COMPANY RESEARCH AND ANALYSIS REPORTSAKAI HEAVY INDUSTRIES, LTD.
6358
Tokyo Stock Exchange First Section

31-Aug.-2021
FISCO Ltd. Analyst

Noboru Terashima

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

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

https://www.sakainet.co.jp/en/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Outline of results for FY3/21.................. ......................................................................................................

01

2. Outlook for FY3/22.. .....................................................................................................................................

01

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

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

04

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

05

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

06■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 07
1. Outline of results for FY3/21.................. ......................................................................................................

07

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

08

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

09

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

10■Outlook-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 11• Outlook for FY3/22.. .....................................................................................................................................

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

12

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

13■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

https://www.sakainet.co.jp/en/ir/█ Summary
A manufacturer specializing in road rollers for road paving and otherroad construction equipment. Its domestic market share is thehighest in the industry at 70.4%, and it aims to grow by expanding
its overseas market share
Sakai Heavy Industries, Ltd. <6358> (herein after also referred to as “the Company,” is a manufacturer specializing
in road rollers for road paving and other road construction equipment, and has a long history in this field. It has theindustry’s highest market share in Japan at 70.4%. In recent years, the Company has been focusing on developing
overseas markets, especially in North America and Southeast Asia.
1. Outline of results for FY3/21
In the consolidated results for FY3/21, net sales declined 4.9% year on year (YoY) to ¥21,624mn, operating profit
fell 26.9% YoY to ¥701mn, ordinary profit dropped 20.6% to ¥659mn, and profit attributable to owners of parent
declined 99.1% to ¥4mn. The factor for the large drop in profit attributable to owners of parent was the reversal of¥384mn in deferred tax assets at a North American operating subsidiary.
Net sales in Japan were on par with the previous fiscal year, but overall net sales declined due to the large dropin sales in North America and other regions due to the impact of the COVID-19 pandemic. Selling, general andadministrative (“SG&A”) expenses declined YoY due to the reduction in general expenses as well as the decline intravel and networking/entertainment expenses in association with the COVID-19 pandemic. However, this was notenough to offset the 10.2% YoY decline in gross profit due to the decline in sales, ultimately leading to a YoY decline
in operating profit. However, after 1H operating profit of ¥191mn, 2H operating profit increased to ¥509mn, so therecovery trend in 2H was clear.
2. Outlook for FY3/22
For FY3/22 consolidated results, the Company is forecasting net sales of ¥23,500mn (+8.7% YoY), operating profitof ¥900mn (+28.3%), ordinary profit of ¥800mn (+21.4%) and profit attributable to owners of parent of ¥520mn(versus ¥4mn in FY3/21). While the impacts of the COVID-19 pandemic remain uncertain, in Japan the Company
expects demand related to civil engineering and roads to remain firm due to disaster prevention and mitigation
efforts as well as the national resilience plan, among other factors. In the U.S., massive infrastructure upgrades
under the American Jobs Act are being discussed, and a recovery is expected. In Asia, demand is recovering due
to economic measures in China and ASEAN nations, and in Indonesia, where demand had been weak, a bottoming
out is expected. As a result, despite expecting an increase YoY in SG&A expenses, the Company is forecasting an
increase in operating profit in conjunction with higher sales.

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01 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Summary

3. Medium- to long-term growth strategy
In June 2021, the Company released its “Medium-Term Management Policy” which runs through FY3/26. The
ultimate goal is to increase corporate value and shareholder value, and in order to achieve this the Company will
promote a “business growth strategy” and an “efficient capital strategy.” In terms of numerical targets, the Company
is aiming for net sales of ¥30bn, operating profit of ¥3.1bn, ROE of 8% in FY3/26, and will aim to maintain a stabledividend payout ratio of 50% (DOE of 4%). In line with this policy, the Company plans to pay an annual dividend of¥120 (payout ratio = 99.5%) in FY3/22. In this way, it is commendable that the Company has released a clear capital
policy targeting an improvement in ROE, and is carrying out shareholder returns in line with this policy.
Key Points
Japan’s leading manufacturer of road rollers with a long history. Domestic market share is 70.4%, and theCompany aims to grow by expanding its overseas market share• Domestic demand is firm, while overseas demand is recovering, so the Company is forecasting a 28.3% YoY
increase in operating profit in FY3/22• As medium-term numerical targets, the Company is aiming for net sales of ¥30bn, operating profit of ¥3.1bn,
and ROE of 8% in FY3/26•

