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

27-Jun.-2024
FISCO Ltd. Analyst

Nobuo Terashima

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

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

01

2. Outlook for FY3/25.. .....................................................................................................................................

01

3. Medium-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 FY3/24........................................................................................................................

07

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

08

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

09

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

10■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 11• Outlook for FY3/25.. .....................................................................................................................................

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

12

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

13

3. Sustainability initiatives................................................................................................................................

14■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 16

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.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Summary
For FY3/24, demand recovered for operating profit, increasing by
32.4% YoY. For FY3/25, uncertainties in the construction market arebehind a forecast decrease of 17.7% in operating profit. Planned
annual dividend of ¥215.0
SAKAI HEAVY INDUSTRIES, LTD. <6358> (hereinafter also referred to as “the Company”) is a manufacturer specializing in road rollers for road paving and other road construction equipment. It has a long history in this field, andboasts the industry’s leading market share in Japan at over 70%. In recent years, the Company has been focusing
on developing overseas markets, especially in North America and Southeast Asia.
1. Outline of results for FY3/24
In the consolidated results for FY3/24, net sales increased 5.0% year on year (YoY) to ¥33,020mn, operating profit
increased 32.4% to ¥3,318mn, ordinary profit rose 42.8% to ¥3,324mn, and profit attributable to owners of parent
increased 44.0% to ¥2,440mn. Despite somewhat of a slowdown in results from the outset of 2H, the Company
achieved higher earnings for the full year. Although net sales in Japan (consolidated, by region) decreased by 5.8%
YoY amid a scenario in 2H of waning appetite for investment among construction equipment rental enterprises,
the Company’s primary customers, sales in North America rose by 25.1% given expanding investment in road
construction due to the Infrastructure Investment and Jobs Act. In Asia, sales decreased by 2.9% amid sluggish
performance in Vietnam, China and other countries, despite the Company having maintained strong results inIndonesia. The gross margin improved by 2.4 points overall amid progress achieved by the Company in reforming its
profit structure by revising prices and reducing costs. Although SG&A expenses increased by 6.9% accompanying
resumption of business activities, the increase in gross profit (up 14.8% YoY) driven by sales growth led to a large
increase in operating profit. Due to these results, the Company increased its annual dividend to ¥285.0 (comparedto ¥200.0 in the previous fiscal year).
2. Outlook for FY3/25
For FY3/25 consolidated results, the Company forecasts net sales of ¥33,000mn (down 0.1% YoY), operating profitof ¥2,730mn (down 17.7%), ordinary profit of ¥2,700mn (down 18.8%), and profit attributable to owners of parent of¥1,830mn (down 25.0%). In Japan, the temporary slowdown in business is likely to persist as a result of companies
making structural adjustments across their entire supply chains due to rising costs and the “2024 problem” in thenation’s construction and logistics industries. Overseas, supply chain risks and resource and logistics costs are
expected to remain high amid persisting fragmentation of the global economy due to escalating tensions in Ukraine
and the Middle East. Given this situation, the Company envisions declining sales and profits for the full year in FY3/25
given the likelihood of it continuing to face challenges with respect to its financial results during 1H at the very least.
However, the Company plans to review its progress on a quarterly basis and disclose such findings as necessary.

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

01 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Summary

3. Medium-term growth strategy
In June 2021, the Company released its Medium-Term Management Policy which runs through FY3/26. The ultimate
goal is to increase corporate value and shareholder value, and in order to achieve this, the Company will promotea business growth strategy and an efficient capital strategy. In terms of numerical targets, in FY3/26, the Company
is aiming for net sales of ¥30.0bn, operating profit of ¥3.1bn, ROE (return on equity) of 8.0%, and will aim to
maintain a stable dividend payout ratio of 50%. The Company has already surpassed its target for net sales,
but has nonetheless opted to leave its numerical targets unchanged at this point in time given that it forecasts a
decrease in operating profit in FY3/25. Meanwhile, the Company paid annual dividends of ¥200.0 (dividend payout
ratio of 49.9%) and ¥285.0 (dividend payout ratio of 49.6%) for FY3/23 and FY3/24, respectively, and furthermore
maintains its plans to pay an annual dividend of ¥215.0 (dividend payout ratio of 49.9%) in FY3/25*. As such, theCompany deserves high marks for its stance of announcing a clear capital policy to improve ROE and then furnishingshareholder returns in line with that policy.
*	These figures are based on data prior to a 1:2 split of the Company’s shares to be carried out at the end of September
2024 (effective from October 1st), as announced by the Company on May 21, 2024.

