COMPANY RESEARCH AND ANALYSIS REPORT

Hagihara Industries Inc.
7856
Tokyo Stock Exchange First Section

17-Aug.-2018
FISCO Ltd. Analyst

Ken Segawa

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

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/■ Index■Information security Summary---------------------------------------------------------------------------------------------------------------------- 01
1. In FY10/18 1H, ordinary income declined 5.1% YoY due to the lag in passing higher costs onto prices
and for accounting reasons................... ......................................................................................................

01

2. For the FY10/18 full year, has left unchanged the initial forecast of record high income. .............................

01

3. On entering 2018, has implemented two M&As domestically and overseas for the plastic processed
products business................................. ......................................................................................................

01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Company profile .. .................................. ......................................................................................................

02

2. History................................................... ......................................................................................................

03■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 04
1. Business overview................................. ......................................................................................................

04

2. Product lineup. . ............................................................................................................................................

04

3. Management that prioritizes profitability. .....................................................................................................

06

4. Overseas business development.................................................................................................................

08

5. Strategic products group.............................................................................................................................

09■Performance trends------------------------------------------------------------------------------------------------------------------------------------------------- 11
1. Review of 1H FY10/18 results......................................................................................................................

11

2. Financial position and management indicators. ...........................................................................................

13■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 14
1. FY10/18 outlook.. ................................... ......................................................................................................

14■Longer-term growth strategies-------------------------------------------------------------------------------------------------------------------- 16
1. Medium-term management plan DH56.. ......................................................................................................

16

2. Progress on the medium-term management plan targets. ...........................................................................

16

3. Growth strategy...........................................................................................................................................

17■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 19
1. Dividend policy...................................... ......................................................................................................

19

2. Shareholder benefits program. . .............. ......................................................................................................

20■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 20

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

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/██Information security Summary
Taking a strategy of implementing “Brave Challenge and New
Hagihara Dynamism”
Hagihara Industries Inc. <7856> (hereafter, also “the Company”) sets the slogan in its current three-year medium-term management plan of “Dynamic HAGIHARA 56 (DH56) Dynamic Brave Challenge and New Hagihara
Dynamism” that inherits the pioneering spirit of its founder of “That sounds interesting…let’s try it right away.”
Rather than trying to only compete on price in existing markets, the Company is taking a Blue Ocean strategy of
opening-up new markets and developing new products, and acquiring market share in fields that other companies
are not working on or by utilizing its strengths. On entering this year, it has been actively taking various measures,
including conducting two M&As.
1. In FY10/18 1H, ordinary income declined 5.1% YoY due to the lag in passing higher costs onto prices andfor accounting reasons
In FY10/18 1H, net sales increased 9.4% year-on-year (YoY), but ordinary income decreased 5.1%. The operating
income margin was 11.2%, and the high level of income was maintained. The decline in income was due to thefact that some of the transfer of the soaring prices of raw materials onto prices was pushed-back until the 2H andalso due to accounting reasons following the acquisition of a sales agency and it being made a subsidiary. On a
stand-alone basis, net sales and ordinary income were both new record highs for a first half.
2. For the FY10/18 full year, has left unchanged the initial forecast of record high income
For the FY10/18 consolidated results, the Company has left unchanged the initial forecasts, of net sales to increase
5.4% YoY to ¥24,500mn and ordinary income to rise 1.7% ¥2,800mn. If it achieves them, both net sales andordinary income will be new record highs. However, the soaring price of domestically produced naphtha, whichis the main raw material, and the rise in transportation costs, will put downward pressure on income in the plastic
processed products business. The Company’s basic policy is to transfer the increase in costs onto sales prices,
but there are concerns that profitability will temporarily worsen due to the time lag in doing so. On the other hand,the conditions in the machinery products business are excellent, as production cannot keep pace with the strong
demand and the backlog of orders is accumulating. So this business will compensate for the slump in the plastic
processed products business.
3. On entering 2018, has implemented two M&As domestically and overseas for the plastic processed
products businessOn entering 2018, the Company has implemented two M&As domestically and overseas for the plastic processed
products business. In February, as one part of its measures to strengthen overseas sales of BarChip, it acquired
all of the shares of EPC Holdings (Singapore), which was the Company’s sales agency, for ¥1,445mn and madeit a subsidiary. Through integrating production and sales, it is aiming to develop strategic sales, including for pricenegotiations. It will also feed-back the needs from final customers into technologies and product development.
Next, in the middle of July it acquired Toyo Heisei Polymer Co., Ltd., which conducts a plastic films business, for¥1,130mn, and made it a subsidiary. Its business partially overlaps with that of the Company, but it is also involved
in fields that the Company is not involved in, including medical infusion bags, and the markets are expanding. Bothcompanies are profitable. These M&As were anticipated within the current medium-term management and werecarried out after careful consideration.

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

01 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Information security Summary

Key Points
In FY10/18 1H, ordinary income declined 5.1% YoY due to temporary factors
Has left unchanged the full fiscal year forecast for record high income in FY10/18• Domestically and overseas, is acquiring companies related to its plastic processed products business••㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼏㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼛㼞㼐㼕㼚㼍㼞㼥㻌㼕㼚㼏㼛㼙㼑
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Source: Prepared by FISCO from the Company's financial results██Company profile
Conducts management based on the pioneering spirit of “Constantly
aim for the innovative and creative enterprise”
1. Company profile
Hagihara Industries, whose Head Office is in Kurashiki City, Okayama Prefecture, is a manufacturer of plastic
processed products and machinery products. It pursues profitability rather than scale, and it is a highly profitablecompany with each of ROE, ROA, and the operating income margin exceeding 10% in FY10/17. It conducts
businesses for industrial machinery that apply its core technologies of “cutting,” “stretching,” and “winding” that it
has cultivated through the production of plastic processed products using flat yarn and flat yarn manufacturing. It is
the only manufacturer within Japan that conducts operations from raw materials through to sheet manufacturing, andone of the Company’s features is that it has an Engineering Division that conducts the machinery products business.
With the motto of “Constantly aim for the innovative and creative enterprise,” the Company conducts business full ofa pioneering spirit. The pioneering spirit of its founder of “That sounds interesting…let’s try it right away” is continued
in the slogan of the current medium-term management plan (FY10/16 to FY10/18), of “Dynamic HAGIHARA 56(DH56) Brave Challenge and New Hagihara Dynamism.”

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

02 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Company profile

2. History
The Company was established in 1962 in Mizushima, Kurashiki City, Okayama Prefecture, for the production andsales of polyethylene monofilament for tatami-mat called a ‘hana goza.’ Flat yarn is the name of the yarn made frompolyethylene and polypropylene being cut into strips, and it is strong from being stretchable.
Typical products made from weaving flat yarn and applying laminate processing include familiar ones, such as leisuresheets and blue (tarpee) sheets. In addition, flat yarn is the material used for the Handy Mop. Baseball stadium
artificial grass and other products are made from monofilament. The Company is the leading manufacture in Japanof blue sheets and the material for artificial grass. However, the main markets it targets are materials for construction
and civil engineering, industry, and agriculture.
In 2000, the Company was listed on the Osaka Stock Exchange (OSE) Second Section, and has been a listedcompany for 18 years. In May 2014, its listing was upgraded from the Tokyo Stock Exchange (TSE) Second Section
to the TSE First Section.
History
1962

Hagihara Industries was established by Yuichi Hagihara the Second, for the manufacture of PE monofilament for tatami-mat vertical
yarn.

