.7%18.2%

20.0%17.1%

10.1% 10.5% 9.5%6.6%

9.8% 10.9% 9.9% 10.1%12.8% 14.0%

11.6%9.5%

11.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%Q

1FY

12

/20

11

Q2

FY1

2/2

01

1

Q3

FY1

2/2

01

1

Q4

FY1

2/2

01

1

Q1

FY1

2/2

01

2

Q2

FY1

2/2

01

2

Q3

FY1

2/2

01

2

Q4

FY1

2/2

01

2

Q1

FY1

2/2

01

3

Q2

FY1

2/2

01

3

Q3

FY1

2/2

01

3

Q4

FY1

2/2

01

3

Q1

FY1

2/2

01

4

Gross Profit Margin (%) SG&A Expenses / Sales (%) Operating Profit Margin (%)

Source: Company Data, WRJ Calculation

Meanwhile, historical trends of gross profit margin suggest that the levels once started getting meaningfully

higher than the previous levels in Q4 FY12/2012. According to the Company, this is the timing when the

Company successfully reinforced launches of high gross-profit-margin private-brand merchandises.

However, most recently, this trend has been rather inverted, as mentioned earlier.

The other thing is that the Company makes it a rule to update and release its merchandise catalogue

towards the end of September every year, while the newest one was released on 29 September 2013, i.e.,

“RED BOOK Volume 9 (General Catalogue for Indirect Materials)”, incorporating 301,600 merchandises in

12 separate volumes. As in the past years, the Company saw increasing SG&A expenses as well as their

ratio to sales in Q4 FY12/2013, due to expenses associated with the catalogue.

At the same time, gross profit margin marginally adjusted because of changes in merchandise mixture due

to release of the new merchandise catalogue that enhanced sales of national-brand merchandises which

were listed in there. Enhanced sales of national-brand merchandises decreased the Company’s exposure to

private-brand merchandises which carry relatively higher gross profit margin than national-brand ones. To

date, this trend has persisted, as mentioned earlier. On top of this, yen’s depreciation also started negatively

affected to gross profit margin, staring in H2 FY12/2013, while this has been the case so far, also as

mentioned earlier.

7

Income Statement (Cumulative, Quarterly)

Income Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY

(Million Yen) 12/2013 12/2013 12/2013 12/2013 12/2014 12/2014 12/2014 12/2014 Net Chg.

Sales 7,739 15,991 24,587 34,556 10,831 - - - +3,091

Cost of Sales 5,354 11,075 17,117 24,146 7,697 - - - +2,343

Gross Profit 2,385 4,915 7,470 10,410 3,134 - - - +748

SG&A Expenses 1,431 2,853 4,465 6,525 1,916 - - - +485

Operating Profit 954 2,061 3,004 3,885 1,217 - - - +263

Non Operating Balance 1 13 15 15 12 - - - +10

Recurring Profit 956 2,074 3,020 3,901 1,229 - - - +273

Extraordinary Balance 131 131 (30) (40) 0 - - - (132)

Pretax Profit 1,088 2,206 2,989 3,860 1,229 - - - +141

Tax Charges etc. 429 869 1,178 1,570 494 - - - +64

Net Profit 658 1,336 1,810 2,289 735 - - - +76

Sales YoY +15.7% +16.9% +18.3% +20.2% +39.9% - - - -

Operating Profit YoY +44.9% +44.8% +41.6% +32.8% +27.6% - - - -

Recurring Profit YoY +45.4% +44.1% +40.8% +32.6% +28.6% - - - -

Net Profit YoY +75.2% +61.4% +46.4% +35.5% +11.7% - - - -

Gross Profit Margin 30.8% 30.7% 30.4% 30.1% 28.9% - - - (1.9%)

SG&A / Sales 18.5% 17.8% 18.2% 18.9% 17.7% - - - (0.8%)

Operating Profit Margin 12.3% 12.9% 12.2% 11.2% 11.2% - - - (1.1%)

Recurring Profit Margin 12.4% 13.0% 12.3% 11.3% 11.4% - - - (1.0%)

Net Profit Margin 8.5% 8.4% 7.4% 6.6% 6.8% - - - (1.7%)

Tax Charges etc. / Pretax Profit 39.5% 39.4% 39.4% 40.7% 40.2% - - - +0.7%

Income Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY

(Million Yen) 12/2013 12/2013 12/2013 12/2013 12/2014 12/2014 12/2014 12/2014 Net Chg.

