COMPANY RESEARCH AND ANALYSIS REPORTSAKAI HEAVY INDUSTRIES, LTD.
6358
Tokyo Stock Exchange Prime Market

14-Apr.-2022
FISCO Ltd. Analyst

Noboru Terashima

FISCO Ltd.
https://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for FY3/22 3Q............. ......................................................................................................

01

2. Outlook for FY3/22.. .....................................................................................................................................

01

3. Medium- to long-term growth strategy.. ......................................................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Business description. . ..................................................................................................................................

03

2. Characteristics and strengths......................................................................................................................

03

3. Market share and competitors.....................................................................................................................

04■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 04
1. Outline of results for FY3/22 3Q............. ......................................................................................................

04

2. Trends by region..........................................................................................................................................

05

3. Financial condition................................. ......................................................................................................

06■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 07• Outlook for FY3/22.. .....................................................................................................................................

07■Medium- to long-term growth strategy------------------------------------------------------------------------------------------------ 08
1. Business strategy.. .......................................................................................................................................

08

2. Capital Strategy...........................................................................................................................................

08

3. ESG initiatives..............................................................................................................................................

09■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 10* This is an English translation of a report issued on March 29, 2022.

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/█ Summary
A manufacturer specializing in road rollers for road paving andother road construction equipment. Its domestic market shareis the highest in the industry at over 70%, and it aims to grow by
expanding its overseas market share
Sakai Heavy Industries, Ltd. <6358> (herein after also referred to as “the Company”) is a manufacturer specializing
in road rollers for road paving and other road construction equipment. It has a long history in this field, and boasts
the industry’s highest market share in Japan at over 70%. In recent years, the Company has been focusing on
developing overseas markets, especially in North America and Southeast Asia.
1. Outline of results for FY3/22 3Q
In the consolidated results for FY3/22 3Q*, net sales increased 28.7% year on year (YoY) to ¥19,793mn, operating
profit increased 189.0% YoY to ¥1,165mn, ordinary profit increased 286.2% to ¥1,206mn, and profit attributable toowners of parent was ¥836mn (versus a ¥285mn loss in the year-earlier period). Both net sales and operating profit
increased significantly YoY due to the fact that both were heavily impacted by the COVID-19 pandemic in the same
period of the previous fiscal year, and both were higher than the Company’s forecasts due to a full-fledged recovery
in demand in markets in Japan and overseas. In addition, by region, the Company performed strongly both in Japanand overseas, with a more favorable performance than expected overseas in particular.
*	Since the start of FY3/22, the Company has been applying the Accounting Standard for Revenue Recognition (ASBJ
Statement No. 29, March 31, 2020) and other relevant standards, but there was no impact on FY3/22 3Q. Figures for thesame period of the previous fiscal year do not reflect the application of the standard.

2. Outlook for FY3/22
For FY3/22 consolidated results, the Company is forecasting net sales of ¥26,000mn (+20.2% YoY), operating profitof ¥1,200mn (+71.1%), and ordinary profit of ¥1,250mn (+89.6%), and profit attributable to owners of parent of¥850mn (versus ¥4mn in FY3/21). While the impact of the COVID-19 pandemic is still uncertain, solid performanceis forecast both in Japan and overseas. On the other hand, the Company expects cost increases due to the highprices of supplies and materials, such as steel materials, and the high price of container freight. Most of this increaseis scheduled to be recorded in the cost of sales for the fourth quarter, and the forecast is therefore a cautious one.
Nevertheless, the outlooks seems a little conservative, with operating profit is expected to reach ¥35mn or abovein the fourth quarter (accounting period), and we think there is a possibility that the profit forecast may be revised
further upward.

We encourage readers to review our complete legal statement on “Disclaimer” page.

