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

4-Oct.-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.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for FY3/23 1Q............. ......................................................................................................

01

2. Outlook for FY3/23.. .....................................................................................................................................

01

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

01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02■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 FY3/23 1Q............. ......................................................................................................

04

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

05

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

06■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 07• Outlook for FY3/23.. .....................................................................................................................................

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

08

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

09

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

10■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 11

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.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Summary
Full swing demand recovery in both domestic and overseas markets,and operating profit increased greatly in FY3/23 1Q, exceeding
forecasts
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 70.0%. In recent years, the Company has been focusing on
developing overseas markets, especially in North America and Southeast Asia.
1. Outline of results for FY3/23 1Q
In the consolidated results for FY3/23 1Q, net sales increased 12.7% year on year (YoY) to ¥6,865mn, operating
profit increased 121.7% YoY to ¥448mn, ordinary profit rose 140.8% to ¥516mn, and profit attributable to owners ofparent increased 160.9% to ¥402mn. In Japan, net sales were strong against a backdrop of measures to accelerate
the national resilience plan, but profit struggled to grow due to cost increases, including rising raw materials costs
and soaring energy prices. Meanwhile, overseas, performance was strong in both the U.S. and Asia (particularly inIndonesia and Vietnam), and both net sales and profits increased. The Company did not disclose its 1Q forecasts,
but it appears that the results exceeded the Company’s numerical targets.
2. Outlook for FY3/23
For FY3/23 consolidated results, the Company left its initial forecasts unchanged with net sales of ¥29,300mn (up10.2% YoY), operating profit of ¥1,500mn (up 8.4%) ordinary profit of ¥1,450mn (up 3.0%), and profit attributable toowners of parent of ¥950mn (down 33.4%). The decline of profit attributable to owners of parent is mainly due to theabsence of temporary deferred tax assets recorded (¥381mn) that occurred in the previous fiscal year. The outlook
for net sales and profit by region has not been disclosed, but the Company’s policy is to pursue sales increases
in all regions. In spite of the fact that construction equipment is on track toward stable recovery as infrastructure
investments increase globally, there are many uncertain factors including further increases in supply and material
prices and the heightening of pressure to reorganize supply chains, in addition to the impact of the situation in Russia
and Ukraine. For those reasons, the operating profit margin is projected to decline by 0.1pp YoY.
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, in FY3/26,
the Company is aiming for net sales of ¥30.0bn, operating profit of ¥3.1bn, ROE (return on equity) of 8%, and will
aim to maintain a stable dividend payout ratio of 50% (a DOE (dividend on equity ratio) of 4%). Net sales developed
at a pace exceeding the plan in its first year of FY3/22, but the policy currently remains the same, and the Company
has kept these numerical targets unchanged. With regard to dividends, a ¥165.0 annual dividend was paid in
FY3/22 (a dividend payout ratio of 49.0%) and a ¥165.0 annual dividend (a dividend payout ratio of 73.6%) is alsoplanned in FY3/23. In this way, it is commendable that the Company has released a clear capital policy targeting an
improvement in ROE, and is carrying out shareholder returns in line with this policy.

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

01 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Summary

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• The Company left its initial forecasts for FY3/23 unchanged, and is forecasting an 8.4% increase from theprevious fiscal year in operating profit, exceeding 1Q forecasts• As medium-term numerical targets, the Company is aiming for net sales of ¥30.0bn, operating profit of ¥3.1bn,
and ROE of 8% in FY3/26•

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(¥mn)

(¥mn)

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㻞㻡㻘㻜㻜㻜

㻝㻘㻤㻜㻜㻝㻘㻡㻜㻜㻌

㻝㻘㻠㻝㻠㻞㻜㻘㻜㻜㻜

㻝㻘㻟㻤㻟㻌

㻝㻘㻡㻜㻜
㻝㻘㻞㻜㻜

㻥㻡㻥㻌

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㻣㻜㻝㻌㻞㻠㻘㻣㻣㻡

㻝㻜㻘㻜㻜㻜

㻞㻞㻘㻣㻠㻠㻌

㻞㻢㻘㻡㻥㻥㻌

㻞㻥㻘㻟㻜㻜㻌

㻞㻝㻘㻢㻞㻠㻌

㻥㻜㻜
㻢㻜㻜

㻡㻘㻜㻜㻜

㻟㻜㻜

㻜

㻜
㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜

㻲㼅㻟㻛㻞㻝

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㻲㼅㻟㻛㻞㻟㻌㻱

Source: Prepared by FISCO from the Company’s financial results■ Company profile
The top manufacturer of road rollers with a long history
The Company develops as a specialized manufacturer of road rollers for paving roads and other road construction
equipment, and currently, the Company is the top manufacturer in Japan, and boasts a market share of over 70%.
In 1970, the Company established a joint venture in Indonesia, as part of the Company’s effort to expand businessoverseas at an early stage. As of March 31, 2022, 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 were reclassified to the First Section of the Tokyo Stock Exchange in 1981.
In conjunction with the Tokyo Stock Exchange’s market recategorization in April 2022, it moved to the Prime Market.

