HAGIHARA INDUSTRIES INC. (7856 JP) RESEARCH UPDATE – 30 JULY 2024

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HAGIHARA INDUSTRIES (7856 JP)
1H EARNINGS OVERSHOT GUI D ANCE BUT NO CHAN GE IN FY24 ESTIMATE S. BA RCHIP CONTINUES TO LEAD GROWTH.

FY24 1H RESULTS UPDATE
Hagihara Industries (7856 JP) reported FY24 1H (Oct year-end) earnings resultsthat overshot the firm’s guidance. 1H operating profit [OP] came in at¥1,271mil (+25.8% YoY) on sales of ¥16,374mil (+2.8% YoY) versus OP target of¥1,120mil (+10.8% YoY) on sales of ¥15,950mil (+0.1% YoY).
FY24 1H sales increased by ¥443mil (+2.8% YoY). Although sales volume
declined, especially in laminated cloths and yarn in the Plastic Products [PLS]
segment (impact to 1H sales of -¥527mil), it was offset by 1) price hikes to passon a surge in energy and raw material costs (+¥373mil), 2) a boost to sales
reflecting the weaker yen (+¥77mil YoY), and 3) increase in sales of paper
slitters and recycling equipment in the Engineering Products [ENG] products(+¥520mil) segment. Furthermore, FY24 1H OP improved by +¥260mil YoY(+25.8% YoY), thanks to 1) sales increase of high margin products (+¥44mil) andprice hikes (+¥188mil) in the PLS segment, and 2) increase in sales (+¥135mil)
and improved profit margin (+¥36mil) in the ENG segment. In both segments,
SG&A rose by ¥100mil and ¥44mil, respectively, offsetting some of the positive
impacts to FY24 1H OP.

Hagihara Industries (7856 JP): Earnings Summary(¥mil)

FY22

FY23

FY24

1H

FY

1H

FY

1H

Sales

14,49029,953

15,93031,245

16,374

2.8

OP

742

1,377

1,010

1,979

1,271

25.8

5.1

4.6

6.3

6.3

7.8

+1.4ppt

RP

889

1,681

1,091

2,250

1,405

28.8

RPM (%)

6.1

5.6

6.8

7.2

8.6

+1.7ppt

NP

659

943

2,246

3,118

960

-57.3

NPM (%)

4.6

3.1

14.1

10.0

5.9

-8.2ppt• The current new medium-term
plan, which covers the three years
between FY23 and FY25, will see
Hagihara Industries revisit the RP
target of ¥3,300mil on sales of¥33,000mil.

Source: Nippon-IBR based on Hagihara Industries' FY23 & FY24 1H earnings presentation materials

Whilst FY24 1H OPM improved to 7.8% from 6.3% in FY23, it has not yet
recovered to the 9.2% level achieved in FY20 when the firm enjoyed a morefavorable sales mix at the Plastic Products [PLS] segment. FY24 1H PLS segment
OPM was 7.8%, up +1.1ppt YoY and +1.5ppt compared to FY23, thanks to (1)higher energy and materials costs being successfully passed on to productprices (+¥188mil YoY), (2) effect of a sales increase in high margin products(+¥44mil) which offset an increase in SAG&A (-¥100mil YoY), and (3) continued
efforts to reduce SG&A. The Engineering [ENG] segment OPM also improved
from 6.6% in FY23 to 7.8% in FY24 1H, thanks to 1) a rapid recovery in sales of
paper slitters, 2) solid sales of screen changers and recycling machines, and 3)
improvement in profitability of screen changers.

HAGIHARA INDUSTRIES (7856 JP)• Hagihara Industries (7856 JP)
reported FY24 1H (Oct year-end)
earnings results that overshot thefirm’s guidance. 1H operating
profit [OP] came in at ¥1,271mil(+25.8% YoY) on sales of¥16,374mil (+2.8% YoY) versus OP
target of ¥1,120mil (+10.8% YoY)
on sales of ¥15,950mil (+0.1%
YoY).
• In FY24 1H, the PLS segment saw
OPM of 7.8%, +1.1ppt YoY and+1.5ppt compared to FY23, thanks
to price hikes to reflect surge incosts. The ENG segment also saw
OPM improvement to 7.8%,
compared to 6.6% in FY23, thanks
to sales increase in core products
and improvement in profitabilityof screen changers.
• Hagihara Industries is guiding for
FY24 OP of ¥2,200mil (+11.2%
YoY) on sales of ¥32,000mil(+2.4% YoY).

