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

4-Jul.-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-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

01

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

01

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

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 04
1. Business description. . ..................................................................................................................................

04

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

05

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

06■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 07
1. Outline of results for FY3/22........................................................................................................................

07

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

08

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

09

4. Cash flows............................................. ......................................................................................................

10■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 11• Outlook for FY3/23.. .....................................................................................................................................

11■Medium- to long-term growth strategy------------------------------------------------------------------------------------------------ 12
1. Business strategy.. .......................................................................................................................................

12

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

14■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 15

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-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Summary
Demand continued to recover in both domestic and overseas
markets, and operating profit increased greatly in FY3/22. Operating
profit forecast to increase in FY3/23 as well by 8.4% YoY
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
In the consolidated results for FY3/22*, net sales increased 23.0% year on year (YoY) to ¥26,599mn, operating
profit increased 97.3% to ¥1,383mn, ordinary profit rose 113.6% to ¥1,407mn, and profit attributable to owners ofparent was ¥1,427mn (versus ¥4mn in FY3/21). Profit attributable to owners of parent grew significantly YoY as aresult of recording ¥381mn of deferred tax assets at a North American subsidiary. Net sales in Japan grew steadily
against a backdrop of measures to accelerate the national resilience plan. Overseas, in China, domestic sales weresluggish and unchanged from the previous fiscal year amid stagnation of the Chinese market, but North America andother regions that had been impacted by the COVID-19 pandemic in the previous fiscal year recovered substantially.
Although SG&A expenses increased YoY alongside the resumption of business activities following restrictions on
movement, operating profit increased greatly through an increase in gross profit (up 18.5% YoY) in conjunction withincreased sales.
*	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. Furthermore, figures
for the previous fiscal year do not reflect the application of the standard.

2. 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 parentof ¥950mn (down 33.4%). The decline of profit attributable to owners of parent is mainly due to the absence oftemporary 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 theheightening of pressure to reorganize supply chains, in addition to the impact of lockdowns in Shanghai (restrictions
on going out were virtually lifted on June 1, 2022) and the situation in Russia and Ukraine. For those reasons, theoperating profit margin is projected to decline by 0.1pp YoY.

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

01 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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, in FY3/26,
the Company is aiming for net sales of ¥30bn, 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 apace exceeding the plan in the first year, but the policy currently remains the same, and the Company has kept thesenumerical 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 also planned in FY3/23,
which is currently underway. 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.
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• Demand continued to recover in both domestic and overseas markets, and operating profit increased greatly in
FY3/22. Operating profit forecast to increase in FY3/23 as well by 8.4% YoY• 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•

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(¥mn)

(¥mn)

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Note: Since FY3/22, the Company has been applying the Accounting Standard for Revenue Recognition
Source: Prepared by FISCO from the Company’s financial results

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

02 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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 has a long history, dating back to 1918 when the Company was founded by Kinnosuke Sakai.
At the time, the Company manufactured and repaired parts for automobiles, internal combustion engines, andsteam locomotives. After starting to manufacture locomotives in 1927, in 1929 the Company started manufacturing
road rollers for road rolling compaction. Since then, the Company has continued to develop as a specialized
manufacturer of road rollers for paving roads and other road construction equipment. 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 business overseas 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 werereclassified 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.
HistoryYear

Description

1918

Founded by Kinnosuke Sakai with the aim of manufacturing and repairing parts for automobiles, internal combustion engines andsteam locomotives

1927

Production of locomotives begins

1929

Starts producing road rollers for road rolling compaction

1949

Company is incorporated to establish SAKAI WORKS Co., Ltd.

1964

Listed on Second Section of Tokyo Stock Exchange

1967

Renamed SAKAI HEAVY INDUSTRIES, LTD.