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• In FY3/24 results, 32.4% increase YoY in operating profit, operating profit forecast to decrease 17.7% in FY3/25• Medium-term numerical targets aiming for net sales of ¥30.0bn, operating profit of ¥3.1bn and ROE of 8.0% for
FY3/26•

Results trends
Net sales (left)（¥mn）
40,00031,45930,000

（¥mn）
4,000

Operating profit (right)
33,02033,000
3,000

3,318

26,59921,624

2,730
2,506

20,000

2,000

1,383

10,000

1,000

701
0

0
FY3/21

FY3/22

FY3/23

FY3/24

FY3/25 E

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

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

02 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Company profile
The leading manufacturer of road rollers with a long history.
Characterized by high market share and technological capabilities
The Company has a long history, dating back to 1918 when founded by Kinnosuke Sakai. At the time, the Company
manufactured and repaired parts for automobiles, internal combustion engines, and steam locomotives. After
starting to manufacture locomotives in 1927, in 1929 the Company started manufacturing road rollers for road rollingcompaction. Since then, the Company has continued to develop as a specialized manufacturer of road rollers forpaving roads and other road construction equipment. Currently, the Company is the leading 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 the end of FY3/24, the Company has
four domestic subsidiaries, and four overseas subsidiaries (U.S., China, two in Indonesia).
The Company listed its shares on the Second Section of the Tokyo Stock Exchange (TSE) in 1964, and its shareswere reclassified to the First Section of TSE in 1981. In conjunction with the TSE’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 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Business overview
The leading manufacturer of road rollers with a domestic market
share of over 70%. Will seek growth by offering high added value
and expanding 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 0.5 tons 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 of yen. Production is carried out onan expected production basis, and the Company does not manufacture machines based on individual orders. The
useful lives of the Company’s products are in the 20-30 years range, but very few customers use a machine until theend of its useful life. In most cases, they replace it after statutory depreciation (6-7 years) with a new one. Most of
the depreciated equipment is 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 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Business overview

In terms of net sales by region* in FY3/24, net sales in Japan were ¥14,320mn (43.4% of total net sales), net sales
in North America were ¥9,700mn (29.4%), net sales in Asia were ¥7,566mn (22.9%), and net sales in other regions
totaled ¥1,432mn (4.3%).
*	Net sales by region is the amount of products actually sold to customers, classified by customer location, and differs fromthe reportable segment “Net Sales by Location” in the financial results.

Ratio of net sales by region in FY3/24
Other regions
4.3%

Asia
22.9%

Japan
43.4%

North America
29.4%

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 HOLDINGS 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. It has raised its
technological capabilities and credibility through experience gained over this long history.

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

05 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

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 strength lies in the fact that it is a brand which customers have used for many years
and that has accumulated long-term insight due to abundance of worksite experiences, and these are points thathave earned the trust of many customers.
3. Market share and competitors
According to data from the Japan Construction Equipment Manufacturers Association, in FY2023 domestic construction equipment shipment value including exports was ¥3.7tn, and road roller and other road construction
equipment (the Company’s main products) account for 2.3% of this amount. The Company has a share of over 70%
in the road roller market within this road equipment market, making it the leading 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 muchof a presence. In Japan, the Company’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 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

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 appears to
be around 15%. The Company’s main competitors in the global market include Caterpillar <CAT>, FAYAT SAS,WIRTGEN GROUP, and Volvo Personvagnar AB, but none of these companies are manufacturers that specialize
in road rollers.