01 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/

Summary

3. Medium- to long-term growth strategy
In June 2021, the Company released its “Medium-Term Management Policy” which runs through FY3/26. The
ultimate goal is to increase corporate value and shareholder value, and in order to achieve this the Company will
promote a “business growth strategy” and an “efficient capital strategy.” In terms of numerical targets, the Company
is aiming for net sales of ¥30bn, operating profit of ¥3.1bn, ROE (Return on Equity) of 8% in FY3/26, and will aim to
maintain a stable dividend payout ratio of 50% (DOE (Dividend on Equity) of 4%). In line with this policy, the Company
has announced a dividend payout ratio of 100% (annual dividend of ¥120) for FY3/22, and with the upward revisionof the earnings forecast, the Company announced that it would change the dividend standard from dividend payout
ratio to DOE, along with an increase in the annual dividend to ¥150.0. If the earnings increase even further, we
think further dividend increases are also possible. In this way, it is commendable that the Company has released aclear capital policy targeting an improvement in ROE, and is carrying out shareholder returns in line with this policy.
Key Points
Japan’s leading manufacturer of road rollers with a long history. Domestic market share is over 70%, and theCompany aims to grow by expanding its overseas market share• Despite upward revision of earnings forecast for FY3/22, the forecast seems conservative, and there may bepotential for further upward revision• As medium-term numerical targets, the Company is aiming for net sales of ¥30bn, operating profit of ¥3.1bn,
and ROE of 8% in FY3/26•

㻾㼑㼟㼡㼘㼠㻌㼠㼞㼑㼚㼐㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻕㻔¥㼙㼚㻕㻟㻜㻘㻜㻜㻜

㻔¥㼙㼚㻕㻞㻥㻘㻡㻜㻠

㻟㻘㻢㻜㻜㻞㻢㻘㻜㻜㻜㻌

㻞㻠㻘㻣㻣㻡
㻞㻡㻘㻜㻜㻜

㻟㻘㻟㻡㻣㻞㻞㻘㻣㻠㻠㻌

㻟㻘㻜㻜㻜㻞㻝㻘㻢㻞㻠㻌

㻞㻜㻘㻜㻜㻜

㻞㻘㻠㻜㻜㻝㻡㻘㻜㻜㻜

㻝㻘㻤㻜㻜㻝㻜㻘㻜㻜㻜

㻝㻘㻞㻜㻜

㻝㻘㻠㻝㻠
㻝㻘㻞㻜㻜㻌

㻥㻡㻥㻌

㻡㻘㻜㻜㻜

㻢㻜㻜
㻣㻜㻝㻌

㻜

㻜
㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜

㻲㼅㻟㻛㻞㻝

㻲㼅㻟㻛㻞㻞㻌㻱

Source: Prepared by FISCO from the Company’s financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

02 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/█ Company profile
The top manufacturer of road rollers with a long history
The Company is a specialized manufacturer of road rollers for paving roads and other road construction equipment,
and is the top manufacturer in Japan, with a market share of above 70%. In 1970, the Company established ajoint venture in Indonesia, as part of its effort to expand overseas business at an early stage. As of March 31,
2021, the Company has four domestic subsidiaries and five overseas subsidiaries (U.S., China, three in Indonesia).
The Company listed its shares on the Second Section of the Tokyo Stock Exchange in 1964, and its shares werereclassified to the First Section of the Tokyo Stock Exchange in 1981.

█ Business overview
The top manufacturer of road rollers with a domestic market shareof over 70%. Will seek growth by offering high value-added andexpanding overseas market share
1. Business description
The Company’s main business is the manufacture and sale of road rollers used in road paving and other applications,and road roller-related net sales account for approximately 95% of all net sales. The term “road roller” actually covers
quite a wide range of machines in terms of capabilities and size, among other features. The Company has roughly
20 platforms alone for road rollers, and when different variations are added the total number of products is in the70-80 range. There is also a wide range in sizes, from one ton to 20 tons (for large civil engineering projects). The
core price range is from ¥5mn (medium-size rollers) to ¥10mn (large rollers).
In terms of net sales by region in FY3/22 3Q*, net sales in Japan were ¥11,083mn (56.0% of total net sales), net
sales in North America were ¥3,220mn (16.3%), net sales in Asia were ¥4,871mn (24.6%), net sales in the ME andRussia/CIS were ¥18mn (0.1%) and net sales to Other regions totaled ¥598mn (3.0%).
*	Net sales by region is the amount of products actually sold to customers, and differs from the reportable segment “Net
Sales by Location” in the financial results.