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

02 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ 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. Also, the Company’s corporate
philosophy is to “Contribute to the social project of global land development through the road construction equipment business.”
The term “road roller” actually covers quite a wide range of machines in terms of capabilities and size, among otherfeatures. The Company has roughly 20 platforms alone for road rollers, and when different variations are added thetotal number of products is in the 70-80 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), but theCompany also has road cutters and other machines that cost tens of millions in yen. Production is carried out onan expected production basis, and the Company does not manufacture machines based on individual orders. The
useful lives of the Company’s products are in the 20-30 years range, but very few customers use a machine until theend of its useful life. In most cases, they replace it after statutory depreciation (7-10 years) with a new one. Most of
the depreciated equipment are resold as used machines to overseas customers (especially in developing countries).
In terms of net sales by region in FY3/22, net sales in Japan were ¥14,292mn (53.7% of total net sales), net sales
in North America were ¥5,039mn (18.9%), net sales in Asia were ¥6,492mn (24.4%), and net sales to Other regions
totaled ¥775mn (3.0%). Moreover, in terms of net sales by region in FY3/23 1Q, net sales in Japan were ¥2,811mn(41.0%), net sales in North America were ¥1,729mn (25.2%), net sales in Asia were ¥2,184mn (31.8%), and net
sales to Other regions totaled ¥140mn (2.0%).
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.
(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 rollers 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.

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03 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Business overview(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 FY2021 domestic
construction equipment shipment value was ¥2.9tn, and road roller and other road construction equipment (theCompany’s main products) account for 2.6% 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 5-6% 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
Full swing demand recovery in both domestic and overseas
markets, and operating profit increased greatly in FY3/23 1Q,
profits increased 121.7% YoY. Especially, overseas businesses are
performing strongly
1. Outline of results for FY3/23 1Q
In the consolidated results for FY3/23 1Q, net sales increased 12.7% YoY to ¥6,865mn, operating profit increased
121.7% to ¥448mn, ordinary profit increased 140.8% to ¥516mn, and profit attributable to owners of parent
increased 160.9% to ¥402mn.

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

04 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

In Japan, sales continued to be strong against a backdrop of measures to accelerate the national resilience plan,and net sales were solid, but profit struggled to grow due to preceding cost increases, including rising raw materials
costs and soaring energy prices. Growth in profits was sluggish as there was a delay in passing on these costs tosales prices compared to the cost increases. Meanwhile, overseas, the Company’s operating performance wasstrong. In particular, in the U.S. and Indonesia, there was progress in the recovery of demand, and both sales andprofits increased, while results were also favorable in the Vietnam market. The Company did not disclose its 1Q
forecasts, but it appears that the results exceeded its forecasts.
The gross margin improved to 25.6% (23.7% in the year-earlier period), mainly due to sales price revisions andimproved logistics efficiency. On top of this, there was the impact of higher sales, and gross profit increased 21.5%
YoY to ¥1,754mn. On the other hand, however, SG&A expenses increased by 5.2% due to the increase in travel andtransportation expenses accompanying the resumption of business activities following restrictions on movement, as
well as higher personnel costs and other factors, but the SG&A expenses ratio declined from 20.4% in the year-earlier
period to 19.0% due to the increase in sales. As a result, operating profit increased significantly.
Analyzing the change factors for operating profit, the increase in sales had a positive ¥183mn impact, the increasein the cost of goods sold ratio had an impact of plus ¥126mn, and the increase in SG&A expenses had an in impactof minus ¥64mn (Breaking down the increase, personnel expenses had a positive ¥19mn impact, technology andresearch expenses had a positive ¥18mn impact, travel and transportation expenses had a ¥12mn impact, andother expenses had a positive ¥15mn impact).
Overview of FY3/23 1Q consolidated results(¥mn)
FY3/22 1Q
Results

FY3/23 1Q% of net sales

Results

Change% of net sales

Amount%Net sales

6,089

100.0%

6,865

100.0%

775

12.7%

Gross profit

1,443

23.7%

1,754

25.6%

310

21.5%

Selling, general andadministrative expense

1,241

20.4%

1,305

19.0%

64

5.2%

Operating profit

202

3.3%

448

6.5%

246

121.7%

Ordinary profit

214

3.5%

516

7.5%

302

140.8%

Profit attributable toowners of parent

154

2.5%

402

5.9%

248

160.9%

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

2. Trends by region
With respect to FY3/23 1Q net sales by region, the overall results were solid. In Japan, sales related to public
investments such as road and civil engineering projects were strong against a backdrop of measures to accelerate
the national resilience plan. Net sales were ¥2,811mn (up 1.7% YoY), but appear to have slightly undercut theCompany’s forecast. This was due to the stagnation in some shipments stemming from delays in procuring parts
caused by global logistics turmoil and other factors, not due to weak demand. Looking at it differently, there is astrong possibility that net sales would have increased further if the Company had been able to procure parts asplanned.