YoY (%)OPM (%)EXECUTIVE SUMMARYManagement also aims to raise
total shareholder returns from
54.7% in FY22 to 70% (40% via
dividend payments and 30% via
share buybacks) in FY25. The firm
also plans to cancel excess
treasury shares above 5% ofshares outstanding.
• The firm’s FY25 ROE target is 8%
vs FY23 ROE of 4.8%, based on NP
adjusted for extraordinary profits
related to subsidiaries. Estimated
FY24 ROE is 5.7%.

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Segment Sales and OP (Cumulative)
FY20(¥mil / Oct year-end)

FY21

FY22

FY23

FY24

1H

FY

1H

FY

1H

FY

1H

FY

1H

PLS Segment Sales

11,58922,327

10,872

22,54012,32725,57013,55026,353

13,473

YoY (%)-0.6

Segment OP

1,132

1,932

941

1,576

557

1,176

912

1,655

1,046

14.6

Segment OPM (%)

9.8

8.7

8.7

7.0

4.5

4.6

6.7

6.3

7.8

ENG Segment Sales

2,560

4,904

2,235

5,165

2,163

4,382

2,379

4,891

2,900

+1.1ppt
21.9

Segment OP

289

582

329

677

184

200

98

324

225

130.00

Segment OPM (%)

11.3

11.9

14.7

13.1

8.5

4.6

4.1

6.6

7.8

Total Sales

14,15027,231

13,107

27,705

14,49029,953

15,93031,245

16,374+3.6ppt
2.8

Total OP

1,421

2,515

1,270

2,254

742

1,377

1,010

1,979

1,271

25.8

OPM (%)

10.0

9.2

9.7

8.1

5.1

4.5

6.3

6.3

7.8

+1.4ppt

Source: Nippon-IBR based on Hagihara Industries' FY23 and FY24 1H earnings results materials

Plastic Products [PLS] Segment
The PLS segment saw FY24 1H OP improve by +14.6% YoY to ¥1,046mil on sales of ¥13,473mil (-0.6% YoY). The segment
earned 67.3% (¥9,060mil, -2.8% YoY) from domestic businesses, while 32.7% (¥4,412mil, +4.3% YoY) was earned fromoverseas. The segment saw mixture of positive and negative factors on sales during FY24 1H. Positive factors were:
•
•
•
•

•

Price hikes to reflect a surge in costs of energy and raw materials continued to progress.
Sales of adhesive tape yarns were boosted on the back of demand from natural hazard areas and housing uses.
Prioritised supply of Blue Sheets to meet post-Earthquake restoration demand in the Noto peninsula.
Overseas sales at BarChip increased. Two of Hagihara Industries’ major overseas subsidiaries, BarChip Group andHagihara Wastjana Industries (Indonesia), both reported increased sales of +5.4% YoY and +1.6% YoY, respectively.
Total BarChip sales rose 6.5% YoY to ¥2,822mil.
A surge in exports given the weaker yen, especially Meltac used in food containers.

Negative factors were:••

Sales volume declined especially in yarns used in general materials.
Sales volume declined in laminated cloths, mainly used in the agriculture sector, due to a shrinkage in demand on
the back of surge in prices of raw materials.

Despite a slight decline in FY24 1H sales, segment OP improved by 14.6% YoY thanks to:••

Price hikes
Improved sales mix thanks to solid sales of core products such as BarChip (+6.5% YoY) and adhesive tape cloths(+4.8% YoY).
PLS Segment - Sales Breakdown by Products(¥mil)

FY21

FY22

FY23

FY

FY

FY

1H

Sheets, Laminated cloths, sandbags

5,421

5,804

5,935

2,988

5,771

-2.8

Others

Flexible container bags etc.

