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

4-Oct.-2023
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.-2023

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for FY3/24 1Q............. ......................................................................................................

01

2. Outlook for FY3/24.. .....................................................................................................................................

01

3. Medium-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 FY3/24 1Q............. ......................................................................................................

04

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

05

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

06■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 07• Outlook for FY3/24.. .....................................................................................................................................

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

08

2. Capital strategy. . .................................... ......................................................................................................

08

3. Initiatives for ESG.................................. ......................................................................................................

09■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 10

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Summary
For FY3/24, operating profit increased by 22.8% YoY. Particularly
strong sales to North America
Sakai Heavy Industries, Ltd. <6358> (hereinafter 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 FY3/24 1Q
In the consolidated results for FY3/24 1Q, net sales increased 9.7% year on year (YoY) to ¥7,529mn, operating
profit increased 22.8% to ¥551mn, ordinary profit rose 34.0% to ¥692mn, and profit attributable to owners of parent
increased 17.2% to ¥471mn. By region, net sales were down 0.4% YoY due to delays in construction progresscaused by unseasonable weather and other factors, but demand itself remained stable against a backdrop of
measures to accelerate the national resilience plan. Overseas sales were also strong, especially in the U.S., where net
sales grew 33.1% YoY due to increasing investment in road construction following the passing of the Infrastructure
Investment and Jobs Act. Sales to Asia were down 4.2% YoY due to signs of slowing growth in some markets,
despite a recovery in demand in Indonesia. Although the Company did not announce its initial forecast for 1Q, theresults were largely in line with its plan.
2. Outlook for FY3/24
For FY3/24 consolidated results, the Company forecasts remain unchanged from the initial forecasts for net salesof ¥33,000mn (up 4.9% YoY), operating profit of ¥2,950mn (up 17.7%) ordinary profit of ¥2,800mn (up 20.3%), andprofit attributable to owners of parent of ¥1,830mn (up 8.0%). The outlook for net sales and profit by customer region
has not been disclosed, but the Company’s policy is to pursue sales increases in all regions. Demand for construction
machinery is forecast to remain stable as infrastructure investments increase globally. Although concerns regarding
further increases in material prices still remain, the Company expects profit margins to improve due to factors suchas the further penetration of price revisions, and it is forecasting that the operating profit margin will increase by 0.9
points YoY. However, it plans to review its progress on a quarterly basis and revise its financial results if necessary.
3. Medium-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%. Although results have been strong in the first year of the planin FY3/22 and the next year in FY3/23, but the plan currently remains the same, and the Company has kept thesenumerical targets unchanged. For FY3/24, given the ROE forecast to exceed 6.0% and the promised dividend payout
ratio of 50%, it announced an increased annual dividend of ¥215.0 (interim dividend of ¥90.0 and fiscal year-end
dividend of ¥125.0). The Company should be rated highly for announcing a clear capital policy to improve ROE andthen implementing shareholder returns in accordance with that policy.

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01 10

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

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• For FY3/24 1Q, the operating profit increased by 22.8% YoY, but the Company did not change its full-year
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•

Results trends(¥mn)

Net sales (left)

35,00031,45930,00025,00026,59922,744(¥mn)

Operating profit (right)
33,000

3,500
3,000

2,506

2,950

21,62420,000

2,500
2,000

1,383

15,0001,500

959
10,000

1,000

701

5,000

500

0

0
FY3/20FY3/21

FY3/22

FY3/23

FY3/24E

Note: The Accounting Standard for Revenue Recognition, etc., has been applied from FY3/22
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, 2023, the Company has four domestic subsidiaries, and four overseas
subsidiaries (U.S., China, two 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.