■ Results trends
Operating profit up by 32.4% for the full year of FY3/24 despite
slowdown in 2H
1. Outline of results for FY3/24
In the consolidated results for FY3/24, net sales increased 5.0% YoY to ¥33,020mn, operating profit increased
32.4% to ¥3,318mn, ordinary profit rose 42.8% to ¥3,324mn, and profit attributable to owners of parent increased
44.0% to ¥2,440mn
Net sales in Japan were down by 5.8% due to waning appetite for investment among construction equipment rental
companies, the Company’s primary customers, from the outset of 2H. Meanwhile, net sales overseas were up by
15.1%, largely driven by results in North America. In regard to profits, the gross margin improved by 2.4 points YoY
overall amid progress achieved by the Company in reforming its profit structure by revising prices and reducing
costs. Meanwhile, although SG&A expenses increased by 6.9% accompanying resumption of business activities,
the increase in gross profit (up 14.8% YoY) driven by sales growth led to a large increase in operating profit.
Analyzing the change factors for operating profit, the increase in net sales had a positive ¥405mn impact, theimprovement in the cost of sales ratio had an impact of plus ¥800mn, and the increase in SG&A expenses had anin impact of minus ¥391mn. Breaking down the increase in SG&A expenses, personnel expenses had a positive¥300mn impact, travel and transportation expenses had a positive ¥49mn impact, sales commission had a positive¥27mn impact, and other SG&A expenses had a positive ¥17mn impact.
Overview of FY3/24 consolidated results(¥mn)
FY3/23

FY3/24

ChangeResults% of net sales

Results% of net sales

Amount%Net sales

31,459100.0%

33,020100.0%

1,560

5.0%

Gross profit

8,165

26.0%

9,369

28.4%

1,204

14.8%

Selling, general and administrative expenses

5,659

18.0%

6,050

18.3%

391

6.9%

Operating profit

2,506

8.0%

3,318

10.1%

812

32.4%

Ordinary profit

2,327

7.4%

3,324

10.1%

996

42.8%

Profit attributable to owners of parent

1,694

5.4%

2,440

7.4%

746

44.0%

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

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

07 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Results trends

2. Trends by region
In Japan, although sales related to public investments such as road and civil engineering projects were relatively
strong in 1H against a backdrop of measures to accelerate the national resilience plan, net sales for the full year
decreased to ¥14,320mn (down 5.8% YoY) amid waning appetite for investment among the Company’s primarycustomers (construction equipment rental companies) from the outset of 2H given concerns regarding frequentsales price revisions and the “2024 problem.” Overseas, net sales were ¥18,699mn (up 15.1%) mainly as a resultof strong demand for construction machinery in North America, while foreign exchange (weaker yen) also had
a positive impact. Of this amount, in North America net sales greatly increased to ¥9,700mn (up 25.1%) due toincreasing investment in road construction due to the Infrastructure Investment and Jobs Act amid a decrease in
new housing starts, as well as the effects of sales activities aimed at increasing market share. In Asia, net sales were
¥7,566mn (down 2.9%) amid sluggish performance in Vietnam and China, despite the Company having maintained
relatively strong results in Indonesia. In other markets (Africa, Oceania, Central and South America, etc.) net sales
were ¥1,432mn (up 103.8%).
Net sales by region(¥mn)
FY3/22

FY3/23

FY3/24

ChangeResults% of net
sales

Results% of net
sales

Results% of net
sales

Japan

14,292

53.7%

15,20848.3%

14,320

43.4%

-888

-5.8%

Overseas

12,30646.3%

16,251

51.7%

18,699

56.6%

2,448

15.1%

North America

5,039

19.0%

7,751

24.7%

9,700

29.4%

1,948

25.1%

Asia

6,492

24.4%

7,796

24.8%

7,566

22.9%

-229

-2.9%

775

2.9%

703

2.2%

1,432

4.3%

729

103.8%

26,599100.0%

31,459100.0%

33,020100.0%

1,560

5.0%

Other regions
Total

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

Net sales by region
Japan

（\mn）

North America

Asia

Other regions

35,0001,432

703

30,000775

25,000

7,796

7,566

6,492
20,000

7,751

9,700

14,292

15,20814,320FY3/22

FY3/23

FY3/24

5,039
15,00010,0005,000
0Source: Prepared by FISCO from the Company’s financial results