2. Characteristics and strengths
As mentioned above, the Company is a specialized manufacturer of road rollers and other road construction
equipment, and the Company has the following special characteristics and strengths.
(1) Long history as a specialized manufacturer
The Company’s greatest strength is its long history as a specialized manufacturer of road rollers and other road
construction equipment. In other words, by deploying a global niche strategy through selection and concentration
the Company has increased its level of expertise and accumulated its own unique technologies.

We encourage readers to review our complete legal statement on “Disclaimer” page.

03 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/

Business overview(2) Technological capabilities
When it comes to hardening and paving roads, the necessary pressure, torque, and other variables (compaction
technology) differ depending on the specific land, land quality, soil, and other conditions. Therefore, roadwork
companies often require different types of road rollers to match individual worksites (ground, etc.). Because theCompany has been a specialized manufacturer of road roller and other road construction equipment for many
years, it boasts a high level of technological capabilities with respect to compaction technology, and it is not easy
for its competitors to catch up to it.
(3) Credibility
Credibility backed by experience engineering and track record is also a strength of the Company. The technology
to ensure underground compaction quality is a black box, and is not something that is easy for late-arriving
manufacturers and non-specialized manufacturers to copy. For example, asphalt mixture brought in at hightemperatures must be worked on within a limited time, and if the work is of poor quality, it must be redone
which involves a large price. Also, work quality issues for roads and embankments are slow to emerge, andthe compaction quality at the time that work is completed tends to be a black box. For this type of experienceengineering, the Company’s brand which customers have used for many years and the long-term insight due tovariety of worksite experiences are strengths, and these are points that have earned the trust of many customers.
3. Market share and competitors
According to data from the Japan Construction Equipment Manufacturers Association, in FY2020 domestic
construction equipment shipment value was ¥2.2tn, and road roller and other road construction equipment (theCompany’s main products) account for 2.8% of this amount. The Company has a share of over 70% in this roadequipment market, making it the top manufacturer in Japan. Competitors include companies such as Hitachi
Construction Machinery Co., Ltd. <6305>, but none of these companies are specialized manufacturers. Some
overseas manufacturers have entered the market in Japan, but none have much of a presence. In Japan, theCompany’s earnings rise and fall along with the ups and downs of the market.
In the global market, although there are no accurate statistics, the Company’s market share (on a units produced
basis) is estimated to be in the 6-7% range. However, this is on a global basis, and if we limit the scope to the mainmarkets that the Company operates in (Japan, ASEAN, North America), the Company’s market share is around 20%.
The Company’s main competitors in the global market include Caterpillar <CAT>, FAYAT SAS, Deere & Company<DE>, and Volvo Personvagnar AB, but none of these companies are manufacturers that specialize in road rollers.

█ Results trends
FY3/22 3Q saw full-fledged recovery of demand in Japan andoverseas, with operating profit increasing 189.0% YoY. Overseas
business performed particularly favorably
1. Outline of results for FY3/22 3Q
In the consolidated results for FY3/22 3Q, net sales increased 28.7% YoY to ¥19,793mn, operating profit increased
189.0% YoY to ¥1,165mn, ordinary profit increased 286.2% to ¥1,206mn, and profit attributable to owners of parent
was ¥836mn (versus a ¥285mn loss in the year-earlier period).

We encourage readers to review our complete legal statement on “Disclaimer” page.