Results trends
Net sales (left)

Operating profit (right)（¥mn）

30,000

（¥mn）
3,357

3,600

25,0003,000

20,0002,400

15,00029,5041,800

24,77522,74410,0001,414

21,624959

5,000

23,500
1,200
900

600

701

0

0
FY3/18

FY3/19FY3/20FY3/21

FY3/22 E

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

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

https://www.sakainet.co.jp/en/ir/█ Company profile
The top manufacturer of road rollers with a long history
The Company has a long history, dating back to 1918 when the Company was founded by Kinnosuke Sakai. At
the time, the Company manufactured and repaired parts for automobiles, internal combustion engines, and steam
locomotives. After starting to manufacture locomotives in 1927, in 1929 the Company started manufacturing roadrollers for road rolling compaction. Since then, the Company has continued to develop as a specialized manufacturerof road rollers and other road construction equipment. Currently, the Company is the top manufacturer in Japan, with
a 70.4% market share. In 1970, the Company established a joint venture in Indonesia, as part of the Company’s effort
to expand business overseas at an early stage. As of March 31, 2021, the Company has four domestic subsidiaries,
and five overseas subsidiaries (U.S., China, three in Indonesia).
The Company listed its shares on the Second Section of the Tokyo Stock Exchange in 1964, and its shares werelisted on the First Section of the Tokyo Stock Exchange in 1981.
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 PT. 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- to longterm growth

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

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03 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

https://www.sakainet.co.jp/en/ir/█ Business overview
The top manufacturer of road rollers with a domestic market
share of 70.4%. Will seek growth by offering high value-added andexpanding overseas market share
1. Business description
The Company’s main business is the manufacture and sale of road rollers used in road paving and other applications,and road roller-related net sales account for approximately 95% of all net sales. Also, the Company’s corporate
philosophy is to “Contribute to the social project of global land development through the road construction equipment business.”
The term “road roller” actually covers quite a wide range of machines in terms of capabilities and size, among otherfeatures. The Company has roughly 20 platforms alone for road rollers, and when different variations are added thetotal number of products is in the 70-80 range. There is also a wide range in sizes, from one ton to 20 tons (for large
civil engineering projects). The core price range is from ¥5mn (medium-size rollers) to ¥10mn (large rollers), but theCompany also has road cutters and other machines that cost tens of millions in yen. Production is carried out onan expected production basis, and the Company does not manufacture machines based on individual orders. The
useful lives of the Company’s products are in the 20-30 year range, but very few customers use a machine until theend of its useful life. In most cases, they replace it after statutory depreciation (7-10 years) with a new one. Most of
the depreciated equipment are resold as used machines to overseas customers (especially in developing countries).
The Company’s road equipment

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

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Business overview

In terms of net sales by region*, in FY3/21 net sales in Japan were ¥13,042mn (60.3% of total net sales), net sales
in North America were ¥3,245mn (15.0%), net sales in Asia were ¥4,854mn (22.5%), net sales in the Middle East,
Russia, and the CIS were ¥32mn (0.2%) and net sales to other markets totaled ¥449mn (2.0%).
*	Net sales by region is the amount of products actually sold to customers, and differs from the reportable segment “Net
Sales by Location” in the financial results.



Ratio of net sales by region in FY3/21
0.2% 2.0%

22.5%

Japan
North America
Asia
Middle East, Russia, CIS
Other
60.3%

15.0%

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

In Japan, approximately 60% of the Company’s sales are to construction equipment rental companies (KanamotoCo., Ltd. <9678>, NISHIO RENT ALL CO., LTD. <9699>, etc.), while the remaining 40% of sales are to end users(large and small- and medium-sized general contractors, roadwork companies, etc.). Sales to end users include sales
via finance companies due to credit management issues. Overseas, sales are mainly to end users via distributors,
but in North America some sales are through rental companies.
2. Characteristics and strengths
As mentioned above, the Company is a specialized manufacturer of road rollers and other road construction
equipment, and the Company has the following special characteristics and strengths.
(1) Long history as a specialized manufacturer
The Company’s greatest strength is its long history as a specialized manufacturer of road rollers and other road
construction equipment. In other words, by deploying a global niche strategy through selection and concentration
the Company has increased its level of expertise and accumulated its own unique technologies. Based on thislong history and its experience, the Company has boosted its technological capabilities and credibility as follows.