1970

Joint venture, P.T. SAKAI SAKTI, established in Jakarta, Indonesia, to assemble and repair road rollers

1976

SAKAI AMERICA, INC. established in Delaware, U.S., for the purpose of importing/exporting and selling construction equipment

1981

Listed on First Section of Tokyo Stock Exchange

1996

Acquired ISO9001 certification, meeting international standards for quality assurance stipulated by the International Organization forStandardization

2004

Developed the world’s first vibratory pneumatic tired roller (GW750)

2018

Celebrated its 100th anniversary

2019

Consolidated the three bases in Indonesia, including P.T. SAKAI INDONESIA, and established a new factory in order to bolster the
local production system targeting an expansion of overseas business domains and to build a supply platform to achieve medium- tolong-term growth2022

In conjunction with the Tokyo Stock Exchange’s market recategorization, moved to the Prime Market

Source: Prepared by FISCO from the Company’s annual securities report and website

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

03 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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 year 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).
The Company’s road equipment

Source: From the Company’s Medium-Term Management Policy

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

04 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Business overview

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 inNorth America were ¥5,039mn (18.9%), net sales in Asia were ¥6,492mn (24.4%), net sales in the ME and Russia/
CIS were ¥44mn (0.2%) and net sales to Other regions totaled ¥731mn (2.8%).
*	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.

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㻺㼛㼞㼠㼔㻌㻭㼙㼑㼞㼕㼏㼍㻝㻤㻚㻥㻑Source: Prepared by FISCO from the Company’s financial
 results
In Japan, approximately 70% of the Company’s sales are to construction equipment rental companies (KanamotoCo., Ltd. <9678>, NISHIO RENT ALL CO., LTD. <9699>, etc.), while the remaining 30% of sales are to end users(large and small- and medium-sized general contractors, roadwork companies, etc.). Sales to end users include sales
via finance companies due to credit management issues. Overseas, sales are mainly to end users via distributors,
but in North America some sales are through rental companies.
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. Based on thislong history and its experience, the Company has boosted its technological capabilities and credibility as follows.

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

05 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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.). According
to the Company, the work function of a road roller itself determines the final quality of the road or embankment(density, flatness, lifespan). Generally speaking, a 1% rise in rolling compaction density extends the life of a roadby 10%. For this reason, for companies that order roadwork as well as for roadwork companies, not only the priceof the road roller, but the product quality (performance) is extremely important. Because the Company has beena specialized manufacturer of road rollers and other road construction equipment for many years, it boasts a highlevel of technological capabilities with respect to compaction technology, and it is not easy for its competitors tocatch up to it.
The Company’s technological capabilities can be summed up by the phrase “Expertise in products and services.”
In other words, it is the Company’s engineering capabilities covering the entire roadwork process and the ability
to handle a variety of materials. Specifically, combining the various technologies makes it possible to increase
the quality and efficiency of roadwork. Such technologies include kneading by tires, increased rolling compaction
power by vertical vibration, rubbing by horizontal vibration, thick layer compaction by vertical vibration, further
high-density compaction by tire vibration, and eliminating difficult compaction issues with high-frequency vibration.
One example of the Company’s strong technological capabilities is its ability to control the relationship between
mechanical vibration technology and the technology to prevent this vibration. For road rollers, one importantmeans of increasing functionality is various mechanical vibrations, but on the other hand, vibration itself can cause
machine failure, and it also greatly influences operator comfort. Therefore, the ability (technology) to control the
opposing relationship between enhancing vibration compaction power and machine quality is important, and thisis not something that can be amassed quickly.
(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.