Sales 7,739 8,251 8,596 9,968 10,831 - - - +3,091

Cost of Sales 5,354 5,721 6,041 7,029 7,697 - - - +2,343

Gross Profit 2,385 2,529 2,555 2,939 3,134 - - - +748

SG&A Expenses 1,431 1,422 1,612 2,059 1,916 - - - +485

Operating Profit 954 1,107 943 880 1,217 - - - +263

Non Operating Balance 1 11 2 0 12 - - - +10

Recurring Profit 956 1,118 945 881 1,229 - - - +273

Extraordinary Balance 131 0 (162) (10) 0 - - - (132)

Pretax Profit 1,088 1,118 782 871 1,229 - - - +141

Tax Charges etc. 429 440 308 392 494 - - - +64

Net Profit 658 677 474 478 735 - - - +76

Sales YoY +15.7% +18.0% +21.0% +25.2% +39.9% - - - -

Operating Profit YoY +44.9% +44.7% +35.0% +9.6% +27.6% - - - -

Recurring Profit YoY +45.4% +43.0% +34.0% +10.7% +28.6% - - - -

Net Profit YoY +75.2% +49.8% +16.0% +5.8% +11.7% - - - -

Gross Profit Margin 30.8% 30.7% 29.7% 29.5% 28.9% - - - (1.9%)

SG&A / Sales 18.5% 17.2% 18.8% 20.7% 17.7% - - - (0.8%)

Operating Profit Margin 12.3% 13.4% 11.0% 8.8% 11.2% - - - (1.1%)

Recurring Profit Margin 12.4% 13.6% 11.0% 8.8% 11.4% - - - (1.0%)

Net Profit Margin 8.5% 8.2% 5.5% 4.8% 6.8% - - - (1.7%)

Tax Charges etc. / Pretax Profit 39.5% 39.4% 39.4% 45.1% 40.2% - - - +0.7%

Source: Company Data, WRJ Calculation

8

Balance Sheet (Quarterly)

Balance Sheet Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY

(Million Yen) 12/2013 12/2013 12/2013 12/2013 12/2014 12/2014 12/2014 12/2014 Net Chg.

Cash & Deposit 2,516 3,270 3,405 4,248 3,176 - - - +660

Accounts Receivables 3,030 3,091 3,191 3,760 4,600 - - - +1,570

Inventory 2,845 3,072 2,964 3,023 3,322 - - - +477

Other 1,328 1,302 1,890 1,627 1,697 - - - +369

Current Assets 9,720 10,736 11,451 12,660 12,797 - - - +3,076

Tangible Assets 186 181 277 404 475 - - - +288

Intangible Assets 773 828 839 870 914 - - - +141

LT Investment Securities etc. 262 276 591 570 553 - - - +291

Fixed Assets 1,222 1,285 1,708 1,845 1,943 - - - +721

Total Assets 10,942 12,022 13,160 14,505 14,740 - - - +3,798

Accounts Payable 2,207 2,152 2,253 2,667 3,558 - - - +1,351

Short Term Debt 1,300 1,300 1,388 1,388 1,388 - - - +88

Other 1,267 1,720 2,343 2,731 1,738 - - - +470

Current Liabilities 4,775 5,173 5,985 6,787 6,686 - - - +1,911

Long Term Debt 0 0 179 179 179 - - - +179

Other 148 147 159 182 137 - - - (11)

Fixed Liabilities 148 147 338 361 316 - - - +168

Total Liabilities 4,923 5,320 6,324 7,149 7,003 - - - +2,079

Shareholders' Equity 5,969 6,645 6,760 7,255 7,641 - - - +1,672

Other 49 56 75 100 96 - - - +46

Total Assets 6,018 6,701 6,836 7,355 7,737 - - - +1,719

Total Liabilities & net Assets 10,942 12,022 13,160 14,505 14,740 - - - +3,798

Equity Capital 5,969 6,645 6,768 7,282 7,661 - - - +1,692

Interest Bearing Debt 1,300 1,300 1,568 1,568 1,568 - - - +268

Net Debt (1,216) (1,970) (1,836) (2,680) (1,608) - - - (391)