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

05 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Overseas, net sales increased significantly, amounting to ¥4,053mn (up 22.0% YoY) because of progress in therecovery of demand for construction equipment in the main markets. Of this amount, in North America net sales
increased to ¥1,729mn (up 25.6%) as a result of the strong recovery in demand against the backdrop of robust
investment in construction, as well as an increase in market share based on progress in cultivation of distributors.
In Asia, net sales were ¥2,184mn (up 22.6%), due to recoveries in demand in Vietnam, which had been a strong
market, in addition Indonesia, which had been sluggish. In other regions, net sales totaled ¥140mn (down 15.2%),
which had a minor impact on overall earnings.
Net sales by region(¥mn)
FY3/22 1Q

FY3/23 1Q

ChangeResults% of total

Results% of total

Amount

Japan

2,765

45.4%

2,811

41.0%

45

1.7%

Overseas

3,323

54.6%

4,053

59.0%

729

22.0%

North America

1,376

22.6%

1,729

25.2%

352

25.6%

Asia

1,782

29.3%

2,184

31.8%

402

22.6%

165

2.7%

140

2.0%

-25

-15.2%

6,089

100.0%

6,865

100.0%

775

12.7%

Other regions
Total

%

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

Stable financial condition, ample cash and deposits of ¥9,391mn
3. Financial condition
In terms of the Company’s financial condition as of the end of FY3/23 1Q, current assets were ¥25,566mn (up¥491mn from the end of the previous fiscal year). The main factors included a ¥1,397mn increase in cash anddeposits, a ¥831mn decrease in notes and accounts receivable - trade (including electronically recorded monetaryclaims - operating), and a ¥250mn increase in inventories. Non-current assets were ¥12,869mn (up ¥86mn). The
main factors include a ¥156mn increase in property, plant and equipment, a ¥45mn decrease in intangible assets,
and a ¥24mn decrease in investments and other assets. As a result, total assets were ¥38,436mn (up ¥577mn).
Furthermore, cash and deposits remained at a high level of ¥9,391mn as of the end of FY3/23 1Q.
Meanwhile, total liabilities were ¥14,867mn (up ¥170mn from the end of the previous fiscal year). The main factors
among current liabilities included a ¥75mn decrease in payables (notes and accounts payable – trade and electronically recorded obligations – operating), a ¥162mn increase in short-term borrowings, and a ¥6mn decline in
non-current liabilities. Total net assets stood at ¥23,568mn (up ¥407mn), with the main factors including a ¥39mn
decrease in retained earnings due to the payment of dividends, a ¥485mn increase in foreign currency translation
adjustment and a ¥39mn decrease in valuation difference on available-for-sale securities. As a result, the equity ratio
as of the end of FY3/23 1Q was 61.2% (61.1% at the end of the previous fiscal year).
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 FY3/23 1Q increased 2.3% (up ¥212mn) YoY
to ¥9,273mn. This was mainly due to the increase in inventories (up ¥691mn) and trade receivables (up ¥294mn), but
the strong sales (net sales) resulted in the inventory turnover ratio improving 0.25 times YoY to 3.67 times per year.

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06 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Net working capital(¥mn)
ChangeFY3/22 1Q
Results

FY3/23 1Q
Results

AmountConsolidated net sales (annualized consolidated net sales)