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02 10

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

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 added value 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 1 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 (6-7 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 FY3/23, net sales in Japan were ¥15,208mn (48.3% of total net sales), net sales
in North America were ¥7,751mn (24.7%), net sales in Asia were ¥7,796mn (24.8%), and net sales to other regions
totaled ¥703mn (2.2%). Moreover, in terms of net sales by region in FY3/24 1Q, net sales in Japan were ¥2,798mn(37.2%), net sales in North America were ¥2,301mn (30.5%), net sales in Asia were ¥2,092mn (27.8%), and net
sales to other regions totaled ¥337mn (4.5%).
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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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
https://www.fisco.co.jp

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

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 strength lies in the fact that it is a brand which customers have used for many years
and that has accumulated long-term insight due to abundance of worksite experiences, and these are points thathave earned the trust of many customers.
3. Market share and competitors
According to data from the Japan Construction Equipment Manufacturers Association, in FY2022 domestic
construction equipment shipment value was ¥3.5tn, and road roller and other road construction equipment (theCompany’s main products) account for 2.3% 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 15%.
The Company’s main competitors in the global market include Caterpillar <CAT>, FAYAT SAS, HAMM AG, and Volvo
Personvagnar AB, but none of these companies are manufacturers that specialize in road rollers.

■ Results trends
For FY3/24 1Q, operating profit increased by 22.8% YoY. Strong
sales to North America and other overseas markets
1. Outline of results for FY3/24 1Q
In the consolidated results for FY3/24 1Q, net sales increased 9.7% YoY to ¥7,529mn, operating profit increased
22.8% to ¥551mn, ordinary profit rose 34.0% to ¥692mn, and profit attributable to owners of parent increased
17.2% to ¥471mn.
By region, net sales were down 0.4% YoY due to delays in construction progress caused by unseasonable weather
and other factors, but demand itself remained stable against a backdrop of measures to accelerate the national
resilience plan. Overseas sales were also strong, especially in the U.S., where net sales grew significantly due toincreasing investment in road construction following the passing of the Infrastructure Investment and Jobs Act. Sales
to Asia were down due to signs of slowing growth in some markets, despite a recovery in demand in Indonesia,
resulting in overall weak sales. Although the Company did not announce its initial forecast for 1Q, the results werelargely in line with its plan.

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

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

Results trends

The gross margin improved significantly to 26.9% (25.6% in the year-earlier period), mainly due to progress in profit
structure reform through the penetration of sales price revisions in Japan and overseas. On top of this, there was
the impact of higher sales, and gross profit increased 15.3% YoY to ¥2,022mn. On the other hand, however, SG&A
expenses increased by 12.7% due to increased business activity, higher personnel costs, and other factors. As aresult, operating profit increased by 22.8% YoY.
Analyzing the change factors for operating profit, the improvement in sales had a positive ¥169mn impact, theincrease in the cost of goods sold ratio had an impact of plus ¥98mn, and the increase in SG&A expenses had
an in impact of minus ¥165mn. (Breaking down the increase, personnel expenses had a positive ¥93mn impact,technology and research expenses had a positive ¥16mn impact, advertising expenses had a positive ¥10mn impact,and other expenses had a positive ¥44mn impact).
Overview of FY3/24 1Q consolidated results(¥mn)
FY3/23 1Q
Results