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

06 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Business overview

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
Demand continued to recover in both domestic and overseas
markets, and operating profit increased greatly in FY3/22
1. Outline of results for FY3/22
In the consolidated results for FY3/22, net sales increased 23.0% YoY to ¥26,599mn, operating profit increased
97.3% YoY to ¥1,383mn, ordinary profit increased 113.6% to ¥1,407mn, and profit attributable to owners of parent
was ¥1,427mn (versus a ¥4mn in FY3/21).
Net sales decreased slightly in China, but all other regions, including Japan, saw increased sales. There wassubstantial recovery particularly in North America and Asia, which saw decreased sales in the previous fiscal year
due to the impact of the COVID-19 pandemic. The gross margin was 24.1%, down 0.9pp YoY, but this was theresult of factors such as increases in raw material costs and logistics costs. However, the increase in the cost of
goods sold ratio was less than initial projections. Although SG&A expenses increased by 6.7% YoY alongside theresumption of business activities following restrictions on movement, operating profit ultimately increased greatly
through an increase in gross profit (up 18.5% YoY) in conjunction with increased sales. Additionally, profit attributableto owners of parent grew significantly YoY as a result of recording ¥381mn of deferred tax assets at its North
American subsidiary.
Analyzing the change factors for operating profit, the increase in sales had a positive ¥1,244mn impact, the increasein the cost of goods sold ratio had an impact of minus ¥245mn, and the increase in SG&A expenses had an in
impact of minus ¥316mn. Breaking down the increase in SG&A expenses, personnel expenses had a positive ¥83mn
impact, shipping expenses had a positive ¥85mn impact, technology and research expenses had a positive ¥76mn
impact, and other expenses had a positive ¥73mn impact.
Overview of FY3/22 consolidated results(¥mn)
FY3/21

FY3/22

ChangeResults% of net sales

Results% of net sales

Net sales

21,624100.0%

26,599100.0%

Amount
4,974

23.0%

%

Gross profit

5,408

25.0%

6,407

24.1%

998

18.5%

Selling, general and administrative
expense

4,707

21.8%

5,023

18.9%

316

6.7%

Operating profit

701

3.2%

1,383

5.2%

682

97.3%

Ordinary profit

659

3.0%

1,407

5.3%

748

113.6%

4

0.0%

1,427

5.4%

1,423

-

Profit attributable to owners of parent

Note: Since FY3/22, the Company has been applying the Accounting Standard for Revenue Recognition
Source: Prepared by FISCO from the Company’s financial results

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

07 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

2. Trends by region
Domestically, sales related to public investments such as road and civil engineering projects were relatively strong
against a backdrop of measures to accelerate the national resilience plan. Net sales were ¥14,292mn (up 9.6% YoY).
Overseas, net sales totaled ¥12,306mn (up 43.4% YoY) because of continued recovery of demand for construction
equipment in the main markets. Within this amount, in North America, net sales increased significantly to ¥5,039mn(up 55.3% YoY) as a result of infrastructure construction increasing through recovery from the COVID-19 pandemic,
as well as the result of sales activities aimed at increasing market shares. In Asia, net sales were ¥6,492mn (up33.7%) as demand recovered in the buoyant markets of Indochina, such as Vietnam and Thailand, as well as in thestagnant market of Indonesia. In other regions, net sales totaled ¥731mn (up 62.7%) as Latin America, Oceania,
and Africa all trended toward recovery.
Net sales by region(¥mn)
FY3/20FY3/21

FY3/22

ChangeResults% of total

Results% of total

Results% of total

Amount%Japan

13,251

58.3%

13,042

60.3%

14,292

53.7%

1,249

9.6%

Overseas

9,492

41.7%

8,582

39.7%

12,306

46.3%

3,724

43.4%

North America

3,618

15.9%

3,245

15.0%

5,039

18.9%

1,793

55.3%

Asia

4,708

20.7%

4,854

22.5%

6,492

24.4%

1,637

33.7%

ME and Russia/CIS

588

2.6%

32

0.2%

44

0.2%

11

35.3%

Other regions

576

2.5%

449

2.0%

731

2.8%

281

62.7%

22,744100.0%

21,624100.0%

26,599100.0%

4,974

23.0%

Total

Source: Prepared by FISCO from the Company’s financial results㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼎㼥㻌㼞㼑㼓㼕㼛㼚
(¥mn)