23,14827,3754,227

Trade receivables

7,412

7,706

294

4.0%

Inventories

6,767

7,458

691

10.2%

Trade payables-5,118-5,891

-773

15.1%

Net working capital

9,061

9,273

212

2.3%

%
18.3%

Note: Consolidated net sales (annualized) = Net sales in 1Q of the fiscal year under review + cumulative net sales in 2Q-4Q of previous fiscal year
Source: Prepared by FISCO from the Company’s financial results■ Outlook
Left the initial FY3/23 forecast unchanged, forecasts a 10.2% sales
increase and 8.4% operating profit increase YoY• Outlook for FY3/23
For FY3/23 consolidated results, the Company is forecasting net sales of ¥29,300mn (up 10.2% YoY), operating
profit of ¥1,500mn (up 8.4%) ordinary profit of ¥1,450mn (up 3.0%), and profit attributable to owners of parent of¥950mn (down 33.4%). 1Q results were relatively strong, but the outlook remains unclear, so the Company left its
initial forecasts unchanged.
The decline of profit attributable to owners of parent is mainly due to the absence of deferred tax assets temporarily
recorded (¥381mn) in the previous fiscal year. The outlook for net sales and profit by region has not been disclosed,
but the Company’s strategy is to pursue sales increases in all regions. In spite of the fact that global demand forconstruction equipment is on a firm recovery track amid the global expansion in infrastructure investment, there aremany uncertain factors, including further increases materials prices and the heightening of pressure to reorganize
supply chains, in addition to the outlook for the situation in Russia and Ukraine. For these reasons, the operating
profit margin is forecast to decline by 0.1pp YoY.
As discussed above, the Company’s results in 1Q exceeded its forecasts overall due to strong performance inoverseas markets, despite the delays in parts procurement and in passing on higher costs to sales prices in Japan.
There is a strong possibility that results would have been even higher if there had not been delays in procuringparts and in passing on higher costs to sales prices. As a result, at FISCO we think there is a high likelihood that
the Company will upwardly revise its full fiscal year forecasts at some point. Meanwhile, the Company has statedthat in the future, it will make revisions as needed when it discloses quarterly financial results, so attention must be
given to future developments.

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

07 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

OutlookConsolidated outlook for FY3/23(¥mn)
FY3/22

FY3/23

ChangeResults% of net sales

Forecast% of net sales

Net sales

26,599100.0%

29,300100.0%

Amount
2,700

10.2%

%

Operating profit

1,383

5.2%

1,500

5.1%

116

8.4%

Ordinary profit

1,407

5.3%

1,450

4.9%

42

3.0%

Profit attributable toowners of parent

1,427

5.4%

950

3.2%

-477

-33.4%

Source: Prepared by FISCO from the Company’s financial results■ 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 ¥30.0bn 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 ¥30.0bn, 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%). Net sales developed at a pace exceeding the plan in its first year of
FY3/22, but the policy currently remains the same, and the Company had kept these numerical targets 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- to 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.

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

08 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Medium- to long-term growth strategy

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%.
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).

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

09 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

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

Medium- to long-term growth strategy

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
In June 2022, the Company disclosed its response to Recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), which comprises climate change-related information in line with the recommendations of TCFD. For FY2019, the Company’s Scope 1 and Scope 2 CO2 emissions in Japan totaled 3,300 tons.
In its disclosure, the Company established a target of achieving a 50% reduction in emissions by FY2030 andachieving carbon neutrality by FY2050.
(2) Society (S) 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 equipment business, and is advancing worker safety, activities to contribute to society, andhuman capital development. In terms of worker safety, the Company aims to improve safety at construction
worksites by widely using rollers equipped with an emergency brake system. In terms of activities to contributeto society, the Company is developing technologies that contribute to land development in terms of road construction. With respect to human capital development, the Company is promoting diversity and development ofhighly specialized human resources.
(3) Governance (G) initiatives: Building a management structure to strengthen corporate governance
Based on the revisions to the Corporate Governance Code, the Company determined that the skills that the Boardof Directors (comprising Directors and Executive Officers) should possess are: Corporate Management; Road
Construction Equipment, Global, Capital Markets, Manufacturing, Marketing, and Administration, and publicly
disclosed this as the skill matrix for our Board of Directors. Also, the Company has established a Nomination andCompensation Committee comprising a majority of Outside Directors under the Board of Directors in order toenhance the independence, objectivity, and accountability of the functions of the Board of Directors with respect
to the nomination and compensation of Directors. At the General Meeting of Shareholders held in June 2022, theCompany appointed its first-ever woman outside director as part of its effort to ensure diversity.

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

10 11

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Shareholder return policy
Plans to pay the same annual dividend of ¥165.0 in FY3/23.
To FY3/26 aims to conduct share buybacks with an upper limit of¥0.5-2.0 bn up
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, although the Company announced a dividend payout ratio of 100% (annual
dividend of ¥120.0) at the beginning of FY3/23, due to the strong operating results the Company changed thedividend criteria from a dividend payout ratio of 100% to a DOE of 3%, thereby paying an annual dividend of ¥165.0(interim dividend of ¥60.0 and fiscal year-end dividend of ¥105.0). For FY3/23, the Company is again planning to
pay an annual dividend of ¥165.0 (interim dividend of ¥80.0 and fiscal year-end dividend of ¥85.0). If the Company’s
operating results improve even further, we at FISCO think there is a possibility that the Company will raise thedividend even higher. With respect to share buybacks, based on its medium-term management plan, the Company
acquired 130,000 shares (¥340mn) during FY3/22.
The Company’s stance of announcing a clear policy to improve ROE and carrying out shareholder return policy inline with that is commendable.

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

11 11

Disclaimer
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◾ 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