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7637

HakudoShared Research Inc. has produced this report by request from the company discussed in thereport. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc.
make every effort to provide an accurate, objective, and neutral analysis. In order to highlightany biases, we clearly attribute our data and findings. We will always present opinions fromcompany management as such. Our views are ours where stated. We do not try to convince or
influence, only inform. We appreciate your suggestions and feedback. Write to us at
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Coverage initiated on: 2021-10-29
Last update: 2024-06-18

INDEX
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Key financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
Trends and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Quarterly trends and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15..
Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15..
Business overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15..
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26..
Market and value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29..
Main competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31..
Strengths and weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33..
Historical performance and financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35...
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35..
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36..
Cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37..
Historical performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37..
News and topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44..
Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46..
Company profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49..

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Executive summary
Business overview
Hakudo Co., Ltd. (TSE Prime: 7637) is a specialist trading company that purchases non-ferrous materials such as aluminum,
copper, and stainless steel, and on-sells these materials after processing them according to customer needs. Performancefluctuates in line with changing market prices on the main materials the company handles (aluminum, copper, and stainlesssteel) and volatility in demand from the customers who purchase these materials (such as manufacturer of semiconductor
production equipment).
In the decade to FY03/24, revenue ranged from a low of JPY29.9bn (FY03/15) to a high of JPY61.6bn (FY03/23). Operating
profit ranged between JPY1.7bn (FY03/16) and JPY4.3bn (FY03/22). Over this same period, OPM ranged from 4.0%
(FY03/20) to 7.7% (FY03/22). In recent years, performance declined in FY03/20 because of falling semiconductor demand
stemming from US–China trade friction and deterioration in non-ferrous metal prices. From 2H FY03/23 to FY03/24,
performance remained affected by the external environment, characterized by a shortage of supply for semiconductor
production equipment.
Revenue is based on market prices, with unit prices factoring in additional services (such as processing, delivery, andcustomer payment terms). In FY03/24, revenue was JPY57.3bn (-7.1% YoY). Aluminum accounted for 59.8% of this figure,copper for 14.7%, stainless steel for 20.7%, and other materials for 4.8%. For a trading company, the margin on the purchaseand sale of goods is the basic source of profits. In addition, the company receives compensation for the convenience it offers(processing services and the speed of delivery) and profits from fluctuations in the purchase and selling prices of materials.
Hakudo was founded in 1932. As early as in 1968, the company introduced a computer system to manage information on
customer demand, sales, and inventories. Around that time, customers began asking Hakudo to handle inventory control on
their behalf, so the company began adjusting sales to provide each customer with just the amount of materials they required.
Since the 1970s, the company has enhanced its factory and inventory management functions. To do so, Hakudo has
expanded its facilities outside city centers and increased its product lineup. As of end-FY03/24, the company’s print andonline catalogs listed some 84,900 products for sale. Of this figure, around 5,400 were standard stock items (the company
buys materials, which it machines and cuts into customer-required sizes and shapes) and another 79,500 or so were items
stocked by other companies. To meet customers’ requests for processing, the company has installed several hundred
metalworking machines at its five factories throughout Japan and created a rapid-delivery system.
In addition to phone, fax, and email, the company provides estimates and accepts orders 24/7 via its online site, Hakudo
Network Service. The company’s customer accounts numbered around 13,000 as of FY03/21, and more than 10,000 ofthese were for companies registered to use the online service. Hakudo estimates that the majority of major companies
handling semiconductor production equipment already have registered for this service. Hakudo handles around 20,000
inquiries and invoice requests each day and around half of these result in orders (excluding special-order items). In Japan,
turnaround time (from ordering to processing and shipment) is fast. Products listed in the company catalog can often bedelivered same-day or on the following day. Manufacturers of industrial machinery are key customers, as non-ferrous
components are essential for their production. These manufacturers produce semiconductor fabrication equipment (Tokyo
Electron Ltd. [TSE Prime: 8035], ULVAC, Inc. [TSE Prime: 6728], and their affiliates), OA equipment (Canon Inc. [TSE Prime:7751], Ricoh Company, Ltd. [TSE Prime: 7752], and their affiliates), and precision instruments.
The company uses a proprietary computer system to determine selling prices for each customer. Prices are based on suchfactors as the quality of materials, market prices at the time of transaction, product quantity, processing details, customer
order history, payment method, and the customer’s creditworthiness. For products in the company’s standard inventory,
selling prices of aluminum products are affected significantly by the market price of aluminum at the time of sale. Similarly,
the market price of electrolytic copper affects the selling price of copper products in standard inventory. Accordingly, thecompany faces the risk of valuation losses when it sells products as market prices are falling. The cost of manufacturingconsists of the price of purchased parts and materials and the cost of processing them according to customer requirements.
Major components of SG&A spending are the expenses of human resources in sales and administrative departments (390employees as of end-FY03/24, of whom around 120 were in sales) and transportation expenses. The company reports
segment information by geographic location. In FY03/24, Japan accounted for 87.2% of revenue, North America for 8.0%,
China for 2.4%, and other locations for 2.5%. Similarly, Japan accounted for 104.1% of segment profit, North America for-8.1%, China for -1.5%, and other locations for 5.6%.
The company’s business is based on carrying inventory and leveraging the customer information it amasses to achieve shortdelivery times, but inventory turnover is relatively low: 4.6x in FY03/24 (around 2.6 months in inventory), which is far lower
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than the wholesale industry average of about 16.0x (Ministry of Economy, Trade and Industry). To increase profitability, thecompany adds value to its products through various types of processing. The company seeks to distinguish itself by handling alarge number of items (84,900 including standard stock items, items produced to order, and special-order items) andachieving short delivery times while maintaining a processing function. Hakudo says this business model is rare for a trading
company specializing in non-ferrous metals. One similar company, in terms of the standard stock item business, is UEX, Ltd.
(TSE Standard: 9888). Alconix Corporation (TSE Prime: 3036) is similar to Hakudo in terms of special-order items.
As part of its efforts to address ESG/SDGs, the company has established an ESG/SDG management committee led by senior
management. The company explains that by expanding the use of non-ferrous and environmentally friendly materials such asaluminum and cadmium-free brass, and by promoting their alternative use, it aims to help realize a low-carbon society andreduce industrial waste through recycling.