Equity Capital Ratio 54.5% 55.3% 51.4% 50.2% 52.0% - - - (2.6%)

Net-Debt-Equity Ratio (20.4%) (29.7%) (27.2%) (36.9%) (21.0%) - - - (0.7%)

ROE 46.0% 44.1% 39.4% 35.9% 39.4% - - - (6.6%)

ROA 34.5% 35.6% 33.0% 30.3% 33.6% - - - (0.8%)

Days for Inventory Turnover 48 49 45 39 39 - - - -

Inventory Turnover 7.5 7.4 8.2 9.3 9.3 - - - -

Quick Ratio 116% 123% 110% 118% 116% - - - -

Current Ratio 204% 208% 191% 187% 191% - - - -

Source: Company Data, WRJ Calculation

Cash Flow Statement (Cumulative)

Cash Flow Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY

(Million Yen) 12/2013 12/2013 12/2013 12/2013 12/2014 12/2014 12/2014 12/2014 Net Chg.

Operating Cash Flow na 728 na 2,354 na - - - -

Investing Cash Flow na (379) na (972) na - - - -

Operating CF + Investing CF na 348 na 1,381 na - - - -

Financing Cash Flow na (197) na (274) na - - - -

Source: Company Data, WRJ Calculation

9

FY12/2014 Company Forecasts

FY12/2014 Company forecasts have remained unchanged, calling for prospective sales ¥42,647m (up 23.4%

YoY), operating profit ¥4,210m (up 8.4%), recurring profit ¥4,197m (up 7.6%) and net profit ¥2,444m (up

6.8%), while operating profit margin 9.9% (down 1.4% points). Meanwhile, prospective divided per share has

also remained unchanged at ¥14.0, implying payout ratio 34.9%, up ¥2.0 from ¥12.0 in FY12/2013, implying

payout ratio 31.8%. Thus, payout ratio is to rise over the year.

Quarterly Sales and Operating Profit Margin

6,6

86

6,9

90

7,1

04

7,9

60

7,7

39

8,2

51

8,5

96

9,9

68

10

,83

1

9,2

52

11

,28

1

11

,28

1

9.9%10.9%

9.8% 10.1%12.3%

13.4%11.0%

8.8%11.2%

7.4%

10.2% 10.2%

0.0%

5.0%

10.0%

15.0%

0

5,000

10,000

Q1

FY1

2/2

01

2

Q2

FY1

2/2

01

2

Q3

FY1

2/2

01

2

Q4

FY1

2/2

01

2

Q1

FY1

2/2

01

3

Q2

FY1

2/2

01

3

Q3

FY1

2/2

01

3

Q4

FY1

2/2

01

3

Q1

FY1

2/2

01

4

Q2

FY1

2/2

01

4

Q3

FY1

2/2

01

4

Q4

FY1

2/2

01

4

Sales (Million Yen) Operating Profit Margin (%)

Source: Company Data, WRJ Calculations (Quarterly forecasts in Q3 and Q4 FY12/2014, based on half year Company

forecasts pro rata)

In regards to H1, the Company is going for prospective sales ¥20,084m (up 25.6%), operating profit ¥1,898m

(down 7.9%) and operating profit margin 9.5% (down 3.4% points). Company forecasts assume inevitable

adjustments for earnings in H1, as full-fledged booking of expenses associated with new distribution center

to start up its operations in July 2014 is to start coming out basically in Q2. Still, Q1 results were better

than expected and thus it should be spotted that this could be also the case in H1. In regards to sales, the

Company achieved 53.9% in Q1 out of prospective figure in H1 versus 48.4% in Q1 in terms of FY12/2013

results.

FY12/2014 Company forecasts assume add-on costs from new distribution center (collective ¥550m),

comprising those of depreciation charges (¥110m), rents for facilities (¥370m) and moving expenses (¥70m).