1964

Developed flat yarn.

1965

Innovated the production of flat yarn. Acquired a patent for a hot-plate stretching method.

1966

Exported flat yarn production equipment to Taiwan for the first time.

1970

Completed the Kasaoka factory. Opened the Tokyo sales office.

1974

Established a new production factory that integrating the weaving and laminating of blue sheet (tarpee sheet) yarn.

1976

Exported a large-scale plant for the complete manufacture of bags to an Indonesian, state-owned fertilizer company.

1980

Completed an unmanned processing machine for sandbags.
Completed a tarpee-sheet labor-saving processing machine.

1981

Expanded exports of high performance, flat yarn manufacturing-related machinery.
Within the site of the Head Office, newly established a carpet secondary lining (tough bag) manufacturing factory.

1986

Implemented the laminate tandem system at the tarpee factory.

1989

Completed the carpet base cloth integrated factory.

1991

Opened the Distribution Center in Kurashiki City, Okayama Prefecture.

1994

Market launched a paper slitter.

1995

Established an Indonesian subsidiary (currently, P.T. HAGIHARA WESTJAVA INDUSTRIES).
Made a subsidiary of laminated cloth company Kakosenshinseishokufu Co., Ltd. (currently, Japan Fabweld Co, Ltd.).

1996

Completed the Kayo factory to compete with imported goods.
Market launched Barchip F.

1999

Transferred the flat yarn and monofilament-related business from Taniyama Chemical Industry Co., Ltd.

2000

Listed on the OSE Second Section.

2001

Listed on the TSE Second Section.

2002

Established a subsidiary in Qingdao, China, to manufacture and sell plastic processed products

2003

Started the ERP software SAP R/3.

2004

Acquired the ISO9001: 2000 certification.
Awarded the TPM Excellence Award, 1st Class.

2005

Established the Shanghai subsidiary (Hagihara Machinery (Shanghai) Co., Ltd.) (machine design, parts procurement and assembly).

2009

Rebuilt the Kayo factory to respond to the Lehman Shock.

2010

Acquired the ISO9001: 2008 certification.
Conducted a capital increase through a public third-party allotment

2012

The Indonesia subsidiary completed the second factory.

2014

Listing upgraded to the TSE First Section.

2018

Acquired all the shares and made a subsidiary of EPC Holdings (Singapore), its BarChip overseas sales agency.
Acquired all the shares and made a subsidiary of Toyo Heisei Polymer (Kochi City, Kochi Prefecture).

Source: Prepared by FISCO from the Company's materials

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

03 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/██Business overview
Has built a highly profitable business model that does not start andend with price competition
1. Business overview
Sales are from two businesses: the plastic processed products business for the manufacture and sale of related
products using plastics, including flat yarn; and the machinery products (engineering) business for the manufactureand sale of industry machinery that adopts its core flat yarn technologies. In FY10/17, the percentages of total
consolidated net sales (¥23,238mn) by business were that the plastic processed products business contributed
76.4% (within which, sheet and construction materials-related: 24.1%, industrial materials-related: 34.3%, living
materials-related: 14.6%, and other plastics: 3.4%), while the machinery products business contributed 23.6%. The
operating income margin is high in both businesses, 12.1% in the plastic processed products business and 10.6%
in the machinery products business.

Percentages of total net sales by business (FY10/17: ¥23,238mn)

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

2. Product lineup
The markets covered by the Company’s plastic processed products business are “living and leisure,” “agriculture
and fishery,” “packaging and distribution,” “industrial materials,” and “construction and civil engineering.” Products
for living include leisure sheets, artificial grass, and wood-pattern mats. Sales are more dependent on B-to-B thanon B-to-C.

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

04 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Business overview

Product lineup

Source: Prepared by FISCO from the Company's materials

Products for agriculture and fishery include UV sheets, functional products, and black-out cloth for poultry sheds.
Functional products are designed to have various functions depending on their intended use, such as light shielding
and lighting functions, waterproofing and water permeability functions, wind-proofing and breathability functions,and a thermal insulation function. Products for the packaging and distribution market include adhesive tape cloth,
container bags, and truck sheets. A feature of adhesive tape cloth, for which the Company has the leading market
share, is that the tape is easy to cut, so it can be cut into sizes to suit the application, both vertically and horizontally.
Industrial materials include UV clear sheets, flat yarn, and monofilament-derived yarn.
Products for construction and civil engineering include fireproof sheets, soft-mesh sheets, large sandbags, anddesign sheets. PE (polyethylene) fireproof sheets and cloth are light compared to PVC products and have superior
strength and optical transparency. As they are used at construction sites, being light improves work efficiency andcontributes to reducing the construction period. It also reduces the labor of workers and transportation costs.
In addition to being a fireproof material, they do not generate chlorinated dioxins when they are incinerated.
Soundproofing sheets, which are used for demolition work and other purposes, use an olefin material that, comparedto PVC products, is less prone to deterioration and hardening at work sites, even in cold locations and othersevere environments. They are also lighter than PVC sheets, so have a work-reduction effect. For sandbags, theCompany has a lineup of products that realize the highest level of durability among domestically produced items,of approximately three years. Also, for its sandbags, to which it has added an ultraviolet deterioration inhibitor andwhich are weather resistant in the medium term (about two years), the Company utilizes a technique of placing a
black horizontal line on a white background so that anyone can fill the bags with an equal amount of soil or sand.
The Company is constantly launching new products that enhance the functionality of the conventional product lineup.
The civil engineering-use Ground Barrier Cloth, which combines breathability and water permeability, prevents thedevelopment and growth of weeds, so reduces weeding work. It is installed in various facilities, such as solar power
generation systems.

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

05 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Business overview

3. Management that prioritizes profitability
The Company achieves high profits by avoiding price competition in the commoditized products market and maintaining leading shares in niche markets in which there are no new entrants. It has the leading shares for products
including pile yarn for artificial grass, multifunctional blue sheets, sandbags, and carpet base cloth. It also has theleading share globally of polypropylene reinforcing fiber for mortar and concrete, which will be described later. Rather
than in large markets with fierce competition, it is taking a Blue Ocean strategy of targeting niche markets in which
it can obtain the survivor advantage and demonstrate its strengths.
The Company’s business stance is not to sell products’ functions, but to provide their essential roles. For example,
rather than the cost of the adhesive tape, what is important to a transportation company is the personnel expenses
of workers and reducing the packaging-work time, so the Company develops and provides products that increase
the efficiency of workers. Products that have been adapted according to what customers require as their essential
roles can be priced 20% to 30% higher than general-purpose products. By being orientated to the essential value
required by customers ahead of these products’ functions, the Company is building a highly profitable businessmodel that does not begin and end with price competition.
In the past, the Company’s results deteriorated during the time of the negative economy due to the collapse of theeconomic bubble, but it recovered quickly. In FY10/09, which followed the Lehman Shock in September 2008, net
sales declined 22.5% YoY and operating income fell 41.0%. But by responding quickly to changes in the businessenvironment, in FY10/10 it achieved a V-shaped recovery, with net sales increasing 1.3% and operating income rising
52.6%. It takes a strategy of positioning as the strategic products group those products that are strongly competitiveand highly profitable, and then working to raise the percentage of total sales provided by them.