Earnings trends
In FY03/24, revenue was JPY57.3bn (-7.1% YoY), operating profit was JPY2.5bn (-33.2% YoY), recurring profit was JPY2.8bn(-28.6% YoY), and net income attributable to parent company shareholders was JPY1.9bn (-30.0% YoY). The decrease inrevenue was due to a continued slowdown in the semiconductor production equipment industry, which led to reduced sales
volumes. The company expanded the product range of Hakudo Net Service from 50,900 items at end-March 2023 to
84,900 items by end-March 2024 for more convenience. Operating profit decreased due to a decline in sales volumes
caused by the downturn in the semiconductor production equipment industry and rising costs, including freight andelectricity charges.
The company's full-year FY03/25 forecast calls for revenue of JPY64.1bn (+12.0% YoY), operating profit of JPY3.1bn (+21.3%
YoY), recurring profit of JPY3.2bn (+12.4% YoY), and net income of JPY2.1bn (+11.7% YoY). The company expects thesemiconductor production equipment industry, which significantly impacts the group's performance, to recover, although it
does not expect a full-scale recovery until 2H FY03/25. In the machine tool industry, demand remains sluggish, particularly
for exports, while in the aerospace industry, the company expects recovery in demand for commercial aircraft and steadyprogress in defense-related orders. Furthermore, due to the difficulty in projecting raw material market conditions, thecompany included the impact on inventory assets up to Q1.
Hakudo released its first medium-term management plan on May 26, 2022 (FY03/22–FY03/25) with a subtitle of "Moving
forward, exceeding expectations." The company's long-term goal is to be a platform operator working to support the
manufacturing industry, with sales of JPY100.0bn, recurring profit of JPY10.0bn, and an overseas sales ratio of 20% by
FY03/32. The medium-term management plan comprises guidelines for the company to achieve this, with managementtargets for the final year of the plan calling for revenue of JPY71.8bn (average growth rate of 9.0% over the plan period) andrecurring profit of JPY5.4bn (7.3%), and key financial plan indexes being ROIC of 15%, operating cash flow of JPY4.7bn, anda dividend payout ratio of 40.0%. The company plans to cultivate its existing business in Japan, develop new businesses, andexpand its overseas network.