04 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/

Results trends

Both net sales and operating profit increased significantly YoY due to the fact that both were heavily impacted by the
COVID-19 pandemic in the same period of the previous fiscal year, and both were also higher than the Company’s
forecasts. Furthermore, as the economic recovery in the “with COVID” period continues, as a result of full-scale
recovery in demand in Japan and overseas, business performance was favorable, particularly overseas. Although
the gross margin declined to 24.9% (25.2% in the previous fiscal year), mainly due to increases in the price of raw
materials (steel, etc.), gross profit was up 27.2% YoY to ¥4,918mn due to the increase of sales. Meanwhile, SG&A
expenses increased 8.4% YoY due to the increase in business travel and networking/entertainment expenses
resulting from more sales activity than in the year-earlier period as well as an increase in personnel expenses.
However, the SG&A expense ratio declined to 19.0% (from 22.5% in the year-earlier period) due to the increase insales. As a result, operating profit increased significantly.
Analyzing the change factors for operating profit, the increase in sales had a positive ¥1,111mn impact, the increasein the cost of goods sold ratio had an impact of minus ¥59mn, and the increase in SG&A expenses had an in impactof minus ¥289mn (personnel expenses had a positive ¥95mn impact, shipping expenses had a positive ¥59mn
impact, technology and research expenses had a positive ¥43mn impact, and other expenses had a positive ¥92mn
impact).
Overview of FY3/22 3Q consolidated results(¥mn)
FY3/21 3Q

FY3/22 3Q

ChangeResults% of net sales

Results% of net sales

Net sales

15,374100.0%

19,793100.0%

Amount
4,419

28.7%

%

Gross profit

3,866

25.2%

4,918

24.9%

1,052

27.2%

Selling, general andadministrative expenses

3,463

22.5%

3,753

19.0%

289

8.4%

Operating profit

403

2.6%

1,165

5.9%

762

189.0%

Ordinary profit

312

2.0%

1,206

6.1%

894

286.2%

Profit attributable toowners of parent

-285

-1.9%

836

4.2%

1,121

-

Source: Prepared by FISCO from the Company’s financial results

2. Trends by region
In looking at FY3/22 3Q sales by region, on the whole, sales are on a recovery trend from the impacts of the COVID19 pandemic. In Japan, while performance is still impacted by COVID-19, net sales were ¥11,083mn (up 16.0%
YoY), which was generally on par with the forecast, as a result of strong performance in road and civil engineering
projects, as well as other public investment-related projects.
Overseas, net sales significantly increased by 49.6% YoY to ¥8,709mn, due to the recovery in demand for construction machinery in key markets. Net sales in North America were ¥3,220mn (up 62.9%), due to the recovery indemand for construction machinery, amid brisk construction investment, as well as an increase in market share.
In Asia, net sales were ¥4,871mn (up 37.7%) as demand recovered in the buoyant markets of Indochina, such as
Vietnam and Thailand, as well as in the stagnant market of Indonesia. In other regions, net sales increased 100.6%
to ¥598mn, based on the relative strong performance in Australia, New Zealand and Latin America.

We encourage readers to review our complete legal statement on “Disclaimer” page.