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

08 16

%

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Stable financial condition, ample cash and deposits of ¥8,383mn.
3. Financial condition
In terms of the Company’s financial condition as of the end of FY3/24, current assets were ¥28,637mn (up ¥1,196mn
from the end of the previous fiscal year). The main factors included an ¥899mn increase in cash and deposits, a¥965mn decrease in notes and accounts receivable - trade (including electronically recorded monetary claims operating), and a ¥1,206mn increase in inventories. Non-current assets were ¥15,600mn (up ¥2,235mn). The main
factors include a ¥190mn increase in property, plant and equipment mainly due to capital investment, a ¥52mn
decrease in intangible assets, and a ¥2,097mn increase in investments and other assets. Investments and otherassets grew because of an increase of ¥2,209mn in investment securities in the robust stock market. As a result,
total assets were ¥44,237mn (up ¥3,432mn).
Meanwhile, total liabilities were ¥15,071mn (down ¥437mn from the end of the previous fiscal year). The main
factors among current liabilities included a ¥1,021mn decrease in payables (notes and accounts payable – trade andelectronically recorded obligations – operating), a ¥121mn decrease in short-term borrowings, and in non-current
liabilities, a ¥97mn increase in long-term borrowings and a ¥657mn increase in deferred tax liabilities. Total net
assets stood at ¥29,165mn (up ¥3,870mn), with the main factors including a ¥1,549mn increase in retained earnings
due mainly to booking profit attributable to owners of parent, and a ¥1,542mn increase in valuation difference on
available- for-sale securities. As a result, the equity ratio as of the end of FY3/24 was 65.8% (61.8% at the end of
the previous fiscal year).
Consolidated balance sheet(¥mn)
End of FY3/23

End of FY3/24

Changeamount

7,484

8,383

899

9,464

8,498

-965

Inventories

9,452

10,658

1,206

Total current assets

27,44028,637

1,196

7,383

7,573

190

307

255

-52

5,673

7,771

2,097

Total non-current assets

13,364

15,6002,235

Total assets

40,804

44,237

3,432

7,146

6,125

-1,021

Cash and deposits
Notes and accounts receivable - trade (including
electronically recorded monetary claims - operating)

Property, plant and equipment
Intangible assets
Investments and other assets

Notes and accounts payable - trade (including
electronically recorded obligations – operating)
Short-term borrowings
Total current liabilities

4,751

4,629

-121

14,377

13,180-1,197Long-term borrowings

58

155

97

Retirement benefit liability

486

1,144

657

Total non-current liabilities

1,130

1,890

759

Total liabilities

15,50815,071-437

Retained earnings

12,642

14,191

1,549

Valuation difference on available for-sale securities

1,837

3,380

1,542

25,29529,165

3,870

Total net assets

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

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

09 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Results trends

Although the Company has been working to streamline its balance sheet, net working capital (trade receivables +inventories – trade payables) at the end of FY3/24 increased to ¥13,031mn (up 10.7%, ¥1,261mn YoY). Inventory
turnover ratio decreased 0.23 times YoY to 3.10 times per year, due to steady sales, as well as a ¥1,206mn (up12.8%) increase in inventories driven by increased production and measures to reduce the risk of part shortages.
As a results, the net working capital to net sales ratio was 39.5% (37.4% at the previous fiscal year-end), meaningthat the Company’s working capital framework is stably maintaining it at an appropriate level.
Net working capital(¥mn)
FY3/23 Results

FY3/24 Results

Consolidated net sales (annualized
consolidated net sales)