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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 roller 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 word “Insight.” In other words, it is theCompany’s engineering capabilities covering the entire roadwork process and the ability to handle a variety ofmaterials. Specifically, combining the various technologies makes it possible to increase the quality and efficiencyof 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 bytire 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 with within a limited time, and if the work is of poor quality, it must be redone
which involves a large price. Also, work quality issues for roads and embankments are slow to emerge, andthe compaction quality at the time that work is completed tends to be a black box. For this type of experienceengineering, the Company’s brand which customers have used for many years and the long-term insight due tovariety of worksite experiences are strengths, and these are points that have earned the trust of many customers.
3. Market share and competitors
According to data from the Japan Construction Equipment Manufacturers Association, in FY2020 domestic construction equipment shipment value was ¥2.2tn, and road roller and other road construction equipment (the Company’s
main products) account for 2.8% of this amount. The Company has a 70.4% share of this road equipment market,
making it the top manufacturer in Japan. Competitors include companies such as Hitachi Construction MachineryCo., Ltd. <6305>, but none of these companies are specialized manufacturers. Some overseas manufacturers haveentered the market in Japan, but none have much of a presence. In Japan, the Company’s earnings rise and fallalong with the ups and downs of the market.

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06 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Business overview

Construction equipment industry

Note: Prepared by FISCO from Japan Construction Equipment Manufacturers Association FY2020 data
Source: The Company’s results briefing materials

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 6-7% range. However, this is on a global basis, and if we limit the scope to the mainmarkets that the Company operates in (Japan, ASEAN, North America), the Company’s market share is around20%. The Company’s main competitors in the global market include Caterpillar <CAT>, FAYAT, Deere <DE>, andVolvo, but none of these companies are manufacturers that specialize in road rollers.

█ Results trends
The FY3/21 declines in sales and profits due to the impacts of the
COVID-19 pandemic were within the range of what was expected,
and there was a strong recovery trend from 2H
1. Outline of results for FY3/21
In the consolidated results for FY3/21, net sales declined 4.9% year on year (YoY) to ¥21,624mn, operating profit
fell 26.9% YoY to ¥701mn, ordinary profit dropped 20.6% to ¥659mn, and profit attributable to owners of parent
declined 99.1% to ¥4mn.

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Results trends

Net sales in Japan were on par with the previous fiscal year, but overall net sales declined due to the large drop insales in North America and other regions due to the impact of the COVID-19 pandemic. The gross margin declined
1.5pp YoY to 25.0%, but this was due to the change in the product mix. SG&A expenses declined 7.1% YoY due tothe reduction in general expenses as well as the decline in business travel and networking/entertainment expenses
as a result of the COVID-19 pandemic. However, this was not enough to offset the 10.2% YoY decline in grossprofit due to the decline in sales, ultimately leading to a YoY decline in operating profit. However, after 1H operating
profit of ¥191mn, 2H operating profit increased to ¥509mn, so the recovery trend in 2H was clear. The factor forthe large drop in profit attributable to owners of parent was the reversal of ¥384mn in deferred tax assets at a North
American operating subsidiary.
Analyzing the change factors for ordinary income, the decline in sales had a minus ¥297mn impact, the increasein the cost of goods sold had an impact of minus ¥320mn, the decline in SG&A expenses had an in impact of plus
¥357mn, the decline in interest paid had a positive impact of ¥45mn, and the improvement in other non-operating
income had a positive impact of ¥42mn.
Overview of FY3/21 consolidated results(¥mn)
FY3/20FY3/21

ChangeResults% of net sales

Results% of net sales

Net sales

22,744100.0%

21,624100.0%

Amount-1,120%-4.9%

Gross profit

6,025

26.5%

5,408

25.0%

-616

-10.2%

Selling, general andadministrative expenses

5,065

22.3%

4,707

21.8%

-357

-7.1%

Operating profit

959

4.2%

701

3.2%

-258

-26.9%

Ordinary profit

829

3.6%

659

3.0%

-170

-20.6%

Profit attributable toowners of parent

470

2.1%

4

0.0%

-466

-99.1%

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

2. Trends by region
In looking at FY3/21 sales by region, on the whole, sales were greatly impacted by the COVID-19 pandemic.
In Japan, net sales were ¥13,042mn (down 1.6% YoY), as a result of relatively solid execution of road and civilengineering projects, despite impacts from COVID-19. Net sales in North America were ¥3,245mn (down 10.3%),
as the impact from COVID-19 was particularly large in 1H. Net sales in Asia were ¥4,854mn (up 3.1%), as despite
impacts from the COVID-19 pandemic, demand recovered in Thailand, Vietnam, South Korea and China. However,the local subsidiaries and plants in Indonesia were significantly impacted by the COVID-19 pandemic (although
there are signs of the dip bottoming out in 2H). Net sales in the Middle East, Russia, and the CIS dropped to ¥32mn(down 94.5%), and net sales to other markets were ¥449mn (down 22.0%).
Net sales by region(¥mn)
FY3/19FY3/20FY3/21