05 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/

Results trends

Net sales by region(¥mn)
FY3/21 3Q

FY3/22 3Q

ChangeResults% of total

Results% of total

Amount

Japan

9,553

62.1%

11,083

56.0%

1,530

16.0%

%

Overseas

5,820

37.9%

8,709

44.0%

2,888

49.6%

North America

1,976

12.9%

3,220

16.3%

1,243

62.9%

Asia

3,538

23.0%

4,871

24.6%

1,332

37.7%

6

0.0%

18

0.1%

12

184.5%ME and Russia/CIS
Other regions
Total

298

1.9%

598

3.0%

300

100.6%

15,374100.0%

19,793100.0%

4,419

28.7%

Source: Prepared by FISCO from the Company's results briefing materials

Stable financial condition, ample cash and deposits of ¥8,469mn
3. Financial condition
In terms of the Company’s financial condition as of December 31, 2021, current assets were ¥25,691mn (up¥2,763mn from the end of the previous fiscal year). The main factors included a ¥1,486mn increase in cash anddeposits, a ¥717mn increase in notes and accounts receivable – trade, and a ¥275mn increase in inventory assets.
Non-current assets were ¥12,152mn (down ¥21mn). The main factors included a ¥92mn increase in property, plantand equipment, a ¥33mn decrease in intangible fixed assets, and a ¥79mn decrease in investments and otherassets. As a result, total assets were ¥37,843mn (up ¥2,742mn YoY). As of December 31, 2021, cash and deposits
stood at a high level of ¥8,469mn.
Meanwhile, total liabilities were ¥15,503mn (up ¥2,440mn from the end of the previous fiscal year). The main
factors among current liabilities included a ¥2,445mn increase in payables (notes and accounts payable – tradeand electronically recorded obligations – operating), an ¥19mn increase in short-term borrowings, and a ¥70mn
decline in non-current liabilities. Total net assets stood at ¥22,340mn (up ¥301mn), with the main factors includinga ¥368mn increase in retained earnings due to the booking of profit attributable to owners of parent, a ¥369mn
increase in foreign currency translation adjustment, and a ¥173mn decrease in valuation difference on availablefor-sale securities. As a result, the equity ratio as of December 31, 2021, was 58.9% (versus 62.7% at the end of
the previous fiscal year).
Furthermore, the Company has been focusing on slimming down its balance sheet, and as a result of this effort, net
working capital (trade receivables + inventories – trade payables) at the end of FY3/22 3Q declined 19.2% (down¥2,114mn) YoY to ¥8,868mn. Mainly due to increasing the efficiency of inventory management, inventories declined¥878mn to ¥7,326mn. As a result, the net sales/inventory turnover ratio improved 1.1 times to a 3.6 times per year.
Net working capital(¥mn)
ChangeFY3/21 3Q
Results

FY3/22 3Q
Results

AmountConsolidated net sales (annualized consolidated net sales)

20,42926,0445,615

Trade receivables

7,510

8,676

1,166

15.5%

Inventories

8,204

7,326

-878

-10.7%

Trade payables-4,732-7,134-2,40250.8%

Net working capital

10,982

8,868-2,114-19.2%

Note: Annualized consolidated net sales = cumulative FY3/22 3Q net sales + FY3/21 2H net sales
Source: Prepared by FISCO from the Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

06 10

%
27.5%

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/█ Outlook
Since the earnings forecast for FY3/22 seems conservative, despite
upward revision, there may be potential for further upward revision• Outlook for FY3/22
Based on its recent favorable performance amid further progress in the global recovery of demand for construction
machinery, in February 2022, the Company revised its consolidated results forecast upward. The Company isforecasting net sales of ¥26,000mn (+20.2% YoY), operating profit of ¥1,200mn (+71.1%), and ordinary profit of¥1,250mn (+89.6%), and profit attributable to owners of parent of ¥850mn (versus ¥4mn in FY3/21).
While the impact of the COVID-19 pandemic is still uncertain, in Japan the Company forecasts solid demand tocontinue against a backdrop of disaster prevention and mitigation and the plan for national resilience. Overseas,
global construction machinery demand is continuing to recover, mainly due to large-scale infrastructure upgradeplans in the United States and the economic measures of ASEAN and emerging countries, among other factors.
On the other hand, the Company expects cost increases due to the high prices of supplies and materials, such as
steel materials, and the high price of container freight, with most of this increase is expected to be recorded in thecost of sales for the fourth quarter. Therefore, the upwardly revised full-year forecast is a cautious one. Nevertheless,the outlooks seems a little conservative, with operating profit is expected to reach ¥35mn or above in the fourth
quarter (accounting period), and we think there is a possibility that the profit forecast may be revised further upward.
Consolidated outlook for FY3/22(¥mn)
FY3/21