31,45933,020Trade receivables

9,464

Inventories

9,452

Trade payables-7,146

Net working capital

11,770ChangeAmount

%

1,560

5.0%

8,498

-966

-10.2%

10,658

1,206

12.8%

-6,1251,021-14.3%

13,031

1,261

10.7%

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

4. Cash flows
In FY3/24, net cash provided by operating activities was ¥2,482mn. The main revenue factors included recording¥3,324mn in profit before income taxes, ¥679mn in depreciation, and a decrease of ¥1,227mn in trade receivables.
The main expenditure factors included a ¥530mn increase in inventories and ¥1,383mn decrease in trade payables.
Net cash used in investing activities was ¥353mn. This was mainly due to ¥284mn in expenditure from the purchaseof property, plant and equipment. Net cash used in financing activities was ¥1,422mn. The main expenditures were¥358mn from the decrease (net) in long- and short-term borrowings, and ¥890mn in dividends paid. As a result,cash and cash equivalents increased ¥827mn from the end of the previous fiscal year, and the balance of cash andcash equivalents at the end of FY3/24 was ¥8,244mn.
Consolidated statements of cash flows(¥mn)
Net cash provided by (used in) operating activities
Profit before income taxes

FY3/23

FY3/24

1,893

2,482

2,329

3,324

Depreciation

714

679

Change in trade receivables (- denotes increase)

-683

1,227

Change in inventories (- denotes increase)-1,864-530

Change in trade payables (- denotes decrease)

1,003-1,383

Net cash provided by (used in) investing activities

-399

-353

Purchase of property, plant and equipment

-361

-284

Net cash provided by (used in) financing activities-2,242-1,422-1,292

-358

-780

-890

Change in long- and short-term borrowings (net)
Dividends paid
Change in cash and cash equivalents (- denotes decrease)

-509

827

Cash and cash equivalents at end of period

7,416

8,244

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

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10 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Outlook
Forecast envisioning sluggish performance in 1H amid concerns of
the “2024 problem” in construction and logistics. Full-year outlook
for 0.1% decrease in sales and 17.7% decline in operating profit YoY• Outlook for FY3/25
For FY3/25 consolidated results, the Company forecasts net sales of ¥33,000mn (down 0.1% YoY), operating profitof ¥2,730mn (down 17.7%), ordinary profit of ¥2,700mn (down 18.8%), and profit attributable to owners of parentof ¥1,830mn (down 25.0%).
Despite the ongoing likelihood of a stable market environment in Japan, North America, and Asia, the Company
has left its net sales forecast largely unchanged from the previous fiscal year at ¥33,000mn, amid a scenario of thetemporary slowdown persisting in Japan as a result of companies making structural adjustments across their entire
supply chains due to rising costs and the “2024 problem” in the nation’s construction and logistics industries. In
Japan, prices, wages, and interest rates are poised to increase, thereby narrowing the gap with respective levels
overseas. Meanwhile worldwide, supply chain risks as well as resource and logistics costs are expected to remainhigh amid persisting fragmentation of the global economy due to escalating tensions in Ukraine and the Middle East.
Given these factors, the Company projects a 17.7% YoY decrease in operating profit to ¥2,730mn. The Company
projects decreases in sales and operating profit of 7.7% and 46.6% YoY, respectively, given the remaining prospectof persistently sluggish appetite for investment among customers, particularly in 1H. Although a trajectory toward
recovery seems likely in 2H, it will be necessary to monitor developments going forward with the Company having
stated that it will make revisions as necessary when quarterly results are announced.
Consolidated outlook for FY3/25(¥mn)
FY3/24