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

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

08 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Stable financial condition, ample cash and deposits of ¥7,993mn
3. Financial condition
In terms of the Company’s financial condition as of the end of FY3/22, current assets were ¥25,075mn (up ¥2,148mn
from the end of the previous fiscal year). The main factors included a ¥1,009mn increase in cash and deposits,a ¥578mn increase in notes and accounts receivable – trade (including electronically recorded monetary claims-- operating), and a ¥157mn increase in inventories. Non-current assets were ¥12,782mn (up ¥609mn). The main
factors include a ¥259mn increase in property, plant and equipment mainly through capital investment and a ¥427mn
increase in investments and other assets. As a result, total assets were ¥37,858mn (up ¥2,757mn YoY).
Meanwhile, total liabilities were ¥14,697mn (up ¥1,634 from the end of the previous fiscal year). The main factors
among current liabilities included a ¥1,278mn increase in payables (notes and accounts payable – trade andelectronically recorded obligations – operating), a ¥582mn increase in short-term borrowings, a ¥410mn decline
in long-term borrowings among non-current liabilities, and a ¥80mn decrease in deferred tax liabilities. Total net
assets stood at ¥23,161mn (up ¥1,123mn), with the main factors including a ¥959mn increase in retained earnings
due to the booking of profit attributable to owners of parent and a ¥168mn decrease in valuation difference on
available-for-sale securities. As a result, the equity ratio as of the end of FY3/22 was 61.1% (62.7% at the end of
the previous fiscal year).
Consolidated balance sheet(¥mn)
End of FY3/21
Cash and deposits
Notes and accounts receivable – trade (including
electronically recorded monetary claims – operating)End of FY3/22

Changeamount

6,983

7,993

1,009

7,959

8,538

578

Inventories

7,050

7,207

157

Total current assets

22,92725,075

2,148

6,725

6,985

259

557

480

-77

4,889

5,316

427

Total non-current assets

12,173

12,782609

Total assets

35,10137,8582,757

Notes and accounts payable – trade (including electronicallyrecorded obligations – operating)

4,688

5,966

1,278

Short-term borrowings

5,105

5,688

582

11,48813,5302,042-410

Property, plant and equipment
Intangible assets
Investments and other assets

Total current liabilities
Long-term borrowings

428

17

Deferred tax liabilities

483

402

-80

Total non-current liabilities

1,574

1,166

-407

Total liabilities

1,634

13,062

14,697Retained earnings

10,76911,728959

Valuation difference on available for-sale securities

1,732

1,564

-168

22,03823,161

1,123

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

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 declined 5.3% (down ¥542mn) YoY
to ¥9,779mn. Mainly due to increasing the efficiency of inventory management, inventories increased ¥157mn to¥7,207mn, a 23.0% increase. As a result, the net sales/inventory turnover ratio improved 0.62 times to a 3.69 times
per year.

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09 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Net working capital(¥mn)
ChangeFY3/21Results

FY3/22
Results

AmountConsolidated net sales (annualized consolidated net sales)

21,624

26,599

4,974

23.0%

Trade receivables

7,959

8,538

579

7.3%

Inventories

7,050

7,207

157

2.2%

Trade payables-4,688-5,966-1,27827.3%

Net working capital

10,321

9,779

-542

-5.3%

%

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

4. Cash flows
In FY3/22, net cash provided by operating activities was ¥2,359mn. The main revenue factors included ¥1,470mn in
profit before income taxes, ¥680mn in depreciation, ¥237mn from decrease in inventories, and ¥1,103mn in increasein trade payables. The main expenditure factors included ¥369mn in increase in trade receivables.
Net cash used in investing activities was ¥263mn. This was mainly due to ¥258mn in expenditure from the purchaseof property, plant and equipment. Net cash used in financing activities was ¥1,227mn. The main expenditures were¥267mn from the decrease (net) in long- and short-term borrowings, ¥341mn in acquisition of treasury shares, and¥468mn in dividends paid. As a result, cash and cash equivalents increased ¥1,079mn from the end of the previous
fiscal year, and the balance of cash and cash equivalents at the end of FY3/22 was ¥7,926mn.
Consolidated statements of cash flows(¥mn)
FY3/21

FY3/22

1,525

2,359

Profit before income taxes

703

1,470

Depreciation

637

680

Change in trade receivables (- denotes increase)-1,717-369

Change in inventories (- denotes increase)