Strengths and weaknesses
Strengths:
1) In addition to its inventory function (as a trading company), the company has a processing function, which helps lower
customers’ manufacturing costs.
2) The Hakudo Network Service is a highly convenient service that enables immediate order placement and delivery, using
such data as market prices, processing costs, and customer information.
3) Accumulated customer data allows the company to manage inventories and control processing costs.
Weaknesses:
1) Impact from conditions in raw material markets is liable to grow because the company frequently serves specific customer
groups.
2) A focus on small order quantities and rapid deliveries makes it difficult to achieve economies of scale in logistics andcontrol logistics costs.
3) The company has limited ability to meet the needs of Japanese customers that are expanding overseas.

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Key financial data
Income statement

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

FY03/24(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

Revenue

29,92332,461

34,62743,70945,22841,79839,21955,441

61,60257,25364,100
-7.1%

YoY

17.0%

8.5%

6.7%

26.2%

3.5%

-7.6%

-6.2%

41.4%

11.1%

-7.1%

Gross profit

5,487

5,345

6,014

7,527

7,201

6,489

6,670

10,310

10,153

9,268

YoY

17.2%

-2.6%

12.5%

25.1%

-4.3%

-9.9%

2.8%

54.6%

-1.5%

-8.7%

Gross profit margin

18.3%

16.5%

17.4%

17.2%

15.9%

15.5%

17.0%

18.6%

16.5%

16.2%

FY03/25

Operating profit

2,038

1,707

1,986

2,785

2,250

1,659

1,982

4,256

3,777

2,523

3,060

YoY

22.4%

-16.3%

16.3%

40.3%

-19.2%-26.3%

19.5%

114.7%-11.2%-33.2%

21.3%

Operating profit margin

6.8%

5.3%

5.7%

6.4%

5.0%

4.0%

5.1%

7.7%

6.1%

4.4%

4.8%

Recurring profit

2,073

1,750

2,043

2,846

2,334

1,697

2,083

4,374

3,989

2,848

3,200

YoY

21.7%

-15.5%

16.7%

39.3%

-18.0%-27.3%

22.8%

109.9%-8.8%-28.6%

12.4%

Recurring profit margin

6.9%

5.4%

5.9%

6.5%

5.2%

4.1%

5.3%

7.9%

6.5%

5.0%

5.0%

Net income

1,351

1,195

1,405

2,028

1,565

1,149

1,282

2,964

2,738

1,917

2,140

YoY

27.4%

-11.6%

17.6%

44.3%

-22.8%-26.6%

11.6%

131.2%-7.6%-30.0%

11.7%

Net margin

4.5%

3.7%

4.1%

4.6%

3.5%

2.7%

3.3%

5.3%

4.4%

3.3%

3.3%

No. of shares outstanding(000 shares)

12,84011,343

11,343

11,343

11,343

11,343

11,343

11,343

11,343

11,343

EPS (JPY)

105.4

105.3

123.9

178.8

138.0

101.3

113.0

261.3

241.4

169.0

-

-

-

-

-

-

-

-

-

-

Per-share data (split-adjusted; JPY)

EPS (fully diluted; JPY)
Dividend per share (JPY)

48.0

45.0

58.5

75.0

77.0

58.0

58.0

115.0

109.0

80.0

Book value per share (JPY)