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

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

06 20

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

Hagihara Industries Inc.

17-Aug.-2018

7856 Tokyo Stock Exchange First Section

http://www.hagihara.co.jp/en/

Business overview

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㻡㻤㻝㻌

㻜
㻲㼅㻝㻜㻛㻝㻜 㻲㼅㻝㻜㻛㻝㻝 㻲㼅㻝㻜㻛㻝㻞 㻲㼅㻝㻜㻛㻝㻟 㻲㼅㻝㻜㻛㻝㻠 㻲㼅㻝㻜㻛㻝㻡 㻲㼅㻝㻜㻛㻝㻢 㻲㼅㻝㻜㻛㻝㻣 㻲㼅㻝㻜㻛㻝㻤㻱
Source: Prepared by FISCO from the Company's financial results








㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㻵㼚㼏㼛㼙㼑㻌㼙㼍㼞㼓㼕㼚㻌㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟（㻑）㻼㼘㼍㼟㼠㼕㼏㻌㼜㼞㼛㼏㼑㼟㼟㼑㼐㻌㼜㼞㼛㼐㼡㼏㼠㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻝㻤㻚㻜㻹㼍㼏㼔㼕㼚㼑㼞㼥㻌㼜㼞㼛㼐㼡㼏㼠㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟

㻝㻡㻚㻜㻌
㻝㻡㻚㻜

㻝㻟㻚㻜㻌

㻝㻞㻚㻞㻌

㻝㻝㻚㻝㻌

㻝㻞㻚㻜

㻝㻝㻚㻠㻌

㻝㻝㻚㻤㻌

㻝㻜㻚㻞㻌

㻥㻚㻥㻌

㻥㻚㻠㻌
㻥㻚㻜
㻤㻚㻥㻌

㻤㻚㻤㻌

㻥㻚㻠㻌
㻤㻚㻡㻌

㻥㻚㻟㻌

㻝㻞㻚㻝㻌

㻝㻜㻚㻢㻌

㻝㻞㻚㻟㻌

㻝㻝㻚㻝㻌

㻢㻚㻜
㻟㻚㻜
㻜㻚㻜

㻲㼅㻝㻜㻛㻝㻜 㻲㼅㻝㻜㻛㻝㻝 㻲㼅㻝㻜㻛㻝㻞 㻲㼅㻝㻜㻛㻝㻟 㻲㼅㻝㻜㻛㻝㻠 㻲㼅㻝㻜㻛㻝㻡 㻲㼅㻝㻜㻛㻝㻢 㻲㼅㻝㻜㻛㻝㻣 㻲㼅㻝㻜㻛㻝㻤㻱
Source: Prepared by FISCO from the Company's financial results

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07 20

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

Hagihara Industries Inc.

17-Aug.-2018

7856 Tokyo Stock Exchange First Section

http://www.hagihara.co.jp/en/

Business overview

4. Overseas business development
In the fourth year after its establishment, the Company exported flat yarn manufacturing equipment. In 1976, it
exported a complete bag manufacturing large plant to an Indonesian, state-owned fertilizer company. In 1995,
it established the local subsidiary P.T. HAGIHARA WIHARTA INDONESIA (currently, P.T. HAGIHARA WESTJAVAINDUSTRIES), which is conducting a plastic processed products business. In China, in 2002 in Qingdao, it established Qingdao Hagihara Industries Co., Ltd., which conducts a plastic processed products business. Further, in2005 in Shanghai, it established the subsidiary Hagihara Machinery (Shanghai) Co., Ltd., which designs machineryand procures and assembles parts. Currently, each are in actuality the Company’s wholly-owned subsidiaries. In themachinery products business, it is strengthening overseas sales, including by newly establishing a sales departmentin the Shanghai subsidiary, and taking measures in the Philippines and Thailand that will lead to new orders.
In FY10/17, overseas net sales were ¥6,056mn, which was 26.1% of total net sales.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼛㼢㼑㼞㼟㼑㼍㼟㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼠㼔㼑㻌㼛㼢㼑㼞㼟㼑㼍㼟㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼞㼍㼠㼕㼛㻔¥㼙㼚㻕㻻㼢㼑㼞㼟㼑㼍㼟㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻕（㻑）㻻㼢㼑㼞㼟㼑㼍㼟㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

㻣㻘㻜㻜㻜

㻟㻡㻚㻜

㻢㻘㻜㻜㻜

㻞㻡㻚㻥㻌
㻞㻞㻚㻠㻌

㻡㻘㻜㻜㻜
㻠㻘㻜㻜㻜

㻝㻢㻚㻣㻌

㻝㻤㻚㻞㻌

㻝㻤㻚㻣㻌

㻞㻜㻚㻜
㻡㻘㻤㻟㻡㻌

㻟㻘㻟㻤㻠㻌

㻟㻘㻥㻣㻣㻌

㻟㻜㻚㻜
㻞㻡㻚㻜

㻝㻣㻚㻤㻌

㻠㻘㻤㻡㻝㻌
㻟㻘㻜㻡㻥㻌

㻞㻢㻚㻝㻌

㻞㻞㻚㻝㻌

㻟㻘㻜㻜㻜
㻞㻘㻜㻜㻜

㻞㻢㻚㻢㻌

㻡㻘㻥㻣㻢㻌

㻢㻘㻜㻡㻢㻌

㻝㻡㻚㻜㻠㻘㻥㻝㻜㻌
㻝㻜㻚㻜㻟㻘㻣㻝㻞㻌

㻝㻘㻜㻜㻜

㻡㻚㻜

㻜

㻜㻚㻜
㻲㼅㻝㻜㻛㻜㻥 㻲㼅㻝㻜㻛㻝㻜 㻲㼅㻝㻜㻛㻝㻝 㻲㼅㻝㻜㻛㻝㻞 㻲㼅㻝㻜㻛㻝㻟 㻲㼅㻝㻜㻛㻝㻠 㻲㼅㻝㻜㻛㻝㻡 㻲㼅㻝㻜㻛㻝㻢 㻲㼅㻝㻜㻛㻝㻣

Source: Prepared by FISCO from the Company's financial resultsIn the plastic business for overseas markets, the Company is taking a strategy of conducting pinpoint sales of highly
competitive products. A product that typifies this is tank liners. This product is an inner sheet that is affixed to theinsider of water tanks. In Australia and the United States, large tanks are used mainly in drought zones for storing
rainwater, agricultural water, and industrial water. When they are used for many years, rust is generated and theircondition deteriorates, but by affixing the Company’s tank liner to the inside of an iron tank, it is possible to preventthe deterioration of its main body. A feature of the Company’s products is that they are light and strong comparedto the competing products made of PVC, because they use a polyolefin material. In addition to Australia, in the
future it will expand business deployment in the North America market, where many PVC products are used. It isalso positioning its grain cover laminated cloth as a strategic product in this market, due to the enormous area ofarable land and harvest volume.