5,360

6,109

5,521

2,847

6,073

10.0

BarChip

Infrastructure, construction, mines
Adhesive products, artificial grass
yarns, Meltac
Merchandise

3,680

4,825

5,289

2,822

5,924

12.0

7,125

7,862

8,678

4,401

8,358

-3.7

951

967

927

412

833

-10.1

22,54025,57026,353

13,473

26,962

2.3

Products

Usage

Sheets & Construction Materials

Living Materials
OthersPLS Total

FY24
FY CE

YoY (%)

Source: Nippon-IBR based on Hagihara Industries' FY24 1H Earnings Material

Engineering Products [ENG] Segment
The Engineering Products [ENG] segment reported FY24 1H OP of ¥225mil (+130.0% YoY) on sales of ¥2,900mil (+21.9%
YoY). The segment had only 12.3% overseas sales of ¥356mil (-50.1% YoY) in FY24 1H, while domestic sales represented
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87.7% (¥2,545mil, +52.6% YoY). The market for film slitters related to secondary lithium-ion battery [LiB] separators
has become more competitive, hence Hagihara Industries has decided not to go deep in that market. On the other
hand, stronger than expected sales of screen changers on the back of surging demand for recycling plastics supported
segment sales. YoY sales growth (+325.3% YoY) to ¥387mil in paper slitters was due to lack of sales in FY23 1H. Segment
OPM improved +3.8ppts YoY, thanks to improvement in procurements of parts for screen changers which are used in
the plastic recycling process.
ENG Segment - Sales Breakdown by Products(¥mil)
Products

FY21
FY

Usage

Paper Slitters

Electronics materials and parts

Film Slitters

Soft packaging materials, optical materials,
LiB separators

Screen Changer, Recycling
PET bottle recycling
Equipment
OthersWinder
ENG Total
Source: Nippon-IBR based on Hagihara Industries' FY24 1H Earnings Material

FY22
FY

FY23
FY

FY24
FY CE

1H

YoY (%)

925

392

519

387

1,004

93.4

3,413

2,862

3,109

1,402

2,692

-13.4

711

1,055

1,021

1,066

1,145

12.1

115
5,165

71
4,382

241
4,891

25
2,900

195
5,037

-19.1
3.0

In FY21, Hagihara Industries changed the segmentation of each strategic product and categorised them into different
tasks to reach Sustainability Development Goals [SDGs]. The firm, however, removed detailed explanations of SDGsrelated product breakdowns from FY24 due to the fact that almost all of its products are somewhat related to SDGs.
For reference, the sales breakdown of SDGs-related products is shown in the table below. The firm aims to offer
solutions to various issues that have been raised by its customers.

Consolidated Sales for SDGs-related Products(¥mil / Oct year-end)

FY22

FY23

FY24

1H

FY

1H

FY

1H

Climate Change Adaptations

2,119

4,259

2,477

4,894

Domestically Produced Sheets (inc. Blue Sheet)

1,106

2,238

1,371

2,550

Adhesive Tape Cloths

1,013

2,020

1,106

Work-style Reform

2,549

5,789

469

963

2,080
589

Flame Retardant Sheets & Mesh Sheets
BarChip
Recycling-oriented Society

YoY (%)FY CE

YoY (%)

2,478

0.0

4,607

-5.9

1,319

-3.8

2,452

-3.8

2,343

1,159

4.8

2,155

-8.0

3,137

6,253

3,252

3.7

6,798

8.7

488

963

430

-11.9

874

-9.2

4,825

2,649

5,289

2,822

6.5

5,924

12.0

1,131

631

1,205

1,221

93.5

1,428

18.5

Blue Sheet Branded by Eco-mark

27

76

110

184

155

40.9

282

53.3

Screen Changers

492

930

373

787

635

70.2

693

-11.9

69

124

147

234

431

193.2

451

92.7

Solutions for Industry & Technology Innovations

Recycling Machines

1,558

3,255

1,644

3,628

1,808

10.0

3,697

1.9

Film Slitters

1,460

2,862

1,553

3,109

1,420

-8.6

2,692

-13.4

Paper Slitters

97

392

91

519

387

325.3

1,004

93.4

Total Sales of SDGs-related Products

6,817

14,435

7,889

15,980

8,761

11.1

16,532

3.5% of Total Sales

47.1%

48.2%

49.5%

51.1%

53.5%

+4.0ppt

51.7%+0.5ppt

Source: Nippon -IBR based on Hagihara Industries FY22, FY23, and FY24 1H earnings presentation materials