Meanwhile, in Q2 when the Company is in the process of changeover to new distribution center from

existing equivalent for its operations, there is a period for the Company to pay rents for both facilities. At the

same time, it is too early for the Company in Q2 to benefit from high efficiency of shipments in new

distribution center, estimated to be better 20% than existing equivalent. Thus, Company forecasts assume a

major adjustment of short-term earnings in Q2.

10

Going forward, however, the Company is expected to see sequentially improving earnings in H2 or Q4 in

particular, in line with improving benefits from new distribution center. Currently, capability with the

Company to store merchandises as inventory equates to some 126,000 in the number, while that of new

distribution center is expected to reach 300,000 to 400,000, at the end of the day. In regards to capability as

of the end of FY12/2014, the Company is going for 200,000.

Long-Term Prospects

The Company has a midterm milestone target ¥100,000m for annual turnover, while calling for consistently

edging up operating profit margin as a long-term trend, going forward. In FY12/2013, sales came in at

¥34,556m, operating profit ¥3,885m and operating profit margin 11.2%. There should be, still, a great room

to cultivate, even after achieving sales ¥100,000m pa, when it is reviewed that the Company estimates the

amounts of the domestic market for MRO in Japan to which it is exposed equate to ¥5.0 trillion to ¥10.0

trillion pa. On top of this, the Company’s accounts have been incorporated results of its overseas operations

most recently, while the Company has started disclosing detailed plans, etc. in the future and thus future

growth potentials in a long-term view are now getting even higher than before.

Long-Term Trends for Prospective Earnings

14,209 17,685 22,23928,742

34,55642,647

100,000

6.4%7.4%

9.0%10.2%

11.2%9.9%9.9%

0.0%

5.0%

10.0%

15.0%

20.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY1

2/2

00

9

FY1

2/2

01

0

FY1

2/2

01

1

FY1

2/2

01

2

FY1

2/2

01

3

FY1

2/2

01

4

Sales (Million Yen)

Operating Profit Margin (%)

Source: Company Data, WRJ Calculation

According to the statistics by Ministry of Internal Affairs and Communication, the number of corporates

whose headcounts are lower than 300 in Japan stands at 5.43m (2012 Economic Consensus for Business

Activity). On top of this, many sole traders which are not included in there, as well as large corporates whose

headcounts are 300 and/or more, have been customers with the Company in reality. Given the fact that the

number of registered accounts with the Company stood at no more than 1,186,714 as of end of Q1 FY12/2014

and that a customer holds more than a single registered account to a reasonable extent, it is the case that

the number of registered accounts with the Company could be some 10 times larger than the current level,

according to the Company.

11

Meanwhile, edging up operating profit margin, as a long-term trend, is expected to materialize by

diminishing ratio of SG&A expenses to sales, combined with gradual improvements of gross profit margin.

The former is expected to be driven basically by persistent increases in sales, while the latter merchandise

mixture improvements.

To merchandise mixture improvements, improving profit margin of private-brand merchandises originally

carrying high gross profit margin has been contributing, while the Company has been reinforcing

national-brand merchandises most recently, looking to enlarging target customer base. In regards to a

long-term direction, on the other hand, the Company intends to gradually increase its exposure to “long-tail”

merchandises while beefing up private-brand merchandises.

“Long-tail” merchandises are those whose inventory turnover is low, implying high risks for them to be

stored as inventory and, more importantly, this is why they carry high gross profit margin. The Company

believes, as a result of persistent increases in sales and the number of customers as a whole, the number of

merchandises, generally speaking, regarded as so-called “long-tail” to be stored as inventory with lowered

risk, is destined to sequentially increase. In fact, the Company plans to store them as inventory and make

them correspond to day shipment in the pursuit of prospective sales increases of those merchandises in a

long-term view.

New Distribution Center

Source: Company Data

On top of the domestic developments discussed so far, overseas developments are expected to increase their

contributions to prospective earnings in a long-term view. In the United States where the market is 3 times

larger in amounts than the domestic market in Japan, the Company runs a business to collect royalties by

means of advising for an Internet store operator to deal with tools and other MRO-related merchandises. In

detail, since 2010, the Company has started offering own knowhow to Zoro Tools Inc., a 100% subsidiary of

W.W. Granger Inc. (United States) which is the Company’s parent company. Most recently, Zoro Tools Inc.

has turned profitable and the Company has started collecting royalties, starting in F12/2013.