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08 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Business overview

5. Strategic products group
The Company selects strategic products from viewpoints such as leading share, high profitability, and growthpotential. Currently, this applies to “BarChips,” “adhesive tape original fabric,” “other advanced functional products,”
and “film slitters.” The Company-wide gross profit margin is 29.6% (FY10/17), but it is over 30% for this strategic
products group and it has become its cash cow. In FY10/17, the percentage of total net sales provided by thestrategic products group rose 1.0 percentage point YoY to 49.3%. The outlook for FY10/18 is that this percentage
will decline to 47.3% because sales of grain cover laminated cloth, which grew in the previous fiscal period, willlevel-off. The Company is aiming to raise this percentage to 50%.

Trends in the strategic products group’s net sales and its percentage㼛㼒㻌㼠㼛㼠㼍㼘㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻔¥㼙㼚㻕㻝㻞㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜

（㻑）

Strategic products group’s net sales (left)㻼㼑㼞㼏㼑㼚㼠㼍㼓㼑㻌㼛㼒㻌㼠㼛㼠㼍㼘㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼞㼕㼓㼔㼠㻕

㻠㻠㻚㻝㻌

㻠㻥㻚㻟㻌

㻠㻤㻚㻟㻌

㻠㻢㻚㻞㻌

㻢㻜㻚㻜

㻠㻣㻚㻟㻌

㻤㻘㻜㻜㻜

㻡㻜㻚㻜
㻠㻜㻚㻜

㻢㻘㻜㻜㻜
㻥㻘㻣㻣㻜㻌

㻝㻝㻘㻠㻡㻠㻌

㻝㻜㻘㻤㻡㻞㻌

㻝㻜㻘㻟㻥㻤㻌

㻝㻝㻘㻡㻥㻢㻌

㻟㻜㻚㻜

㻠㻘㻜㻜㻜

㻞㻜㻚㻜

㻞㻘㻜㻜㻜

㻝㻜㻚㻜

㻜

㻜㻚㻜
㻲㼅㻝㻜㻛㻝㻠

㻲㼅㻝㻜㻛㻝㻡

㻲㼅㻝㻜㻛㻝㻢

㻲㼅㻝㻜㻛㻝㻣

㻲㼅㻝㻜㻛㻝㻤㻌㻱

Source: Prepared by FISCO from the Company's results briefing materialsStrategic products group

Source: The Company's results briefing materials

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09 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Business overview(1) BarChips – recovering for overseas and demand is stable
BarChip is a strategic product for which there are major expectations. It is a polypropylene reinforced fiber for
mortar and concrete developed from the plastic fiber stretching and manufacturing technologies that the Company
has cultivated over many years. More than 20 years have passed since the Company launched BarChip andother market participants have appeared in this time. The increase in the number of suppliers has the merit ofaccelerating the market’s expansion. In the reinforcing fiber (domestic) market, the Company has an overwhelming
large share of around 70% to 80%. Its strength includes its comprehensive power, such as a product lineup withcost advantage relative to performance and fibers of different thickness, and also applications development.
Initially, this product was created as a substitute for asbestos, and since it was market launched in 1995, it has
acquired a track record of use in the construction field as a reinforcing material, such as for roof tiles and outer-wallmaterials. Subsequently, its applications expanded toward mining and infrastructure through product development
according to type, and it acquired an excellent reputation. The product’s features include that it gives a reinforcing
effect even when only a small amount is used, it prevents flaking and scaling, improves bending toughness, andhas excellent corrosion resistance. In Japan, the ratio of the sizes of the construction market and civil engineering
works market is 7:3, but BarChip’s sales reverse this, with a ratio of 3:7. In the construction field, construction laws
and fire prevention laws become barriers preventing the spread of new construction methods, which is particularly
noticeable in public works. However, the Company is aiming for the fiber to be adopted in Japanese Industrial
Standards (JIS) and as construction method, and it is strengthening its measures for the construction field.
For construction applications, more than 20 years have passed since BarChip was used in the soil-floor concreteof a distribution facility, and its durability has been demonstrated at this work site. It enables the installation oftroublesome mesh wires to be omitted, and both cost reduction and shortening of work time can be achieved.
The top priority at construction sites is securing manpower, and meshless concrete that incorporates BarChip
has acquired an excellent reputation for labor saving.
In civil engineering applications, it is known from its use in mines, such as in Australia and South America, andin Tokyo’s outer ring road. Demand for products for Australian mines is trending downward due to the slowdown in China’s economic growth rate and the fall in the prices of raw materials. Conversely, the Company isprogressing applications development and it seems that it is now being used for private-sector construction andsocial infrastructure projects. It captured demand related to the Rio Olympics, and going forward also, it expects
business related to the Tokyo Olympics. In terms of its applications for railway tracks, it is used to reinforce theconcrete used to adjust the height of sleepers and concrete roads, to prevent the fall of mortar and concrete fromtunnel covers, and to suppress and reinforce cracks. It is highly probable that it will be used at the entrances ofrailroad tunnels where shock waves occur.
In 2003, it became possible to use the reinforcing fiber BarChip JK, a reinforcing fiber used for tunnel-cover concrete, in the NEXCO (formerly Nippon Highway Public Corporation) Tunnel Construction Management Guidelines.
It was confirmed that the crosslinking effect of the fiber added to concrete contributes to preventing concrete
pieces from falling and third-party damage. Although the peak of the Tokyo outer ring road work has passed, theCompany is progressing BarChip’s applications development and demand is expected to continue to remain at
a high level within Japan.

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10 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Business overview

For large projects in the future, there are expectations for the Linear Chuo (Central) Shinkansen (Bullet Train)
Line. The Company has made no specific comments about this project and has not included it in its results
forecasts. The anticipated demand is that BarChip will be used as a reinforcing material for the track and fortunnel-cover concrete. With a total route of 438 kilometers, the Chou Shinkansen Line is scheduled to open in
2027 between Shinagawa and Nagoya and in 2037 between Nagoya and Osaka. As it is scheduled to connect
Shinagawa to Nagoya in 40 minutes at top speed, the plan is to run a direct route with a top speed of 505 km/h.
In the metropolitan areas of Tokyo, Nagoya and Osaka where it is difficult to secure land, it will utilize the "deepunderground," for which it not necessary to compensate landowners because it is highly public in nature. About
250 kilometers, or more than 80%, of the route from Shinagawa to Nagoya will be covered by tunnels. It will takea straight route, from the vicinity of Kofu City, Yamanashi Prefecture, via the Southern Japanese Alps (the Akaishi
Mountain Range) to the vicinity of Nagoya City. It is expected that reinforcing materials will be used at places
where construction and maintenance work will be difficult.
Overseas, it is being used in Spain for sewer concrete segments. The Company’s highly durable product is being
adopted because it is difficult to conduct repair work after the segments have been buried underground.
(2) Machinery products businessThis business involves applying flat yarn manufacturing technologies and developing, manufacturing, and selling
slitters (cutting machines) for a wide range of applications. The Company has the leading market shares for slittersfor cash register paper rolls, slitters to cut optical film, and film slitters for touch panels. It also handles slitters forseparators of lithium-ion (LiB) batteries. China, which is aiming to overcome air pollution and take the initiative
for next-generation vehicles, has a policy of providing subsidies to promote the spread of eco vehicles, such asplug-in hybrid vehicles (PHV) and electric vehicles (EV). So within China, demand for splitters for separators isstrong due to the increased production of LiB batteries.