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FY24 OUTLOOK
Hagihara Industries is guiding for FY24 OP of ¥2,200mil (+11.2% YoY) on sales of ¥32,000mil (+2.4% YoY). Although 1Hearnings overshot the firm’s guidance, Hagihara Industries did not revise up the full year forecast because 1H sales
were partly boosted by external factors such as the weaker yen, and because management continues to view external
factors, such as energy costs, global demand, and the slowdown in the Chinese economy, as unclear. Labour andphysical distribution costs, as represented by Japan’s “2024 Problem,” will likely lead to a surge in costs. Although thefirm aims to pass on such cost increases to price, there will be a time lag for the price hikes to take effect. Furthermore,
the firm is also concerned about customer sentiment regarding price hikes, which could negatively affect sales volume.
Hagihara Industries plans to pay an annual dividend of ¥50.00/share which will result in a dividend payout ratio of 50%.

Hagihara Industries (7856 JP): Earnings Summary and Guidance
FY22(¥mil)
1H
2H
FY
1H

FY23
2H

FY

YoY (%)

1H

FY24
2H CE

FY CE

YoY (%)

Sales

14,49015,462

29,953

15,93015,314

31,245

4.3

15,95016,05032,000

2.4

OP

742

634

1,377

1,010

968

1,979

43.7

1,120

1,080

2,200

11.2

OPM (%)

5.1

4.1

4.6

6.3

6.3

6.3

+1.7ppt

7.0

6.7

6.9

+0.5ppt

RP

889

792

1,681

1,091

1,159

2,250

33.8

1,180

1,120

2,300

2.2

RPM (%)

6.1

5.1

5.6

6.8

7.6

7.2

+1.6ppt

7.4

7.0

7.2

flat

NP

659

283

943

2,246

871

3,118

230.7

830

770

1,600

-48.7

NPM (%)

4.5

1.8

3.1

14.1

5.7

10.0

+6.8ppt

5.2

4.8

5.0

-5.0ppt

Source: Nippon -IBR based on Hagihara Industries' FY23 & FY24 1H earnings presentation material

PLS Segment
Hagihara Industries guides for FY24 PLS segment sales of ¥26,963mil (+2.3% YoY). The product that will likely lead
growth is the BarChip, with FY24 sales forecast at ¥5,924mil (+12.0% YoY). BarChip contributes to shorten the amountof time spent on constructing surfaces with concrete due to its simple but effective enforcement method. It is used inmining tunnels, highway tunnels as well as warehouse flooring, which is lately leading growth of BarChip sales. Majority
of concrete reinforcing material for flooring is still rebar. Hence there is room for BarChip to grow market shareespecially in South America. Hagihara Industries opened Hagihara Industries Yguazu SRL, a new BarChip factory inParaguay and commenced operation in September 2023 to meet demand in South America, especially in Brazil. The
firm co-works on R&D of advanced paving methods using BarChip with the Paraguayan Road Association. Furthermore,
BarChip has been adopted as a concrete reinforcement material for tunnels by Nippon Expressway Company [NEXCO].
After a dump truck crash/fire accident in the Amagoyama Tunnel in Hyogo in Dec 2023 and subsequent closure of thetunnel owing to risk of explosion of concrete, BarChip gained awareness for its explosion-proof properties.

ENG Segment
Guidance for FY24 ENG segment sales is ¥5,037mil (+3.0% YoY). Paper slitter sales is estimated to grow 93.4% YoY to
1,004mil. Whilst this reflects weak sales in FY22 and FY23, FY24 sales will likely be boosted by a cyclical demand. The
firm guides for FY24 film slitter sales of ¥2,692mil (-13.4% YoY). In FY23, slitting demand for lithium-ion battery [LiB]
packaging in China and semiconductor/display related materials softened. The situation continued into FY24 1H. The
firm expects film slitter sales to recover in 2H, although LiB separator film related demand will likely remain weak. Thereis also a rise in slitting demand from the food industry such as zipper tapes for containing and preserving food. Thanks
to rising interest in plastic recycling, demand for Hagihara’s screen changers remains solid as it is necessary for theremoval of contaminants in used plastics during the process of producing used plastic resin. Whilst the firm guides for
FY24 screen changer sales of ¥693mil (-11.9% YoY), the firm has already reported 1H sales of ¥635mil (+70.2% YoY).
Similarly, 1H sales of recycling machines has already reached ¥431mil (+193.2% YoY) relative to FY24 guidance of¥451mil (+92.7% YoY).