12

The other overseas issue is that the Company is running a business in Korea, where the Company carries

out operations effectively the same as in the domestic market in Japan, given high similarities in market

structure and merchandises to trade between the two countries. Effective market to be developed in here is

estimated at only one tenth in amounts compared with the domestic market in Japan, but high similarities

of merchandises to trade minimize risks associated with storing inventory, which is one of the biggest risks

at the initial stage of new operations.

The overall picture is that the Company entered overseas businesses with no risks, by means of just

advising, first of all. Then, to date, given a visibility, the Company has started being involved with low risk

operations overseas. It appears that the Company is now heading for steady progress in overseas

developments in line with its scrupulously-planned agenda. Currently, the Company is on the verge of

starting up new operations in Europe, Southeast Asia, China and India. The Company is in the process of

developing suitable business models, countries to countries, in the pursuit of long-term growth potentials

with the Company.

4.0 Business Model

The Benefits as the Forerunner

The Company’s business is to run Internet store “MonotaRO, a procurement supporter for manufacturers,

etc.” Since the establishment in October 2000, the Company has been involved with retailing on Internet,

mainly supplying small-&-medium-sized corporates, supplying manufacturers (47% of sales with the

Company in FY12/2013, down 3% points YoY), automotive aftermarket (15%, up 1% point), construction &

engineering (17%, up 1% point) and other (21%, up 1% point) by sector. The Company has materialized

higher variety in its portfolio for merchandises to trade than any other peers, while the platform offers high

capability for searching, etc., on top of well enclosing customers at the same time. With all these positive

factors, the Company has developed its own business operations as the forerunner in the market.

“RED BOOK Volume 9 (General Catalogue for Indirect Materials)”:

Composition Ratio of the Number of Merchandises to Trade in the 12 Categories

4%

11%

26%

9%8%5%

10%

6%

6%

5%3%

6%Office SuppliesCutting, Polishing / Production & Processing Equip.FA & Mechanical ComponentsAutomobile, Truck, Motorcycle Equip.Construction EquipmentScience & Research SuppliesSafety & Health Protection Equipment & SignsSprays, Adhesives, Work Tools, Electric & Pneumatic ToolsScrews, Bolts, NailsPackaging, Tapes, Logistics & Cleaning SuppliesBicycle, Motorcycle Equip.Electrical Materials, Control Equipment

Source: Company Data, WRJ Calculation

13

The key characteristics of the Company’s business model is to offer diverse merchandises at a fixed price

each for retailing, while providing customers with high convenience. When small-&-medium-sized

corporates, or the mainstay customer base for the Company, are defined as those with headcounts up to 100,

they accounted for 85% of sales with the Company in FY12/2013, while 12% related to those with

headcounts between 101 and 1,000. The remaining 3% was accounted for by large corporates with

headcounts more than 1,000. In other words, the Company has not penetrated into large corporates very

much to date, but progresses have been made, as discussed in regards to “large corporates conjunction”.

According to “Results Summary” of Q1 FY12/2014, the number of overall merchandises to trade stands at

7.000,000 and 126,000 for inventory merchandises corresponding to day shipment. In a long-term view, the

Company intends to persistently increase the numbers for the both in order to relentlessly and persistently

pursue convenience for customers. Meanwhile, “RED BOOK Volume 9 (General Catalogue for Indirect

Materials)”, which was released on 29 September 2013 as the most recent one, comprises national-brand

merchandises as many as 301,600.