██Performance trends
In FY10/18 1H, ordinary income declined 5.1% YoY due to temporary
factors
1. Review of 1H FY10/18 results(1) Results summary
In the FY10/18 1H consolidated results, net sales increased 9.4% YoY to ¥12,658mn, operating income decreased
7.9% to ¥1,413mn, ordinary income fell 5.1% to ¥1,479mn, and net income attributable to the owners of theparent was down 6.3% to ¥1,010mn. Compared to the initial forecasts, net sales were 5.5% up on the forecast,operating income was 2.5% down, ordinary income was 2.0% up, and net income attributable to the ownersof the parent was 1.4% down. The factors behind the decline in income was that one part of the transferring of
the soaring prices of raw materials onto sales prices was pushed-back to the 2H and also due to accounting
reasons, following the acquisition of a sales agency and it being made a subsidiary. On a stand-alone basis, both
net sales and ordinary income were new record highs. Income declined slightly on a consolidated basis, but thiswas compared to the extremely good results in the same period in the previous fiscal year, and the operating
income margin was maintained at the high level of 11.2%.

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

Hagihara Industries Inc.

17-Aug.-2018

7856 Tokyo Stock Exchange First Section

http://www.hagihara.co.jp/en/

Performance trends

FY10/18 1H consolidated results(¥mn)
1H FY10/17

1H FY10/18

YoY

Amount% of net
sales

Initialforecast

Amount% of net
sales

ChangeChangerate% change compared
to forecast

11,571100.0%

12,00012,658100.0%

1,086

9.4%

5.5%

Plastic processed products
business

8,720

75.4%

-

9,566

75.6%

846

9.7%

-

Sheet and construction
materials-related

2,793

24.1%

-

2,841

22.5%

48

1.7%

-

Industrial materials-related

3,792

32.8%

-

4,312

34.1%

520

13.7%

-

Living materials-related

1,745

15.1%

-

1,939

15.3%

194

11.1%

-

389

3.4%

-

473

3.7%

84

21.5%

-

2,850

24.6%

-

3,091

24.4%

240

8.4%

-

Gross profit

3,527

30.5%

-

3,633

28.7%

105

3.0%

-

SG&A expenses

1,993

17.2%

-

2,220

17.5%

226

11.4%

-

Operating income

1,533

13.3%

1,450

1,413

11.2%

-120

-7.9%

-2.5%

1,213

13.9%

-

993

10.4%

-219

-18.1%-Net sales

Other plastics
Machinery products business

Plastic processed products
business

320

11.2%

-

419

13.6%

99

30.9%

-

Ordinary income

1,558

13.5%

1,450

1,479

11.7%

-79

-5.1%

2.0%

Net income attributable to the ownersof the parent

1,078

9.3%

1,025

1,010

8.0%

-68

-6.3%

-1.4%

Machinery products business

Source: Prepared by FISCO from the Company's results briefing materials(2) Segment trends
In the plastic processed products business, which contributes three quarters of total net sales, net sales increased
9.7% YoY. Sales of sheet and construction materials-related rose only slightly, but sales of industrial materials-related, which includes BarChip, grew 13.7%. Sales of living materials-related increased 11.1% from the growthin sales of adhesive cloth and original yarn for artificial grass. In this segment, operating income declined 18.1%
YoY and the operating income margin worsened by 3.5 percentage points to 10.4%. On analyzing the factors
causing operating income to increase and decrease, we see that the effects of the higher sales (+¥254mn) failed
to cover for the deterioration in the profit margin due to the soaring prices of raw materials (-¥252mn) and theincrease in SG&A expenses (-¥220mn).
In the machinery products business, net sales increased 8.4% YoY, including due to the higher sales of film slittersfor LiB batteries in China and the effects of actively exhibiting products overseas, including at overseas exhibitions.
In this segment, the operating income margin improved 2.4 percentage points to 13.6%.
(3) Trends in the price of the main raw materials
In the domestically produced naphtha market, in FY10/18 1H the price per kiloliter of naphtha soared to ¥45,000,
up 20% YoY. The Company’s basic policy is to transfer fluctuations in raw-materials costs onto sales prices, but
the rise in the prices of sheet construction materials-related products did not finish at the end of April and the
profit margin worsened. Although a time lag occurred, the price increases had spread by May.

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Performance trends㻯㼔㼍㼚㼓㼑㼟㻌㼕㼚㻌㼜㼞㼕㼏㼑㼟㻌㼛㼒㻌㼏㼞㼡㼐㼑㻌㼛㼕㼘㻌㼍㼚㼐㻌㼚㼍㼜㼔㼠㼔㼍㻰㼛㼙㼑㼟㼠㼕㼏㻙㼜㼞㼛㼐㼡㼏㼑㼐㻌㼚㼍㼜㼔㼠㼔㼍㻌㼜㼞㼕㼏㼑㻌㻔㼘㼑㼒㼠㻕㼃㼀㻵㻌㼜㼞㼕㼏㼑㻌㻔㼞㼕㼓㼔㼠㻕¥ / US dollar rate (right)㻔¥㻛㻷㻸㻕
㻤㻜㻘㻜㻜㻜