FY3/25

ChangeResults% of net sales

Forecast% of net sales

Net sales

33,020100.0%

33,000100.0%

Amount-20-0.1%

Operating profit

3,318

10.1%

2,730

8.3%

-588

-17.7%

Ordinary profit

3,324

10.1%

2,700

8.2%

-624

-18.8%

Profit attributable toowners of parent

2,440

7.4%

1,830

5.5%

-610

-25.0%

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

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11 16

%

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Medium-term growth strategy
Medium-term growth strategy aims for operating profit of ¥3.1bn,
and ROE of 8.0%. No change in these plan targets at this point intime
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 abusiness growth strategy and an efficient capital strategy. In terms of numerical targets, the Company is aiming fornet sales of ¥30.0bn, operating profit of ¥3.1bn, ROE of 8.0% in FY3/26, and will aim to maintain a stable dividend
payout ratio of 50%. The Company has already achieved its net sales target, but has nonetheless opted to leave its
numerical targets unchanged at this point in time given that it maintains its forecast projecting that operating profit
will decrease to ¥2,730mn in FY3/25.
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 compaction management system (with CCV). Thissystem remotely links work managers with worksites, allowing compaction quality to be confirmed and managed (e.g., number of rolling compactions) in real time. In October 2022, it was certified as ICT Construction
Machinery by Japan’s Ministry of Land, Infrastructure, Transport and Tourism.
c) The Company aims to improve productivity by commercializing autonomous vibratory (unmanned) rollers. In
the autonomous driving industry standard equipment development project, the Company is advancing commercialization through worksite implementation testing with multiple general contractors. Specifically, throughunmanned construction work, the Company aims to create safe worksites, improve productivity through efficientcompaction operations, reduce CO2 emissions at job sites and stabilize and improve quality, independent ofoperator 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 equipment to overseas markets.

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12 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Medium-term growth strategya) In Asia, the Company aims to cultivate the market and increase its product domain. Specifically, it will moveahead on deepening market activities within Indonesia as well as the ASEAN region as a central hub for sales,
manufacturing and services for the Indonesian hub 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 distribution
strategy and advance measures to increase its market share. Specifically, the Company will seek to expand
its market share through a niche marketing strategy by selection and concentration and through engineering
sales focused on improved pavement quality.
c) Aiming to expand overseas business domains, the Company will promote a strategy of cultivating markets forroad maintenance equipment in ASEAN markets and ODA, along with other markets. Local production beganat the plant in Indonesia from FY3/24.
(3) Numerical targets
As numerical targets, the Company aims for net sales of ¥30.0bn, operating profit of ¥3.1bn, and ROE of 8% in
FY3/26.
2. Capital strategy
As its basic policy for capital strategy, the Company will return profits to shareholders at a level that supports theCompany’s objective of ROE of 8%, and will increase shareholder value (improve capital efficiency). As a final target
for FY3/26, the Company will strive to achieve ROE of 8% and a 50% dividend payout ratio.
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 (dividend on equity) will be 3%, and if ROE is above 6%, thedividend 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 (conducted a ¥340mn buyback in FY3/22). With respect to investment securities, the Company
will review investment securities from the perspective of business strategy. Also, concerning growth investment, theCompany will consider utilizing leverage with an emphasis on return on invested capital (ROIC).

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13 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Medium-term growth strategy

3. Sustainability initiatives
The Company is proactively working on sustainability initiatives, and is advancing a variety of measures. Currently,
it is focusing in particular on the following measures.
(1) Initiatives for achieving carbon neutrality through use of new technologiesa) Autonomous rollers reduce CO2 emissions at work sites due to efficient compaction*
The Company made arrangements to provide equipment through paid, short-term rental for the first time ever at
the Shin-Maruyama Dam construction site in Yaotsu-cho, Gifu Prefecture. The Company will focus on developing
business involving autonomous rollers given the prospect of customers increasingly resorting to unmanned
construction going forward.
*	Test data has shown that autonomous rollers enable approximately 20% more labor-saving than manned work.

Autonomous roller

Source: Reprinted from Company’s results briefing materialsb) EV rollers reduce construction equipment CO2 emissions
The Company has performed field trials of electric combined rollers and electric walk-behind rollers at actual
construction sites. The Company plans to initiate sales of electric walk-behind rollers during FY3/25. During
FY3/26, the Company seeks to gain certification under the green transformation (GX) construction machinery
certification scheme (eligible for subsidies from Japan’s Ministry of the Environment) accredited by Japan’s Ministryof Land, Infrastructure, Transport and Tourism (MLIT).