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MEDIUM-TERM PLAN “V FOR J” – V-SHAPE RECOVERY FOR JUMP STARTING GROWTH
Hagihara Industries announced the current medium-term plan, which covers the three years between FY23~FY25, atthe time of FY22 results. Given the shortfall in achieving the previous medium-term plan, the new medium-term plan
starts with a revisit of the previous plan’s targets.

Under the new V for J Plan, the firm aims to achieve the following:
1. Meet the targets that were missed during the previous medium-term, which call for recurring profit [RP] of¥3,300mil (CAGR over 3 years of +25.2%) on sales of ¥33,000mil (CAGR of +3.3%). Segment split for Sales and RP is
as follows:
PLS Segment [FY23 segment profit of ¥1,655mil (+40.6% YoY) on sales of ¥26,353mil (+3.1% YoY)]:• PLS Segment sales target is ¥26,600mil (CAGR of +1.3%), a +¥1,000mil increase compared to FY22 segment
sales of ¥25,570mil. The +¥1,000mil increase in sales is comprised of:▪ A +¥1,800mil increase in BarChip sales to ¥6,625mil (CAGR of +11.1%) vs FY22 sales of ¥4,825mil. FY23
BarChip Sales came in at ¥5,289mil (+9.6% YoY). The growth rate in sales underperformed CAGR. However,with increase in production capacity in Paraguay to meet surging demand in Latin American markets, thefirm assumes accelerating growth. In FY24, Hagihara Industries guides for BarChip sales of ¥5,924mil(+12.0% YoY).
▪ A +¥400mil rise in Meltac sales compared to FY22 sales of ¥419mil.
▪ A -¥1,200mil decline in segment sales by eliminating unprofitable products.
•

PLS segment RP target is ¥2,300mil (CAGR of +15.3%), up +¥800mil compared to that of FY22.
▪ A +¥100mil increase on the back of higher sales.
▪ A +¥700mil increase amid improved profitability by 1) optimal pricing, 2) an increase in local production
and cultivating overseas demand.

ENG Segment [FY23 segment profit of ¥324mil (+61.8% YoY) on sales of ¥4,891mil (+11.6% YoY)]:• ENG Segment sales target of ¥6,400mil (CAGR of +13.4%), a rise of +¥2,000mil vs FY22 segment sales of¥4,382mil. The breakdown of the +¥2,000mil increase includes:▪ +¥1,600mil due to shorter procurement cycle of components.
▪ +¥400mil from new products.
•

ENG segment RP target is ¥1,000mil (CAGR of +71.0%), a +¥800mil rise compared to that of FY22 thanks to:▪ +¥100mil from the increase in sales.
▪ +¥700mil thanks to normalised profitability.

To achieve the aforementioned numerical targets, the firm has put in place the following strategies to encourage a Vshape recovery and to jump start growth:
1. Enhance product competitiveness to realise optimal pricing.
Hagihara Industries managed to pass on price hikes on non-Naphtha materials and energy to product prices during
FY23 in the PLS segment.
2. Establish optimal production and distribution networks. Hagihara plans to open overseas BarChip production
facilities in close proximity to areas of demand. An example is the new production base of BarChip in Paraguay
which started production in FY23 and will commence full operations from FY24. This would not only help the firm
avoid the soaring cost of shipping but also enable it to get a better grasp of local market trends. Hagihara also plansto build a plant in the US for Meltac.
CAPEX for the two overseas production facilities will be ¥650mil in Paraguay and approx. ¥1,000mil in Texas out ofthe ¥4,000mil in strategic investment planned during the medium-term plan. Of the ¥4,000mil strategic investment,¥700mil was spent in FY23. In addition, the firm will bring back sheet production in China to Japan by spending
total of ¥5,000mil (of which ¥2,500mil had already been invested at the time of the Medium-term Planannouncement) at the Kasaoka Factory which was completed in May 2023. Management is considering an optimal
production location for the ENG segment. Total investment including the aforementioned strategic investments,