ChangeResults% of total

Results% of total

Results% of total

AmountJapan

11,03544.5%

13,251

58.3%

13,042

60.3%

-209

-1.6%

North America

4,656

18.8%

3,618

15.9%

3,245

15.0%

-373

-10.3%

Asia

8,000

32.3%

4,708

20.7%

4,854

22.5%

145

3.1%

Middle East, Russia, CIS

127

0.5%

588

2.6%

32

0.2%

-556

-94.5%

Other

954

3.9%

576

2.5%

449

2.0%

-126

-22.0%

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

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%

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Results trends

Net sales by region
（¥mn）

Japan

25,00020,000

North America

Asia

Middle East, Russia, CIS

954
127

Other

576

449

588
8,000

15,000

32

4,708

4,854

3,618

3,245

13,251

13,042

FY3/20FY3/21

4,656
10,0005,000

11,0350
FY3/19Source: Prepared by FISCO from the Company's results
 briefing materials

Stable financial condition, ample cash and deposits of ¥6,983mn
3. Financial condition
In terms of the Company’s financial condition as of March 31, 2021, current assets were ¥22,927mn (down ¥658mn
from the end of the previous fiscal year). The main factors included a ¥228mn increase in cash and deposits, a¥1,707mn increase in notes and accounts receivable – trade, and a ¥2,502mn decrease in inventory assets.
Non-current assets were ¥12,173mn (up ¥311mn). The main factors included a ¥458mn increase in investments
and other assets. As a result, total assets were ¥35,101mn (down ¥347mn YoY).
Meanwhile, total liabilities were ¥13,062mn (down ¥465mn YoY). The main factors among current liabilities included a¥169mn decline in payables (notes and accounts payable – trade and electronically recorded obligations – operating)and a ¥476mn increase in short-term borrowings. Among non-current liabilities, the main factors included a ¥804mn
decrease in long-term borrowings and a ¥260mn increase in deferred tax liabilities. Total net assets stood at¥22,038mn (up ¥118mn YoY), with the main factors including a ¥339mn decline retained earnings due to dividend
payments and a ¥653mn increase in valuation difference on available-for-sale securities. As a result, the equity ratio
as of March 31, 2021, was 62.7% (versus 61.7% at the end of the previous fiscal year).

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Results trends

Consolidated balance sheet(¥mn)
End-FY3/20

End-FY3/21

ChangeCash and deposits

6,755

6,983

228

Notes and accounts receivable – trade

6,251

7,959

1,707

Inventory assets

9,553

7,050

-2,502

Total current assets

23,58622,927

-658

6,816

6,725

-90

Property, plant and equipment

613

557

-55

Investments and other assets

4,431

4,889

458

Total non-current assets

11,861

12,173311

Total assets

35,44835,101

-347

4,858

4,688

-169
476

Non-current assets

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

4,628

5,105

11,455

11,488

32

1,232

428

-804

Deferred tax liabilities

222

483

260

Total non-current liabilities

2,073

1,574

-498

Total liabilities

13,52813,062-465

Retained earnings

11,10910,769-339

Valuation difference on available-for-sale securities

1,079

1,732

653

21,91922,038118

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

4. Cash flows
In FY3/21, net cash provided by operating activities was ¥1,525mn. The main revenue factors included ¥703mn
in profit before income taxes, ¥637mn in depreciation, and ¥2,456mn from decrease in inventories. The main
expenditure factors included ¥1,717mn in increase in trade receivables and ¥143mn in decrease in trade payables.
Net cash used in investing activities was ¥508mn. This was mainly due to ¥546mn in expenditure from the purchaseof property, plant and equipment. Net cash used in financing activities was ¥812mn. The main expenditures were¥340mn from the decrease (net) in long-term borrowings, and ¥343mn in dividends paid. As a result, cash andcash equivalents increased ¥164mn from the end of the previous fiscal year, and the balance of cash and cash
equivalents at the end of FY3/21 was ¥6,847mn.
Consolidated statements of cash flows(¥mn)
FY3/20FY3/21