FY3/24 1Q% of net sales

Results

Change% of net sales

Amount%Net sales

6,865

100.0%

7,529

100.0%

664

9.7%

Gross profit

1,754

25.6%

2,022

26.9%

267

15.3%

Selling, general andadministrative expenses

1,305

19.0%

1,470

19.5%

165

12.7%

Operating profit

448

6.5%

551

7.3%

102

22.8%

Ordinary profit

516

7.5%

692

9.2%

175

34.0%

Profit attributable toowners of parent

402

5.9%

471

6.3%

69

17.2%

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

2. Trends by region
With respect to FY3/24 1Q net sales by region, the overall results can be said to have been solid. Domestically,
sales centered mainly on orders for public investments such as road and civil engineering projects were strong
against a backdrop of measures to accelerate the national resilience plan. However, due to delays in construction
progress caused by unseasonable weather and other factors, net sales remained low at ¥2,798mn (down 0.4%
YoY). Nevertheless, demand itself was solid and orders were strong, so this was not a concern.
Overseas, net sales increased steadily, amounting to ¥4,730mn (up 16.7% YoY) because of progress in the recovery
of demand for construction machinery in the main markets in addition to the effects of the weaker yen. Of thisamount, in North America net sales increased significantly to ¥2,301mn (up 33.1%) as a result of the market
expanding against the backdrop of robust investment in construction, as well as the effects of cultivating dealers
and penetration of price revisions. In Asia, despite a strong recovery of demand in Indonesia, signs of slowing growth
were seen in some markets, resulting in sales of ¥2,092mn (down 4.2%). In other regions (Africa, Oceania, Central
and South America, etc.), net sales totaled ¥337mn (up 140.5%), due to the realization of ODA projects in Africa.

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Net sales by region(¥mn)
FY3/23 1Q

FY3/24 1Q

ChangeResults% of total

Results% of total

Amount

Japan

2,811

41.0%

2,798

37.2%

-12

-0.4%

Overseas

4,053

59.0%

4,730

62.8%

676

16.7%

North America

1,729

25.2%

2,301

30.5%

572

33.1%

Asia

2,184

31.8%

2,092

27.8%

-92

-4.2%

140

2.0%

337

4.5%

197

140.5%

6,865

100.0%

7,529

100.0%

664

9.7%

Other regions
Total

%

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

Stable financial condition, ample cash and deposits of ¥7,760mn.
Currently adjusting inventory levels to the appropriate level
3. Financial condition
In terms of the Company’s financial condition as of the end of FY3/24 1Q, current assets were ¥28,286mn (up¥846mn from the end of the previous fiscal year). The main factors included a ¥276mn increase in cash anddeposits, a ¥730mn decrease in notes and accounts receivable - trade (including electronically recorded monetaryclaims - operating), and a ¥1,206mn increase in inventories. Non-current assets were ¥14,147mn (up ¥783mn). The
main factors include a ¥15mn increase in property, plant and equipment, a ¥36mn decrease in intangible assets,
and an ¥804mn increase in investments and other assets (mainly a ¥770mn increase in investment securities). As
a result, total assets were ¥42,434mn, an increase of ¥1,630mn. Although cash and deposits remained at a highlevel of ¥7,760mn as of the end of FY3/24 1Q, inventories were increasing slightly, and the Company stated that it
is in the process of adjusting inventory levels to an appropriate level.
Total liabilities were ¥16,423mn (up ¥915mn from the end of the previous fiscal year). The main factors among current
liabilities included a ¥682mn increase in payables (notes and accounts payable – trade and electronically recorded
obligations – operating), a ¥75mn increase in short-term borrowings, and a ¥244mn increase in non-current liabilities.
Total net assets stood at ¥26,010mn (up ¥714mn), with the main factors including a ¥36mn decrease in retained
earnings due mainly to the payment of dividends, and a ¥537mn increase in valuation difference on available- for-salesecurities, and a ¥212mn increase in foreign currency translation adjustment. As a result, the equity ratio as of theend of FY3/24 1Q was 61.1% (61.8% at the end of the previous fiscal year).
As a result of the above, net working capital (trade receivables + inventories – trade payables) at the end of FY3/24
1Q increased by 24.7% to ¥11,563mn (up ¥2,290mn YoY). This was mainly due to increases in trade receivables (up¥1,027mn), inventories (up ¥3,200mn) and a decrease in trade payable (down ¥1,937mn). The inventory turnoverdecreased 0.66 times YoY to 3.01 times per year, mainly reflecting an increase in inventory levels due to increased
production and to reduce risk of part shortages, despite steady sales (net sales).