(¥ / US dollar)㻝㻠㻜㻣㻜㻘㻜㻜㻜

㻝㻞㻜㻢㻜㻘㻜㻜㻜

㻝㻜㻜㻡㻜㻘㻜㻜㻜

㻤㻜㻠㻜㻘㻜㻜㻜
㻢㻜㻟㻜㻘㻜㻜㻜

㻠㻜㻞㻜㻘㻜㻜㻜

㻞㻜㻝㻜㻘㻜㻜㻜
㻜

㻜
㻞㻜㻝㻞

㻞㻜㻝㻟

㻞㻜㻝㻠

㻞㻜㻝㻡

㻞㻜㻝㻢

㻞㻜㻝㻣

㻞㻜㻝㻤
㻔㼅㼑㼍㼞㻕

Source: Prepared by FISCO from various market data(4) Impact of the acquisition of EPC Holdings
In February 2018, the Company acquired its sales agency, EPC Holdings (Singapore), in order to strengthen
overseas sales of the concrete reinforcing fiber BarChip. It acquired all of the shares, which were held by six
Australian companies, including investment companies, for ¥1,445mn, and made it a consolidated subsidiary.
Half of the increase in SG&A expenses in FY10/18 1H, of approximately ¥100mn, was related to the acquisitionof EPC Holdings. Due to it being made a subsidiary, two months of this company’s results were reflected in the
consolidated results. In the past, the Company recorded it sales as profits, but transactions that remained in theinventory assets of EPC Holdings were treated as unrealized gain. Goodwill from the acquisition was ¥817mn,
which will be amortized over five years. In FY10/18 1H, ¥27mn, which is equivalent to two months’ worth, wasrecorded in SG&A expenses, and the remainder of ¥790mn was recorded in intangible non-current assets. Also,
costs relating to the acquisition were ¥15mn. The two-month contributions of EPC Holdings to the consolidated
results were ¥458mn to net sales, ¥41mn to operating income, ¥33mn to ordinary income, and ¥17mn to net
income. Its income level was higher than was anticipated at the time of the acquisition.
2. Financial position and management indicators
At the end of FY10/18 1H, total assets were up ¥1,051mn on the end of the previous fiscal year to ¥28,165mn.
Current assets increased ¥283mn, with the main increase and decrease items including cash and deposits(-¥1,532mn), notes and accounts receivable (+¥975mn), and inventory assets (+¥665mn). The decrease in cash
and deposits was from the expenditure relating to the corporate acquisitions. Notes and accounts receivable rosedue to the higher sales. The increase in inventory assets was not an unintended one, as the sales destinations havebeen determined. In debits, interest-bearing debt increased ¥187mn. Net assets rose ¥585mn. The current ratio,
which shows the ability to make short-term payments, was 272.7%, while the equity ratio, which is a long-term
indicator, was 72.5%, and both indicate an extremely high level of financial stability.

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13 20

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

Hagihara Industries Inc.

17-Aug.-2018

7856 Tokyo Stock Exchange First Section

http://www.hagihara.co.jp/en/

Performance trends

Consolidated balance sheet(¥mn)
As of October
31, 2016

As of October
31, 2017

As of April 30,
2018

Change15,785

17,761

18,044

283

Cash and deposits

6,235

7,648

6,116

-1,532

Notes and accounts receivable - trade

5,312

5,490

6,466

975

Inventory assets

3,645

3,955

4,620

665

Property, plant and equipment

7,027

7,245

7,196

-49

Intangible non-current assets

137

122

918

795

Current assets

Investment, etc.

1,923

1,984

2,006

22

Total assets

24,874

27,114

28,165

1,051

Current liabilities

5,450

6,025

6,616

591

Non-current liabilities

1,474

1,244

1,119

-125

1,052

967

1,155

187

Total liabilities

6,924

7,269

7,735

466

Net assets

17,94919,844

20,430585

Current ratio

289.6%

294.8%

272.7%

Equity ratio

72.2%

73.2%

72.5%

(Interest-bearing debt)[Stability]

Source: Prepared by FISCO from the Company's financial results██Outlook
For FY10/18, has left unchanged the initial forecast of record highincome• FY10/18 outlook
FY10/18, the Company projects a 5.4% YoY increase in consolidated net sales to ¥24,500mn, a 2.9% rise inoperating income to ¥2,800mn, a 1.7% increase in ordinary income to ¥2,800mn, and a 0.8% increase in net income
attributable to the owners of the parent to ¥1,980mn, and there have been no changes to the initial forecasts.
FY10/18 consolidated forecast(¥mn)
FY10/17

FY10/18 E

YoY

Amount% of net sales

Amount% of net sales

Change% change

23,238100.0%

24,500100.0%

1,262

5.4%

Plastic processed products business

17,74676.4%

18,400

75.1%

654

3.7%

Machinery products business

5,492

23.6%

6,100

24.9%

608

11.1%

2,721

11.7%

2,800

11.4%

79

2.9%

2,139

12.1%

2,050

11.1%

-89

-4.2%

Net sales

Operating income
Plastic processed products business

581

10.6%

750

12.3%

169

28.9%

Ordinary income

2,753

11.8%

2,800

11.4%

47

1.7%

Net income attributable to the owners of
the parent

1,964

8.5%

1,980

8.1%

16

0.8%

Machinery products business

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

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14 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

OutlookBy business, in the plastic processed products business, the forecasts are for net sales of ¥18,400mn, up 3.7%
YoY, and operating income of ¥2,050mn, down 4.2%. In the machinery products business, the forecasts are fornet sales of ¥6,100mn, up 11.1%, and operating income of ¥750mn, up 28.9%, so this business will cover for theslump in the plastic processed products business. Up until the present time, both businesses have maintained amutually complementary relationship, of performing well when the other is slumping and vice versa.
The market price of domestically produced naphtha fell from approximately ¥47,900 per kiloliter in FY10/15 to around¥31,600 in FY10/16, and then increased to approximately ¥36,600 in FY10/17. At the time of preparing the budget
for FY10/18, the price of naphtha was trending upwards, so the Company set the estimated price at ¥43,900. The
price was ¥45,000 in the current Q1 and around ¥44,800 in Q2. A rise in the price of naphtha of ¥1,000 per kilolitercauses income to decline by approximately ¥30mn a year. However, in terms of financial recording, a cost increase
does not in itself cause income to decrease. The Company aims to transfer the soaring prices of raw materials onto
sales prices, and the time lag until the prices are increased causes profitability to worsen in the plastic processed
products business. As a measure to deal with the rise in raw material prices, it is working so it does not rely on thespecific raw material of domestically produced naphtha and it is progressing development that will make it possible
to substitute it with imported goods.
Up to the present time, the Company has transferred the rise in the price of domestically produced naphtha onto
sales prices. Moreover, it plans to raise prices again to reflect the increase in distribution costs.
The unrealized gain relating to the acquired EPC Holdings will remain to a small extent in Q3, but it will have been
eliminated by the end of the period.
In the middle of June 2018, the Company acquired all of the shares of Toyo Heisei Polymer (Kochi City, Kochi
Prefecture) for ¥1,130mn from Toyo Denka Kogyo Co., Ltd., and made it a subsidiary. The business results ofthis company in FY3/17 were net sales of ¥4,298mn, operating income of ¥342mn, ordinary income of ¥330mn,
net income of ¥235mn, net assets of ¥1,682mn, and total assets of ¥4,949mn. The acquired company conducts
businesses for functional yarn based on flat yarn and various types of industrial material laminated cloth, and it also
handles plastic film products. Through making it a subsidiary, the Company will open-up new markets by integrating
both companies’ technological capabilities, while also improving their shared plastic processing technologies.
In the machinery products business, demand from China is strong and the size of orders is expanding. Unlike inthe past, payment terms are also not a problem. As it is a cyclical business, when demand is strong, the backlogof orders accumulates and the delivery dates are pushed back. At the present time, while focusing on eliminating
the backlog of orders in accordance with the schedule, it is also essential that a certain amount of management
resources is allocated to areas such as developing new strategic products.