3,448

1,525

Profit before income taxes

850

703

Depreciation

587

637

1,639

-1,717

Change in inventories (- denotes increase)

259

2,456

Change in trade payables (- denotes decrease)

-30

-143

Net cash provided by (used in) investing activities

-825

-508

Net cash provided by (used in) financing activities

-226

-812

Change in long-term borrowings (net)

302

-340

Dividends paid

-427

-343

Net cash provided by (used in) operating activities

Change in trade receivables (- denotes increase)

Change in cash and cash equivalents

2,391

164

Cash and cash equivalents at end of FY3/21

6,682

6,847

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

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

https://www.sakainet.co.jp/en/ir/█ Outlook
Domestic demand is firm, while overseas demand is recovering, so
the Company is forecasting an 8.7% YoY increase in net sales and a
28.3% increase in operating profit in FY3/22• Outlook for FY3/22
For FY3/22 consolidated results, the Company is forecasting net sales of ¥23,500mn (+8.7% YoY), operating profitof ¥900mn (+28.3%), ordinary profit of ¥800mn (+21.4%) and profit attributable to owners of parent of ¥520mn(versus ¥4mn in FY3/21).
While the impacts of the COVID-19 pandemic remain uncertain, in Japan the Company expects demand related tocivil engineering and roads to remain firm due to factors including the government’s ¥15tn national resilience plan
to speed up countermeasures for disaster prevention and mitigation. In the U.S., massive infrastructure upgrades
under the American Jobs Act, which will invest US$2.25tn over an eight-year period are being discussed, and arecovery is expected. In Asia, demand is recovering due to economic measures in China and ASEAN nations, and inIndonesia, where demand had been weak, a bottoming out is expected. As a result, despite expecting an increase
YoY in SG&A expenses, the Company is forecasting an increase in operating profit in conjunction with higher sales.
Consolidated outlook for FY3/22(¥mn)
FY3/21

FY3/22

ChangeResults% of net sales

Forecast% of net sales

21,624100.0%

23,500100.0%

1,875

8.7%

Operating profit

701

3.2%

900

3.8%

198

28.3%

Ordinary profit

659

3.0%

800

3.4%

140

21.4%

4

0.0%

520

2.2%

515

-

Net sales

Profit attributable toowners of parent

Amount%Source: Prepared by FISCO from the Company’s financial results█ Medium- to long-term growth strategy
As its medium-term growth strategy, the Company will seek tocreate added value by growing its overseas market share, expanding
overseas business domains, and developing next-generation
businesses. FY3/26 targets include net sales of ¥30bn and operating
profit of ¥3.1bn
In June 2021, the Company released its “Medium-Term Management Policy” which runs through FY3/26. The
ultimate goal is to increase corporate value and shareholder value, and in order to achieve this the Company will
promote a “business growth strategy” and an “efficient capital strategy.” In terms of numerical targets, the Company
is aiming for net sales of ¥30bn, operating profit of ¥3.1bn, ROE of 8% in FY3/26, and will aim to maintain a stabledividend payout ratio of 50% (DOE of 4%).
We encourage readers to review our complete legal statement on “Disclaimer” page.

11 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Medium- to long-term growth strategy