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the Kasaoka Factory, and maintenance CAPEX during the three years will total ¥10,500mil. In FY23, a total of¥4,400mil was invested.
3. Establish a horizontal recycling model: The ultimate aim is to establish a model that enables repeated recycling
rather than just one-off recycling. Every time a used Blue Sheet is recycled, it undergoes 1) a wash after which theresin and ink are extracted, 2) filtration of the resin via screen changer, and 3) product enhancement/ alteration
through the re-pellet and pelletiser process. The recycling business will also boost Hagihara Industries’ ENG productdevelopment and sales.
Hagihara Industries: Medium-term Management Plan
FY22(¥mil)FY23

FY25

ActualActualPlan% CAGR(3-yr)

Sales

29,95331,24533,0003.3

PLS

25,57026,353

26,600

1.3

ENG

4,382

4,891

6,400

13.5

OP

1,377

1,979

3,300

33.8

PLS

1,176

1,655

2,300

25.1

ENG

200

324

1,000

71.0

OPM (%)

4.6

6.3

10.0

N/A

PLS

4.6

6.3

8.6

N/A

ENG
RP
RPM (%)

4.6

6.6

15.6

N/A

1,681

2,250

3,300

25.2

5.6

7.2

10.0

N/A

Source: Nippon-IBR based on Hagihara Industries' Mid-term Management Plan presentation materials

Capital Allocation during the Medium-term Plan
Hagihara Industries’ capital allocation policy in the current medium-term plan (FY23~FY25) calls for spending of¥14,000mil (¥10,000mil from operating cash flow and ¥4,000mil from debt finance). Although the firm is able to financeall of the ¥14,000mil from cash flow, management plans the use of debt to achieve an optimal balance that optimises
capital cost.
The split of the ¥14,000mil is as follows:▪ ¥3,500mil is planned for shareholder returns. The firm plans to improve the total shareholder return from 54.7% in
FY22 to 70% (40% from dividends and 30% in share buybacks) in FY25 and plans to cancel excess treasury shares
above 5% of shares outstanding.
In FY23, the firm paid a total of ¥696mil (+35.4% YoY) in dividends and bought back shares valued at ¥536mil
resulting in a total shareholder return of 39.7%. Based on net profit [NP] adjusted for ¥2,022mil in compensation
payments from the Chinese government (for the Qingdao factory) and ¥250mil one-off gain from closing down asubsidiary, the dividend pay-out ratio was 52.0%, and the total shareholder return was approx. 92.2%, compared to54.7% in FY22. The firm is guiding for ¥50.00/share dividend in FY24, hence the total dividend payment will be¥696mil.
▪ ¥10,500mil for aforementioned investments, including 1) ¥4,000mil on strategic investment such as overseas
production bases and strengthening of strategic products, 2) ¥2,500mil on the Kasaoka Factory, and 3) ¥4,000mil
on maintenance CAPEX.
The firm’s FY25 ROE target is 8% vs 4.8% in FY23 based on NP adjusted for aforementioned extraordinary profits related
to subsidiaries. FY24 ROE is estimated to be 5.7%. Management has not disclosed its ROIC targets.

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GENERAL DISCLAIMER AND COPYRIGHTThis report has been commissioned by Hagihara Industries Inc. (the Sponsor) and prepared and issued by Nippon
Investment Bespoke Research UK Ltd (Nippon-IBR), in consideration of a fee payable by Hagihara Industries. Fees arepaid on delivery of the report in cash without recourse. Nippon-IBR may seek additional fees for the provision of followup research reports and associated IR services for the Sponsor but does not get remunerated for any investment banking
services. We never take payment in stock, options, or warrants for any of our services.
Accuracy of content: All information used in the publication of this report has been compiled from publicly available
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mentioned in this report. However, the respective directors, officers, employees, and contractors of Nippon-IBR may
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