FY3/22

ChangeResults% of net sales

Revisedforecast% of net sales

Amount%21,624100.0%

26,000100.0%

4,375

20.2%

Operating profit

701

3.2%

1,200

4.6%

498

71.1%

Ordinary profit

659

3.0%

1,250

4.8%

590

89.6%

4

0.0%

850

3.3%

845

-

Net sales

Profit attributable toowners of parent

Note: FY3/22 revised forecasts are the values announced in February 2022
Source: Prepared by FISCO from the Company’s financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

07 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/█ Medium- to long-term growth strategy
As its medium-term growth strategy, the Company will seek to growits overseas market share, expand overseas business domains,and create added value by developing next-generation businesses.
FY3/26 targets include net sales of ¥30bn and operating profit of¥3.1bnIn June 2021, the Company released its “Medium-Term Management Policy” which runs through FY3/26. The
ultimate goal is to increase corporate value and shareholder value, and in order to achieve this the Company will
promote a “business growth strategy” and an “efficient capital strategy.” In terms of numerical targets, the Company
is aiming for net sales of ¥30bn, operating profit of ¥3.1bn, ROE of 8% in FY3/26, and will aim to maintain a stabledividend payout ratio of 50% (DOE of 4%). As of the end of FY3/22 3Q, the Company had kept these numericaltargets unchanged.
1. Business strategy(1) Domestic market: Create added value through stabilization and developing next-generation businesses
The domestic market for road rollers is already in its mature phase and the Company’s market share is large.
Therefore, the Company will aim to grow by adding new value to existing products (high-performance, etc.), inother words, by developing next-generation businesses.
(2) Overseas markets: Increase market share and expand business domains
In overseas markets, there are many regions (countries) where demand is increasing, and there is significant roomfor growth given the Company’s low market shares. Therefore, the Company will seek growth through the two
strategies of more fully cultivating existing markets and expanding its business domains.
(3) Numerical targets
As medium- and long-term numerical targets, the Company aims for net sales of ¥26.5bn, operating profit of¥2.0bn, and ROE of 5.5% in FY3/24, and net sales of ¥30.0bn, operating profit of ¥3.1bn, and ROE of 8% in
FY3/26.
2. Capital Strategy
As its basic policy for capital strategy, the Company will return profits to shareholders at a level that supports theCompany’s objective of ROE of 8%, and will increase shareholder value (improve capital efficiency). As a final target
for FY3/26, the Company will strive to achieve ROE of 8% and a 50% dividend payout ratio. This would be DOE
of 4%.
Generally, two things need to be improved in order to increase ROE. One is of course increasing profit attributableto owners of parent, while the other is suppressing shareholders’ equity (not increasing shareholders’ equity morethan necessary, or decreasing it). In order to increase operating profit, the Company plans to promote the businessstrategies discussed above, but at the same time, in order to keep from increasing shareholders’ equity more thanneeded, the Company plans to execute a dividend policy in which, if ROE falls below 3%, the dividend payout ratio
will be 100%, if ROE is between 3% and 6%, the DOE will be 3%, and if ROE is above 6%, the dividend payout
ratio will be 50%.

We encourage readers to review our complete legal statement on “Disclaimer” page.