1,193

1,235

1,305

1,434

1,493

1,506

1,576

1,748

1,870

1,982

188.7
85.0

Balance sheet(JPYmn)
4,301

4,256

4,820

5,902

6,088

4,969

5,924

8,675

6,038

5,701

Total current assets

19,11919,06021,75826,74025,343

23,69524,851

33,616

33,83032,128

Tangible fixed assets

Cash and cash equivalents

5,236

5,317

5,977

6,487

6,835

6,608

6,370

6,098

6,250

6,653

Investments and other assets

597

575

650

982

1,031

1,355

1,492

1,558

1,656

1,812

Intangible assets

239

217

219

261

407

412

402

509

1,414

1,423

25,191

25,16928,60434,191

33,61632,071

33,11541,781

43,15042,016

Total assets
Short-term debt

-

-

-

-

357

-

-

-

351

-

11,636

11,133

13,772

17,900

16,63014,94615,19021,903

21,76819,420Long-term debt

-

-

-

-

-

-

-

-

-

-

Total fixed liabilities

29

31

31

30

58

44

56

48

152

114

Total current liabilities

Total liabilities

11,665

11,16313,804

17,93016,68814,99015,246

21,952

21,92019,535

13,526

14,006

14,801

16,261

16,92817,081

17,87019,82921,22922,481

Total net assets

13,526

14,006

14,801

16,261

16,92817,081

17,87019,82921,22922,481

Total liabilities and net assets

25,191

25,16928,60434,191

33,61632,071

33,11541,781

43,15042,016

-

-

-

-

357

-

-

-

351

-

1,255

1,269

2,414

3,103

2,074

1,503

2,128

4,556

321

2,528

Shareholders' equity

Total interest-bearing debt
Cash flow statement(JPYmn)
Cash flows from operating activities
Cash flows from investing activities

-337

86

-1,301-1,379-1,028-1,367-553-677-1,553-1,612

Cash flows from financing activities-1,990

-544

-511

-664

-850

-1,230-657-1,202-1,417-1,329ROA (RP-based)

8.6%

7.0%

7.6%

9.1%

6.9%

5.2%

6.4%

11.7%

9.4%

6.7%

ROE

9.8%

8.7%

9.8%

13.1%

9.4%

6.8%

7.3%

15.7%

13.3%

8.8%

Equity ratio

53.7%

55.6%

51.7%

47.6%

50.4%

53.3%

54.0%

47.5%

49.2%

53.5%

Total asset turnover

123.6%

128.9%

128.8%

139.2%

133.4%

127.3%

120.3%

148.0%

145.1%

134.5%

4.5%

3.7%

4.1%

4.6%

3.5%

2.7%

3.3%

5.3%

4.4%

3.3%

Financial ratios

Net margin

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

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Trends and outlook
Quarterly trends and results
Earnings (cumulative)

FY03/22

FY03/23

FY03/24

FY03/24(JPYmn)

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

% of forecast FY Est.