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15 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/██Longer-term growth strategies
Is acquiring plastic processed products business-related companies
domestically and overseas
1. Medium-term management plan DH56
DH56, the current medium-term management plan, runs for 3 years up until FY10/18. In order for the Company’sGroup to realize new growth, it has set the slogan of “Dynamic HAGIHARA 56 (DH56) Brave Challenge and New
Hagihara Dynamism.” The plan’s basic policies are 1) Strengthen sales of strategic products and open-up markets,2) Expand overseas sales, 3) Rebuild the product manufacturing process, and 4) Create value for customers by
integrating new technologies.
Basic policies in the medium-term management plan “Dynamic HAGIHARA 56”
Basic policies(1) Strengthen sales of strategic products and open-up markets· Rebuild the marketing system· Implement a products strategy to capture a broad customer base(2) Expand overseas sales· Develop new markets overseas· Expand the overseas sales structure(3) Rebuild the product manufacturing process· Specialization of functions at overseas factories and promotion of labor saving and unmanned operations at domestic factories· Improve quality and reduce costs through the standardization of modules and unitization(4) Create value for customers by integrating new technologies· Develop products that meet customer needs· Launch new materials and new technologies
Source: Prepared by FISCO from the Company's financial results

In FY10/18, the Company actively implemented various measures, such as exhibiting in 13 exhibitions. It participatedin exhibitions held in Japan, Vietnam, China, Thailand, the Philippines and Taiwan. At the exhibitions, it not only
exhibited and sold its own products, it also collected information on rival companies, customers and production
facilities. The effects of these efforts are already starting to appear, including the acquisition of orders for battery-related special slitters and the acquisition of the first order in the Philippines.
2. Progress on the medium-term management plan targets
The numerical targets in the medium-term management plan for FY10/18, which is its final fiscal year, are net salesof ¥27,000mn, ordinary income of ¥2,800mn, and an ordinary income margin of 10.4%. The full fiscal year results
forecasts for the same period are net sales of ¥24,500mn, ordinary income of ¥2,800mn, and an ordinary income
margin of 11.4%. So the forecast for ordinary income is the same as the target in the medium-term management
plan, but the net sales forecast is less than its target.

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16 20

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

Hagihara Industries Inc.

17-Aug.-2018

7856 Tokyo Stock Exchange First Section

http://www.hagihara.co.jp/en/

Longer-term growth strategies㻼㼞㼛㼓㼞㼑㼟㼟㻌㼛㼚㻌㼠㼔㼑㻌㼙㼑㼐㼕㼡㼙㻙㼠㼑㼞㼙㻌㼙㼍㼚㼍㼓㼑㼙㼑㼚㼠㻌㼜㼘㼍㼚㻌㼠㼍㼞㼓㼑㼠㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻔¥㼙㼚㻕㻻㼞㼐㼕㼚㼍㼞㼥㻌㼕㼚㼏㼛㼙㼑㻟㻜㻘㻜㻜㻜
㻞㻡㻘㻜㻜㻜

㻞㻣㻘㻜㻜㻜㻌
㻞㻞㻘㻡㻟㻜㻌

㻞㻡㻘㻜㻜㻜㻌

㻞㻠㻘㻜㻜㻜㻌

㻞㻠㻘㻡㻜㻜㻌

㻞㻟㻘㻞㻟㻤㻌

㻞㻞㻘㻠㻤㻡㻌

㻞㻜㻘㻜㻜㻜
㻝㻡㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜
㻡㻘㻜㻜㻜㻞㻘㻣㻡㻟㻌

㻞㻘㻢㻜㻜㻌

㻞㻘㻡㻞㻟㻌

㻞㻘㻡㻜㻜㻌

㻞㻘㻟㻥㻞㻌

㻞㻘㻤㻜㻜㻌

㻞㻘㻤㻜㻜㻌

㻜㻾㼑㼟㼡㼘㼠㼟

㼀㼍㼞㼓㼑㼠

㻲㼅㻝㻜㻛㻝㻡

㻾㼑㼟㼡㼘㼠㼟

㼀㼍㼞㼓㼑㼠

㻲㼅㻝㻜㻛㻝㻢

㻾㼑㼟㼡㼘㼠㼟

㼀㼍㼞㼓㼑㼠

㻲㼅㻝㻜㻛㻝㻣

㻲㼛㼞㼑㼏㼍㼟㼠

㻲㼅㻝㻜㻛㻝㻤

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

3. Growth strategy(1) Market penetration strategy
As part of its market penetration strategy, the Company plans to increase sales volume and expand market sharethrough improving productivity in factories and reducing costs, and conducting the strategic pricing of someproducts. Over the 3 years of the current medium-term management plan, it intends to actively invest ¥5bn, in
addition to the approximately ¥2.5bn of normal capital investment. As one of the objectives is to improve themovement lines between factories, it is investigating reorganizing the factories. But due to various conditions, suchas the land allowance, it is behind schedule, so is likely that this task will be carried over to the next medium-term
management plan. At its existing factories, it is introducing the latest machinery and completing the skills training
for operations. At new bases, it intends to advance the updating of manufacturing equipment and further reduce
costs. The Company also plans to expand the product lineup and widen the custom base that it targets, with theaims of increasing sales and maintaining the profit margin.
In the machinery products business, the delivery periods of slitters for LiB battery separator film in China are being
extended to more than half a year due to the strong demand. In the production goods business, the Company
decided that it would not be appropriate to simply expand facilities in factories in conjunction with the current
strong demand, and rather it is aiming to shorten the production period by improving productivity. Since a few
years ago, it has been progressing unitization and thereby lowering design costs.
The Company is taking the business stance of meeting customers’ essential needs through the sales of its
products. Against the backdrop of the labor shortage and soaring personnel costs, recently its keywords havebeen “time reduction” and “labor saving.” The use of BarChips reduces the work processes in the installationof concrete in soil floors at construction sites and thereby reduces the construction period. A new product, thethree-axes shaftless center driver slitter, improves operating performance and is designed to replace the work of
cutting film and can be carried out in a short time by one person.