08 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/

Medium- to long-term growth strategy

Basic capital policy approach

Source: Medium-Term Management Policy

In terms of share buybacks, through FY3/26 the Company will consider flexible share buybacks with an upper limitof ¥0.5bn to ¥2.0bn. With respect to investment securities, the Company will review investment securities from theperspective of business strategy. Also, concerning growth investment, the Company will consider utilizing leveragewith an emphasis on return on capital (ROIC).
3. ESG initiatives
Through its core business, the Company is working proactively on social issues such as SDGs, ESG, and decarbonization. The main initiatives related to ESG are as follows.
(1) E (Environmental) initiatives: Efforts towards being carbon neutral
The Company’s manufacturing plants in Japan emit approximately 2,000 tons of CO2 per year (this includes about
1,000 tons of CO2 emissions from fossil fuels, and around 1,000 tons of emissions from electricity use), but theCompany aims to cut its emissions by 50%. Specifically, the Company has decided on a policy of reducing its
indirect CO2 emissions from the use of electricity by switching to renewable energy.
(2) S (Society) initiatives: Management policy of contributing to social projects through road construction
The Company has a management policy of contributing to the social project of global land development throughroad construction, and is advancing worker safety, activities to contribute to society, and human capital development. In terms of worker safety, the Company aims to improve safety at construction worksites by widely usingrollers equipped with an emergency brake system. In terms of activities to contribute to society, the Company
is developing technologies that contribute to land development in terms of road construction. With respect tohuman capital development, the Company is promoting diversity.
(3) G (Governance) initiatives: Compliance with the revised Corporate Governance CodeIn compliance with the recently revised Corporate Governance Code, the Company has determined that theskills to be possessed by our Board of Directors, comprising Directors and Executive Officers, are in the areasof corporate management, road construction equipment, global perspective, capital markets, and manufacturing, marketing, and administration. The Company is working to disclose these skills as a skills matrix for its
Board of Directors. The Company has determined to establish, under the Board of Directors, a Nomination andRemuneration Committee, the majority of whose members are Outside Directors. This is to enhance independenceof functions, objectivity, and accountability of the Board of Directors when nominating and compensating Directors.
Going forward, the Company plans to ensure diversity and address climate change risks in accordance with the
Task Force on Climate-related Financial Disclosures.

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 10

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

14-Apr.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/█ Shareholder return policy
Following the upward revision of the earnings forecast for FY3/22,
the Company changed the standard for dividends to DOE, and plansto pay an annual dividend of ¥150.0. The Company aims to conduct
share buybacks with an upper limit of ¥0.5-2.0 billion up to FY3/26
The Company works to secure a stable management base over the long term, and also places importance on thecontinuation of stable dividends, and makes it a basic policy to distribute results that are supported by businessperformance and a sound financial structure. Based on this basic policy, the Company decides dividends andconducts share buybacks. As discussed above, the Company’s medium-term shareholder return policy is as follows.
If ROE falls below 3%, the dividend payout ratio will be 100%, if ROE is between 3% and 6%, the DOE will be 3%,
and if ROE is above 6%, the dividend payout ratio will be 50%. With respect to share buybacks, the Company isconsidering flexible share buybacks with an upper limit of ¥0.5bn to ¥2.0bn by FY3/26.
Based on the above dividend policy, for FY3/22, the Company initially announced the dividend payout ratio of 100%(annual dividend of ¥120.0). However, as mentioned, following the upward revision of the full-year earnings forecast
due to recent favorable performance, ROE at the end of FY3/22 is expected to exceed 3%, and the Company
announced that dividend standard has been changed from a dividend payout ratio of 100% to DOE of 3%, for anannual dividend of ¥150.0 (interim dividend ¥60.0, year-end dividend ¥90.0). Furthermore, if business performanceincreases further, we believe there is a possibility of a further dividend increase.
Furthermore, regarding share buybacks, based on the medium-term management policy, the Company bought back
130,000 shares (¥340mn) by July 15, 2021.
The Company’s stance of announcing a clear plan to improve ROE and carrying out shareholder return plans in linewith that plan is commendable.

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 10

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
and the like, belong to FISCO, and any revision, reprocessing, reproduction, transmission,
distribution or the like of this report and any duplicate hereof without the permission of FISCO
is strictly prohibited.
FISCO and its affiliated companies, as well as the directors, officers and employees thereof,
may currently or in the future trade or hold the financial instruments or the securities of issuersthat are mentioned in this report.
Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-13-3 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (IR Consulting Business Division)
Email: support@fisco.co.jp