Revenue

12,63625,81940,47455,441

16,06331,77547,37961,602

14,71828,70942,931

57,253101.5% 56,400
-8.4%

YoY

35.0%

44.8%

45.6%

41.4%

27.1%

23.1%

17.1%

11.1%

-8.4%

-9.6%

-9.4%

-7.1%

Gross profit

2,373

4,847

7,571

10,310

2,801

5,403

7,874

10,153

2,211

4,561

6,922

9,268

YoY

67.7%

73.1%

65.4%

54.6%

18.1%

11.5%

4.0%

-1.5%

-21.1%-15.6%-12.1%-8.7%

Gross profit margin

18.8%

18.8%

18.7%

18.6%

17.4%

17.0%

16.6%

16.5%

15.0%

15.9%

16.1%

16.2%
6,744

SG&A expenses

1,383

2,907

4,440

6,054

1,589

3,181

4,707

6,375

1,660

3,341

5,036

YoY

22.8%

31.2%

31.0%

29.1%

14.9%

9.4%

6.0%

5.3%

4.5%

5.0%

7.0%

5.8%

SG&A ratio

10.9%

11.3%

11.0%

10.9%

9.9%

10.0%

9.9%

10.3%

11.3%

11.6%

11.7%

11.8%

Operating profit

990

1,940

3,131

4,256

1,213

2,222

3,167

3,777

551

1,220

1,886

2,523

243.0%

232.8%

163.6%

114.7%

22.5%

14.5%

1.1%

-11.2%-54.6%-45.1%-40.4%-33.2%

YoY
Operating profit margin

7.8%

7.5%

7.7%

7.7%

7.5%

7.0%

6.7%

6.1%

3.7%

4.3%

4.4%

4.4%

Recurring profit

1,031

1,993

3,216

4,374

1,273

2,360

3,370

3,989

687

1,420

2,201

2,848

YoY

108.8%

2,320-38.6%
4.1%

108.7%

2,620

232.8%

223.3%

156.9%

109.9%

23.5%

18.4%

4.8%

-8.8%

-46.0%-39.8%-34.7%-28.6%

Recurring profit margin

8.2%

7.7%

7.9%

7.9%

7.9%

7.4%

7.1%

6.5%

4.7%

4.9%

5.1%

5.0%

Net income

718

1,355

2,188

2,964

888

1,643

2,289

2,738

474

985

1,512

1,917

233.0%

216.6%

151.7%

131.2%

23.8%

21.2%

4.6%

-7.6%

-46.7%-40.1%-33.9%-30.0%-35.7%

5.7%

5.2%

5.4%

5.3%

5.5%

5.2%

4.8%

4.4%

3.2%

3.4%

3.5%

3.3%

3.1%

YoY
Net margin
Quarterly performance

FY03/22

FY03/23(JPYmn)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

12,636

13,183

14,655

14,967

16,063

15,713

15,604

14,223

14,71813,992

14,221

14,322

YoY

35.0%

55.5%

47.1%

31.0%

27.1%

19.2%

6.5%

-5.0%

-8.4%

-11.0%

-8.9%

0.7%

Gross profit

2,373

2,475

2,723

2,739

2,801

2,602

2,471

2,278

2,211

2,350

2,361

2,346

YoY

67.7%

78.7%

53.2%

30.9%

18.1%

5.1%

-9.3%

-16.8%-21.1%

-9.7%

-4.5%

3.0%

Gross profit margin

18.8%

18.8%

18.6%

18.3%

17.4%

16.6%

15.8%

16.0%

15.0%

16.8%

16.6%

16.4%

SG&A expenses

1,383

1,524

1,533

1,614

1,589

1,593

1,526

1,668

1,660

1,680

1,695

1,708

YoY

22.8%

39.8%

30.6%

24.3%

14.9%

4.5%

-0.4%

3.3%

4.5%

5.5%

11.1%

2.4%

SG&A ratio

10.9%

11.6%

10.5%

10.8%

9.9%

10.1%

9.8%

11.7%

11.3%

12.0%

11.9%

11.9%

YoY
Operating profit margin
Recurring profit
YoY
Recurring profit margin
Net income
YoY
Net margin

990

951

1,191

1,125

1,213

1,009

945

611

551

669

665

637

243.0%

222.8%

96.9%

41.7%

22.5%

6.1%

-20.6%-45.7%-54.6%-33.6%-29.6%

4.4%

4.7%

4.5%

7.8%

7.2%

8.1%

7.5%

7.5%

6.4%

4.6%
108.9%

1,760

FY03/24

Revenue

Operating profit-34.3%

6.1%

4.3%

3.7%

4.8%

1,031

963

1,223

1,158

1,273

1,087

1,010

619

687

732

782

646

232.8%

213.7%

92.5%

39.2%

23.5%

12.9%

-17.4%-46.5%-46.0%-32.6%-22.6%

4.3%

8.2%

7.3%

8.3%

7.7%

7.9%

6.9%

6.5%

4.4%

4.7%

5.2%

5.5%

4.5%

718

638

832

776

888

755

646

449

474

511

527

404

233.0%

200.0%

88.7%

88.2%

23.8%

18.4%

-22.4%-42.2%-46.7%-32.3%-18.3%

-9.8%

5.7%

4.8%

5.7%

5.2%

5.5%

4.8%

4.1%

3.2%

3.2%

3.7%

3.7%

2.8%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

Results by segment
By segment (cumulative)

FY03/22

FY03/23

FY03/24(JPYmn)