2,456

237

Change in trade payables (- denotes decrease)

-143

1,103

Net cash provided by (used in) investing activities

-508

-263

Net cash provided by (used in) financing activities-812-1,227

-340

-267

-0

-341

Net cash provided by (used in) operating activities

Change in long- and short-term borrowings (net)
Acquisition of treasury shares

-343

-468

164

1,079

6,847

7,926

Dividends paid
Change in cash and cash equivalents
Cash and cash equivalents at end of FY3/22

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

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

10 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Outlook
Forecasts a 10.2% sales increase and 8.4% operating profit increase
YoY since global demand for construction equipment is trending
toward recovery• 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 parentof ¥950mn (down 33.4%). The decline of profit attributable to owners of parent is mainly due to the absence oftemporary 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 theprices of energy and supplies and materials and the heightening of pressure to reorganize supply chains, in addition
to the impact of lockdowns in Shanghai (restrictions on going out were virtually lifted on June 1, 2022) and thesituation in Russia and Ukraine. For those reasons, the operating profit margin is projected to decline by 0.1pp YoY.
The Company aims to achieve its targets by promoting profit structure reform through sales price revisions, cost
reductions and enhancement to its product supply capabilities. It has stated that in the future, it will make revisions
going as needed when it discloses quarterly financial results, so attention must be given to future developments.
Consolidated 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

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

11 15

%

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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%). Net sales developed at a pace exceeding the plan in the first year, 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. Specifically, the Company plans to do the following.
a) To enhance safety, the Company will horizontally roll out models equipped with automatic emergency brakesystems. This performs an emergency stop of operating equipment if a person or obstacle is in the movement
path of the equipment. This function has already been added as an optional setting to the main models in Japan(the rate of emergency brake attachment is approximately 30% for medium-size rollers), and the Company’s policy
going forward is to horizontally roll out this function to overseas markets.
b) The Company aims to improve compaction quality with a rolling compaction management system (with CCV).
This system remotely links work managers with worksites, allowing compaction quality to be confirmed andmanaged (e.g., number of rolling compactions) in real time. It is expected that management in the Ministry of Land,
Infrastructure, Transport and Tourism ICT roadbed work will be streamlined through the acceleration response
method.
c) The Company aims to improve productivity by commercializing autonomous (unmanned) driving rollers. In theautonomous driving standard equipment development project, the Company is advancing commercialization
through worksite implementation testing with multiple general contractors. Specifically, through unmanned construction work, the Company aims to create safe worksites, improve productivity through efficient compaction
operations, and stabilize and improve quality, independent of operator skill.
(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
room for growth given the Company’s low market shares. Therefore, the Company will seek growth through thetwo strategies of more fully cultivating existing markets and expanding its business domains by deploying roadmaintenance machinery to overseas markets.

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12 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

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

Medium- to long-term growth strategya) In Southeast Asia, the Company aims to cultivate the market and increase its product domain. Specifically, it
will move ahead on deepening market activities within Indonesia as well as the ASEAN region as a central basefor sales, manufacturing and services for the Indonesian base where a new plant began operating in 2019.
b) In North America, aiming to expand its market share, the Company will strengthen its North America logistics
strategy and advance measures to increase its market share. Specifically, the Company will seek to expand its
market share through the niche marketing strategy based on the Lanchester/Blue Ocean strategy and throughengineering sales focused on improved pavement quality.
c) Aiming to expand overseas business domains, the Company will promote a strategy of cultivating markets forroad maintenance machinery in ASEAN markets and ODA, along with other markets.
(3) Numerical targets
As 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.
In terms of progress in FY3/22, net sales developed at a pace exceeding the medium-term management plan in
the first year. Meanwhile, as for operating profit, the pace of improvements to the operating profit margin haveslowed down in relation to the deterioration of profit structures due to fundamental increases in the prices of energy
and supplies and materials and soaring logistics costs, and the Company is moving ahead with profit structurereform through sales price revision and cost reduction. The Company achieved ROE of 6.3% through the recordingof ¥381mn in deferred tax assets at its North American subsidiary, but will continue to work on reforming its profit
structure because the profit was recorded with temporary tax accounting methods.