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Net working capital(¥mn)
ChangeFY3/23 1Q
Results

FY3/24 1Q
Results

AmountConsolidated net sales(annualized consolidated net sales)

27,37532,123

4,748

17.3%

Trade receivables

7,706

8,733

1,027

13.3%

Inventories

7,458

10,658

3,200

42.9%

Trade payables-5,891-7,828-1,937

32.9%

Net working capital

9,273

11,563

2,290

24.7%

Inventory turnover (times)

3.67

3.01

-0.66

%

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 results briefing materials■ Outlook
FY3/24 forecast is for a 17.7% YoY increase in operating profit• Outlook for FY3/24
For FY3/24 consolidated results, the Company is forecasting net sales of ¥33,000mn (+4.9% YoY), operating profitof ¥2,950mn (+17.7%), and ordinary profit of ¥2,800mn (+20.3%), and profit attributable to owners of parent of¥1,830mn (+8.0%), unchanged from the initial forecasts.
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. Demand for construction machinery is forecast to remain stable as infrastructure investments
increase globally. On the other hand, there are many uncertain factors such as global inflation, security issues, andsocial structural changes, but by promoting profit structure reform, improving productivity and creating new added
value, and modifying global business activities, it is forecasting that the operating profit margin will increase by
0.9 points YoY. It has stated that in the future, it will make revisions going as needed when it discloses quarterly
financial results, but as of the 1Q announcement, no revisions had been made. Attention must be given to future
developments.
Consolidated outlook for FY3/24(¥mn)
FY3/23

FY3/24

ChangeResults% of net sales

Forecast% of net sales

Net sales

31,459100.0%

33,000100.0%

Amount1,540

4.9%

Operating profit

2,506

8.0%

2,950

8.9%

443

17.7%

Ordinary profit

2,327

7.4%

2,800

8.5%

472

20.3%

Profit attributable to owners of parent

1,694

5.4%

1,830

5.5%

135

8.0%

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

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%

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Medium-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 astable dividend payout ratio of 50%. Based on results in the first year of the plan in FY3/22 and FY3/23, net sales
is developing at a pace exceeding the plan, but the policy currently remains the same, and the Company has 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-term numerical targets, the Company aims for net sales of ¥30.0bn, operating profit of ¥3.1bn, andROE 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.
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%.

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

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

Medium-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. Initiatives for ESG
The Company is proactively addressing ESG through various initiatives. Currently, it is particularly focusing on thefollowing initiatives.
(1) Initiatives contributing to carbon neutrality
The Company is actively promoting research and development in electric rollers to reduce CO 2 emissions atconstruction sites. It has already completed a demonstration electric roller and it plans to carry out practical tests
at actual road paving sites in the near future. It will use these to collect data aimed at realizing commercialization.
It has also created a concept model for an Electric Walk Behind Roller equipped with portable and swappable
batteries made by Honda Motor Co., Ltd. <7267>.
Initiatives contributing to carbon neutrality

Source: The Company’s results briefing materials(2) Initiatives solving social issues through business activities
The Company is scheduled to start producing road planers in Indonesia from January 2024. The aim is to contribute to road infrastructure in Southeast Asia while also expanding the area covered by the Company’s business.

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Oct.-2023

6358 Tokyo Stock Exchange Prime Market

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

Medium-term growth strategy(3) Initiatives strengthening corporate governanceIn order to strengthen corporate governance, the Company appointed Haruyasu Asakura, whose experience
includes positions at the Innovation Network Corporation of Japan and Marunouchi Capital Inc., as an outside
director at the Annual General Meeting of Shareholders held in June 2023. The Company believes he is suitable
to serve as an outside director due to his extensive experience in private equity funds, which has helped him
develop broad insight into capital markets and corporate value improvement.

■ Shareholder return policy
Plans to pay an annual dividend of ¥215.0 in FY3/24 in line with its
commitment. Aims to conduct share buybacks with an upper limit of¥0.5-2.0bn by 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 FY3/24, given the ROE forecast to exceed 6.0% and the promised dividend
payout ratio of 50%, it announced an increased annual dividend of ¥215.0 (interim dividend of ¥90.0 and fiscal
year-end dividend of ¥125.0). The Company should be rated highly for announcing a clear capital policy to improve
ROE and then implementing shareholder returns in accordance with that policy.

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