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14 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

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

Medium-term growth strategy

EV roller

Source: Reprinted from Company’s results briefing materials(2) Initiatives for respecting human rights
The Company established its Human Rights Policy in April 2024. The Company plans to administer surveys to
its suppliers as the next step to be taken after having established its Human Rights Policy in promoting businessactivities that are mindful of respecting human rights.
Initiatives for respecting human rights
SAKAI HEAVY INDUSTRIES, LTD. and its affiliated companies (the “Group”) contribute to the social business
Basic Approach of global land development through the road construction equipment business as the basic management
policy. Based on this basic policy, the Group will contribute to the realization of sustainable society throughinitiatives for the respect of human rights.
Human Rights
The Group respects the “International Bill of Human Rights” (Note 1) and the “ILO Declaration on Fundamental
to be Respected Principles and Rights at Work” (Note 2) as the international standards of human rights.
Scope of
Application

The Group applies this Human Rights Policy to all officers and employees of the Group. In addition, the Grouprequires its business partners in the supply chain to respect and not infringe upon human rights.

Initiatives for
Respecting
Human Rights

The Group respects human rights in all its business activities. Should it become evident that the Group has
participated in an infringement of human rights, it will work swiftly to remedy the situation. Moreover, in theevent where an infringement of human rights has clearly arisen at a business partner in the supply chain, theGroup will engage in dialogue with those involved and take an appropriate response.

Source: Reprinted from Company’s results briefing materials

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

15 16

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

SAKAI HEAVY INDUSTRIES, LTD.

27-Jun.-2024

6358 Tokyo Stock Exchange Prime Market

https://www.sakainet.co.jp/en/ir/■ Shareholder return policy
In FY3/24, paid a ¥285.0 annual dividend, up ¥85.0 YoY. Plans to paya ¥215.0 dividend in FY3/25, targeting a dividend payout ratio of
50.0%
The Company works to secure a stable management base over the long term, and also places importance on thecontinuation of stable dividends, and makes it a basic policy to distribute results that are supported by businessperformance and a sound financial structure. Based on this basic policy, the Company decides dividends andconducts share buybacks. As discussed above, the Company’s medium-term shareholder return policy is as follows.
If ROE falls below 3%, the dividend payout ratio will be 100%, if ROE is between 3% and 6%, the DOE will be 3%,
and if ROE is above 6%, the dividend payout ratio will be 50%. With respect to share buybacks, the Company isconsidering flexible share buybacks with an upper limit of ¥0.5bn to ¥2.0bn by FY3/26.
Based on the above dividend policy, for FY3/24, the Company paid a ¥285.0 annual dividend (a dividend payout ratioof 49.6%). Based on this basic policy, the Company maintains its plans to pay a ¥215.0 annual dividend in FY3/25(a planned dividend payout ratio of 49.9%)* as it forecasts reduced profits in the year under review. Furthermore,with regard to the share buybacks, it conducted a buyback of 130,000 shares (¥340mn) in FY3/22, but currently
has no plans to conduct buybacks going forward.
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.
*	On May 21, 2024, the Company announced its intentions to carry out a 1:2 split of the Company’s shares on the effective
date of October 1, 2024. Although the Company’s dividend estimates in actual terms consist of an interim dividend of¥85.0 and a year-end dividend of ¥65.0, the annual dividend amount equates to ¥215.0 when calculated on the basis ofpre-split standards.

Dividend per share and dividend payout ratio（¥）

Dividend per share (left)

Dividend payout ratio (right)

300.0
49.0

49.9

49.6

（％）
60.0

49.9

250.0

50.0

200.0

40.0

150.0

30.0

285.0

100.0

215.0

200.0

20.0

165.0
50.0

10.0

80.0

0.0

0.0
FY3/21

FY3/22

FY3/23

FY3/24

FY3/25 E

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.

16 16

Disclaimer
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