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 to the main models in Japan (approximately 30%
of orders are for equipment with emergency braking), and the Company is horizontally rolling out this function
in more models.
b) The Company aims to improve compaction quality with a rolling compaction management system (with CCV).
This system remotely links work managers with worksites, allowing compaction quality to be confirmed andmanaged (e.g., number of rolling compactions) in real time. With the certification of acceleration response-typecompaction density management in Ministry of Land, Infrastructure, Transport and Tourism ICT roadbed work,
this will contribute to the major streamlining of compaction density inspections.
c) The Company aims to improve productivity by commercializing autonomous (unmanned) driving rollers. In theautonomous driving standard equipment development project, the Company is advancing commercialization
through worksite implementation testing with multiple general contractors. Specifically, through unmanned construction work, the Company aims to create safe worksites, improve productivity through efficient compaction
operations, and stabilize and improve quality, independent of operator skill.
(2) Overseas markets: Increase market share and expand business domains
In overseas markets, there are many regions (countries) where demand is increasing, and there is significant roomfor growth given the Company’s low market shares. Therefore, the Company will seek growth through the two
strategies of more fully cultivating existing markets and expanding its business domains.
a) In the Southeast Asia market, the Company will aim to cultivate markets more fully and expand its productdomains. Specifically, the Company will enhance its Indonesia site, where a new factory started to operate in
2019, as a core location for sales, manufacturing, and service directed at the ASEAN region.
b) In North America, aiming to expand its market share, the Company will strengthen its North America logistics
strategy and advance measures to increase its market share. Specifically, the Company will seek to expand its
market share through the niche marketing strategy based on the Lanchester/Blue Ocean strategy and throughengineering sales focused on improved pavement quality.
c) Aiming to expand overseas business domains, the Company will promote a strategy of cultivating markets forroad maintenance machinery in ASEAN markets and ODA, along with other markets.
(3) Numerical targets
As medium- and long-term numerical targets, the Company aims for net sales of ¥26.5bn, operating profit of¥2.0bn, and ROE of 5.5% in FY3/24, and net sales of ¥30.0bn, operating profit of ¥3.1bn, and ROE of 8% in
FY3/26.

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

12 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Medium- to long-term growth strategy

Medium-and long-term targets
Net sales (left)

Operating profit (right)

（¥bn）

（¥bn）

350

31

300

35
30

250

25
20

200

20

150

265

300

15

100

216

10

50

7

5

0

0
FY3/21

FY3/24 (plan)

FY3/26 (plan)

Source: Prepared by FISCO from the Company’s Medium-Term Management Policy

2. Capital Strategy
As its basic policy for capital strategy, the Company will return profits to shareholders at a level that supports theCompany’s objective of ROE of 8%, and will increase shareholder value (improve capital efficiency). As a final target
for FY3/26, the Company will strive to achieve ROE of 8% and a 50% dividend payout ratio. This would be DOE(ratio of dividends to equity) of 4%.
Generally, two things need to be improved in order to increase ROE. One is of course increasing profit attributable toowners of parent, while the other is suppressing shareholders’ equity (not increasing shareholders’ equity more thannecessary). In order to increase operating profit, the Company plans to promote the business strategies discussed
above, but at the same time, in order to keep from increasing shareholders’ equity more than needed, the Company
plans to execute a dividend policy in which, if ROE falls below 3%, the dividend payout ratio will be 100%, if ROE is
between 3% and 6%, the DOE will be 3%, and if ROE is above 6%, the dividend payout ratio will be 50%.
Basic capital policy approach

Source: Medium-Term Management Policy

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

13 14

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

SAKAI HEAVY INDUSTRIES, LTD.

31-Aug.-2021

6358 Tokyo Stock Exchange First Section

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

Medium- to long-term growth strategy

In terms of share buybacks, through FY3/26 the Company will consider flexible share buybacks with an upper limitof ¥0.5bn to ¥2.0bn. With respect to investment securities, the Company will review investment securities from theperspective of business strategy. Also, concerning growth investment, the Company will consider utilizing leveragewith an emphasis on return on capital (ROIC).

█ Shareholder return policy
The Company plans to pay a ¥120.0 annual dividend (up ¥40.0 YoY)
in FY3/22 (dividend payout ratio of 99.5%)
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.
The Company paid an annual dividend of ¥100.0 in FY3/20, and an annual dividend of ¥80.0 in FY3/21. For FY3/22,
the Company plans to pay a dividend of ¥120.0 (dividend payout ratio of 99.5%). Concerning share buybacks, theCompany has announced that it will buy back up to a maximum of 130,000 shares (¥500mn) by December 2021.
The Company’s stance of announcing a clear plan to improve ROE and carrying out shareholder return plans in linewith that plan is commendable.

Dividend per share and dividend payout ratio
Dividend per share (left)

Dividend payout ratio (right)

（¥）

99.5%

150.0

100.0%

91.0%

120.0

80.0%

90.0

60.0%

51.6%

60.0

120.0
100.0

100.0

40.0%

100.0
80.0

30.0

20.0%
22.5%

0.0

0.0%
FY3/18

FY3/19FY3/20FY3/21

FY3/22 E

Note: The Company consolidated ten shares into one share effective October 1, 2017. Figures for FY3/18 have been revised

 retroactively.

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.

14 14

Disclaimer
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FISCO Ltd.
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Phone: 03-5774-2443 (IR Consulting Business Division)
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