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17 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Longer-term growth strategies(2) Market development strategy
On entering FY10/18, the Company conducted two M&As domestically and overseas in its plastic processed
products business. The acquisitions of these companies were events anticipated in the current medium-term
management plan and were carried out after careful consideration over a long period.
a) Acquired EPC Holdings of Singapore, which is responsible for overseas sales of BarChip
The Company acquired EPC Holdings in February 2018, and although its sales of grain cover laminated cloth to
the United States have been slumping, in this 1H the percentage of total sales from overseas sales was maintainedat around the same level YoY, rising 0.1 of a percentage point to 28.1%. EPC Holdings, which was establishedin September 2007, has subsidiaries in Australia, Europe, North America and Latin America, which means 10
companies have been newly added to the scope of the Company’s consolidated results.
For overseas sales of BarChip, the Company sells to Japan, South Korean, China (including Hong Kong) andTaiwan, but the EPC Group, from its location in Singapore, conducts sales in another 30 countries and regions,based on its exclusive sales agreements with the Company. Incorporating the sales function of the EPC Groupmakes it possible to carry out a sales strategy with a high degree of freedom that integrates manufacturing andsales, including price negotiations with customers. Information on the final customers is acquired and user needs
are fed-back into technologies and product development. For the future, the Company is looking to further develop
its overseas business, including by utilizing the sales network of the ECP Group not only for BarChip, but also forother products. It plans to send several of its officers to EPC Holdings.
b) Acquired Toyo Heisei Polymer, which conducts a plastic film businessIn the middle of June 2018, the Company acquired all of the shares of Toyo Heisei Polymer held by Toyo Denka
Kogyo, a manufacturer of special alloy iron, for ¥1,130mn and made it a subsidiary. In 2007, Toyo Denka Kogyo,
which holds one third of the shares of TOAGOSEI Co., Ltd. <4045>, integrated its wholly-owned subsidiary
TOYO CHEMICAL Co., Ltd., and Heisei Polymer Co., Ltd., which it acquired from SHOWA DENKO K.K. <4004>,
to create Toyo Heisei Polymer. Toyo Heisei Polymer has plastic processing technologies in common with theCompany, but it additionally handles plastic films, which the Company does not. Its product lineup covers a wide
range of packaging items not handled by the Company, of stationary items such as clear files, tape for sealing
beverage containers, and infusion bags and other medical-use items. The Company is integrating both companies’
film and yarn technologies and advancing new applications development. Mr. Kuniaki Hagihara, the Company’s
Chairman and Representative Director, will participate in the management of this subsidiary.
(3) Product development strategy
BarChip’s new applications development include Hybrid Prestressed Concrete (HPC). In Okinawa, an overwhelming large number of houses are made of reinforced concrete due to the lack of wood in the post-war
period and climatic reasons, such as typhoons. The steel rods used in reinforced concrete are susceptible tosalt damage. Carbon fiber is used as a substitute without any concerns that it will rust, but while it is resistant todistortion, it is prone to cracking. The Company overcame this weak point by mixing carbon fiber with BarChip,
expansion materials, and other materials, to create concrete that is “thin,” “light,” “and resistant to bending.”
Concrete products that are highly durable and easy to process and transport can be used for the construction ofhomes that prioritize design. The latest products originating from Okinawa will change the common perception
in the industry that concrete is “thick,” “heavy,” and “hard.” Going forward, the Company will advance new HPC
applications developments.

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18 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/██Shareholder return policy
In FY10/18, plans to pay an annual dividend of ¥32
1. Dividend policy
Dividend policy is to return profits to shareholders and maintain stable dividends. The dividend payout ratio standard
is around 20%.
On November 1, 2017, the Company carried out a 2-for-1 share split of ordinary shares, and after adjusting for this, in
FY10/16 the dividend per share increased ¥5 YoY to ¥30. It obtained temporary profits, as its recorded extraordinary
income of ¥322mn as compensation for land acquisition, and therefore it returned profits to shareholders byincreasing the dividend.
As it did not record extraordinary income in FY10/17 as it did in the previous fiscal year, the initial forecast for thedividend per share was an annual dividend of ¥25.0 from dividends of ¥12.5 at the end of 1H and ¥12.5 at the endof the fiscal period. But as the favorable results exceeded the forecasts, the Company raised the annual dividend
to ¥32.0 for a dividend payout ratio of 23.6%.
For FY10/18, the forecast is that net income attributable to the owners of the parent will be basically unchanged
YoY, so the Company is forecasting an annual dividend per share of ¥32.0 from dividends of ¥16.0 at the end of 1H
and ¥16.0 at the end of the fiscal period. The forecast dividend payout ratio is 23.4%.

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㻌㼍㼒㼠㼑㼞㻌㼍㼐㼖㼡㼟㼠㼙㼑㼚㼠㻵㼚㼠㼑㼞㼕㼙㻌㼐㼕㼢㼕㼐㼑㼚㼐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㻔¥㻕㻼㼑㼞㼕㼛㼐㻙㼑㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕

㻟㻡
㻟㻜㻚㻜
㻟㻜
㻞㻡

㻞㻡㻚㻜
㻞㻜㻚㻜

㻞㻢㻚㻝

㻝㻡㻚㻜

㻞㻟㻚㻢

㻞㻟㻚㻠

㻝㻣㻚㻜

㻝㻢㻚㻜

㻞㻡㻚㻜

㻞㻡㻚㻠

㻝㻣㻚㻡

㻝㻡㻚㻜

㻞㻜㻚㻜
㻝㻡㻚㻜

㻝㻜
㻡

㻟㻡㻚㻜
㻟㻜㻚㻜

㻞㻟㻚㻠

㻝㻥㻚㻥
㻝㻜㻚㻜

㻟㻞㻚㻜

㻞㻡㻚㻜

㻞㻜
㻝㻡

㻟㻞㻚㻜

（㻑）

㻝㻜㻚㻜
㻝㻞㻚㻡

㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻲㼅㻝㻜㻛㻝㻟

㻲㼅㻝㻜㻛㻝㻠

㻲㼅㻝㻜㻛㻝㻡

㻝㻡㻚㻜

㻝㻢㻚㻜
㻡㻚㻜

㻜

㻜㻚㻜
㻲㼅㻝㻜㻛㻝㻢

㻲㼅㻝㻜㻛㻝㻣

㻲㼅㻝㻜㻛㻝㻤㻌㻱Note: The Company made a 2-for-1 share split on November 1, 2017.
Source: Prepared by FISCO from the Company's financial results

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19 20

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

Hagihara Industries Inc.
7856 Tokyo Stock Exchange First Section

17-Aug.-2018
http://www.hagihara.co.jp/en/

Shareholder return policy

2. Shareholder benefits program
The Company introduced a benefits program for shareholders at the end of FY10/16. Shareholders who satisfy
certain conditions can choose from among the products or donations listed by the Company. Shareholders who
have held shares continuously for less than three years can choose a product with a value of ¥1,000 if they hold from100 to less than 500 shares, and of ¥3,000 if they hold 500 or more shares. Shareholders who have held sharescontinuously for three years or more can choose a product with a value of ¥2,000 if they hold from 100 to less than
500 shares and of ¥6,000 if they hold 500 or more shares. The Company also gives shareholders the option of
donating equivalent amounts to the Ohara Museum of Art, the Association of Medical Doctors of Asia (AMDA), andthe Japanese Red Cross Society. It will continue the shareholder benefits program in FY10/18 also.
The number of shareholders temporarily decreased to around 2,000 people, but by the end of FY10/17, it had
increased to 5,068 people, including due to the effects of the share split and the introduction of the shareholder
benefits program██Information security
In addition to restricting the taking-out of information devices, including ordinary laptop computers, in preparation
for the occurrence of a disaster or other emergency situation, the Company plans to move its systems to the Cloudby the summer of 2018 as part of its business continuity plan (BCP).

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20 20

Disclaimer
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This report was prepared at the request of its subject company using information provided
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this report are subject to change without prior notice.
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