“RED BOOK Volume 9 (General Catalogue for Indirect Materials)”:

(The Number of Merchandises to Trade & Major Constituents of the 12 Categories)

Category Number Major Constituents

Office Supplies 12,400 Office Supplies, OA / PC Supplies, Inks & Toners, Lighting and Batteries

Cutting, Polishing / Production & Processing Equip. 34,000 Cutting Tools, Abrasives, Measuring Equipment and Welding Equipment

FA & Mechanical Components 78,500Compressors, Couplers, Pneumatic Equipment, Horses, Tubes, Bearings, Conductivity

Instruments, Machine Parts, Materials (Cutting Board, Plate, Round Bar, Pipe and

Sheet),Hydraulic Equipment and Hydraulic Hoses (High-Pressure Hoses)

Automobile, Truck, Motorcycle Equip. 26,600Oils, Chemicals, Repairs, Car Wash & Cleaning, Sheet Metals & Paints, Car Supplies,

Maintenance Tools & Storages, Electric & Pneumatic & Hydraulic Tools, Garage Equipment &

Transportation, Tires, Suspensions, Auto Parts and Electrical & Harnesses

Construction Equipment 25,000Air-Conditioning and Electric Facilities Materials, Paint & Curing & Interior Equipment, Pumps &

Blow ers, Piping & Water Treatment Facility Equipment Parts, Housing Equipment, Building

Materials & Exterior and Construction Hardw are

Science & Research Supplies 13,600

Glass & Plastic & Metal Containers, Volumeter & Dispensing & Syringe & Pipetter & Dropper,

Water-&-Soil-Testing-Related (pH、etc.), Pure Water Production & Pure-Water-Related, Agitation

& Pulverization & Mixing-Related, Fractional Distillation & Separation & Extraction & Filtration, Bio-

&-Food (Bacteria)-Related Supplies, Cleaning & Sterilization & Health & Disposal, Heating &

Cooling & Cool Box, Research-Related & Laboratory Supplies, Clean room Booth, Analysis &

Environment & Measurement Instruments and Storage & Equipment & Storage & Transport

Supplies

Safety & Health Protection Equipment & Signs 30,000 Gloves, Masks, Glasses, Safety Shoes, Work Clothes, Safety Equipment and Safety Signs

Sprays, Adhesives, Work Tools, Electric & Pneumatic

Tools18,200

Work Tools, Electric Tools, Engine Tools, Pneumatic Tools, Sprays & Oils & Greases, Adhesives

& Repair Materials, Soldering-Related & Electrostatic Discharge Equipment

Screws, Bolts, Nails 18,300Bolts, Nuts, Washers, Screw s, SPREW Helisert, Adjuster Bolt, Plug-Retaining Ring Pin, Anchor

Bolt, Screw for Building Materials, Nails Rivet Staple, Tools and Supplies Set

Packaging, Tapes, Logistics & Cleaning Supplies 15,500Cleaning Supplies & Detergents, Logistics & Storage Equipment, Tapes, Packing Supplies and

Seasonal Supplies

Bicycle, Motorcycle Equip. 10,500 Bicycle, Motorcycle Equip.

Electrical Materials, Control Equipment 19,000 Electrical Materials, Control Equipment

301,600

Source: Company Data

14

Front Covers for 12 Volumes of “RED BOOK Volume 9 (General Catalogue for Indirect Materials)”

Office SuppliesCutting, Polishing / Production &

Processing Equip.FA & Mechanical Components

Automobile, Truck, Motorcycle

Equip.Construction Equipment Science & Research Supplies

Safety & Health Protection

Equipment & Signs

Sprays, Adhesives, Work Tools,

Electric & Pneumatic ToolsScrews, Bolts, Nails

Packaging, Tapes, Logistics &

Cleaning SuppliesBicycle, Motorcycle Equip.

Electrical Materials, Control

Equipment

Source: Company Data

15

Disclaimer

Information here is a summary of “IR Information” of the Company, compiled by Walden Research Japan,

from a neutral and professional standing point, in the form of a report. “IR Information” of the Company

comprises a) contents of our interview with the Company, b) contents of presentations for institutional

investors, c) contents of timely disclosed information and d) contents of the homepage etc.

Company Name: Walden Research Japan Incorporated

Headquarters Office：#1110 4-12-4 Hatchobori, Chuo-ku, Tokyo 104-0032, JAPAN

URL: www.walden.co.jp

E-mail: info@walden.co.jp

Phone：+81 3 3553 3769

Copyright 2014 Walden Research Japan Incorporated