㻹㼑㼐㼕㼡㼙㻙㼍㼚㼐㻌㼘㼛㼚㼓㻙㼠㼑㼞㼙㻌㼠㼍㼞㼓㼑㼠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

(¥mn)

(¥mn)

㻟㻡㻘㻜㻜㻜

㻟㻘㻡㻜㻜㻞㻡㻘㻜㻜㻜

㻟㻜㻘㻜㻜㻜

㻞㻥㻘㻟㻜㻜

㻟㻜㻘㻜㻜㻜

㻞㻢㻘㻡㻥㻥

㻞㻢㻘㻡㻜㻜

㻞㻝㻘㻢㻞㻠

㻞㻘㻡㻜㻜

㻞㻘㻜㻜㻜

㻞㻜㻘㻜㻜㻜
㻝㻘㻟㻤㻟㻝㻡㻘㻜㻜㻜

㻟㻘㻜㻜㻜
㻟㻘㻝㻜㻜

㻞㻘㻜㻜㻜

㻝㻘㻡㻜㻜

㻝㻘㻡㻜㻜

㻝㻜㻘㻜㻜㻜

㻡㻘㻜㻜㻜

㻝㻘㻜㻜㻜

㻡㻜㻜

㻣㻜㻝

㻜

㻜
㻲㼅㻟㻛㻞㻝

㻲㼅㻟㻛㻞㻞

㻲㼅㻟㻛㻞㻟㻌㻱

㻲㼅㻟㻛㻞㻠
㻔㼜㼘㼍㼚㻕

㻲㼅㻟㻛㻞㻢
㻔㼜㼘㼍㼚㻕

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

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

13 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-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).

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14 15

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

SAKAI HEAVY INDUSTRIES, LTD.

4-Jul.-2022

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Shareholder return policy
In FY3/22, paid a ¥165.0 annual dividend, up ¥85.0 YoY. Plans to
pay the same dividend amount (a dividend payout ratio of 73.6%) in
FY3/23 as well
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 paid a ¥165.0 annual dividend (a dividend payout
ratio of 49.0%), and plans to pay a ¥165.0 annual dividend in FY3/23 (a planned dividend payout ratio of 73.6%).
Furthermore, with regard to the acquisition of treasury shares, it conducted a buyback of 130,000 shares (¥340mn)
in FY3/22, but currently has no plans to conduct buybacks for FY3/23.
The Company’s stance of announcing a clear policy to improve ROE and carrying out shareholder return policy inline with that is commendable, and attention should be given to its shareholder return policy going forward.

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

(¥)
㻞㻜㻜㻚㻜

㻝㻜㻜㻚㻜㻑

㻥㻝㻚㻜㻑

㻝㻢㻜㻚㻜

㻝㻞㻜㻚㻜

㻣㻟㻚㻢㻑

㻡㻝㻚㻢㻑

㻠㻜㻚㻜

㻢㻜㻚㻜㻑

㻠㻥㻚㻜㻑

㻝㻢㻡㻚㻜㻌

㻤㻜㻚㻜㻝㻜㻜㻚㻜㻌

㻝㻜㻜㻚㻜㻌

㻲㼅㻟㻛㻝㻥

㻲㼅㻟㻛㻞㻜

㻤㻜㻚㻜㻑㻝㻢㻡㻚㻜㻌

㻤㻜㻚㻜㻌

㻠㻜㻚㻜㻑

㻞㻜㻚㻜㻑

㻜㻚㻜

㻜㻚㻜㻑
㻲㼅㻟㻛㻞㻝

㻲㼅㻟㻛㻞㻞

㻲㼅㻟㻛㻞㻟㻌㻱

Note: FY3/21 dividend payout ratio is not shown due to the fact that it was 8,602.2%.
Source: Prepared by FISCO from the Company’s financial results

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

15 15

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