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Revenue

12,63625,81940,47455,441

16,06331,77547,37961,602

14,71828,70942,931

57,253

YoY

35.0%

44.8%

45.6%

41.4%

27.1%

23.1%

17.1%

11.1%

-8.4%

-9.6%

-9.4%

-7.1%

Japan

12,01824,57738,52952,83915,41430,30545,26858,804

12,937

25,11537,482

49,901

YoY

35.2%

45.3%

45.8%

41.5%

28.3%

23.3%

17.5%

11.3%

-16.1%-17.1%-17.2%-15.1%% of revenue

95.1%

95.2%

95.2%

95.3%

96.0%

95.4%

95.5%

95.5%

87.9%

87.5%

87.3%

87.2%

North America

-

1,154

2,321

3,470

4,586

YoY

-

-

-

-

-

0.0%

7.8%

8.1%

8.1%

8.0%

% of revenue
China

419

821

1,285

1,719

357

876

1,214

1,582

296

614

965

1,361

YoY

31.3%

25.7%

28.9%

26.1%

-14.8%

6.7%

-5.5%

-8.0%

-17.1%-29.9%-20.5%-14.0%% of revenue

3.3%

3.2%

3.2%

3.1%

2.2%

2.8%

2.6%

2.6%

2.0%

2.1%

2.2%

2.4%

Other

197

419

659

882

290

593

896

1,217

328

658

1,012

1,406

YoY

30.5%

58.1%

77.6%

72.6%

47.2%

41.5%

36.0%

37.9%

13.1%

11.0%

12.9%

15.5%

% of revenue

1.6%

1.6%

1.6%

1.6%

1.8%

1.9%

1.9%

2.0%

2.2%

2.3%

2.4%

Operating profit

990

1,940

3,131

4,256

1,213

2,222

3,167

3,777

551

1,220

1,886

2,523

243.0%

232.8%

163.6%

114.7%

22.5%

14.5%

1.1%

-11.2%-54.6%-45.1%-40.4%-33.2%

YoY

2.5%

Japan

940

1,848

2,992

4,104

1,184

2,145

3,071

3,810

548

1,211

1,917

2,627

YoY

264.3%

230.0%

160.6%

111.4%

26.0%

16.1%

2.6%

-7.2%

-53.7%-43.5%-37.6%-31.0%

Operating profit margin

7.8%

7.5%

7.8%

7.8%

7.7%

7.1%

6.8%

6.5%

4.2%

4.8%

5.1%

5.3%

% of operating profit

95.1%

95.4%

95.6%

96.5%

97.7%

96.6%

97.0%

100.9%

99.5%

99.3%

101.6%

104.1%

North America

-126

-35

-54

-108

-205

YoY

-

-

-

-

-

Operating profit margin

-

-

-

-

-

% of operating profit

-

-

-

-

-

China

15

38

60

70

-11

10

7

-

-6

-17

-32

-39

YoY

-25.0%

137.5%

122.2%

233.3%--73.7%-88.3%

-

-

-

-

-

Operating profit margin

3.6%

4.6%

4.7%

4.1%

-

1.1%

0.6%

-

-

-

-

-

% of operating profit

1.5%

2.0%

1.9%

1.6%

-

0.5%

0.2%

-

-

-

-

-

Other

33

52

77

81

39

65

88

93

44

80

110

141

YoY

266.7%

940.0%

600.0%

326.3%

18.2%

25.0%

14.3%

14.8%

12.8%

23.1%

25.0%

51.6%

Operating profit margin

16.8%

12.4%

11.7%

9.2%

13.4%

11.0%

9.8%

7.6%

13.4%

12.2%

10.9%

10.0%

% of operating profit

3.3%

2.7%

2.5%

1.9%

3.2%

2.9%

2.8%

2.5%

8.0%

6.6%

5.8%

5.6%

By segment (quarterly)

FY03/22

FY03/23

FY03/24(JPYmn)

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Revenue

12,636

13,183

14,655

14,967

16,063

15,713

15,604

14,223

14,71813,992

14,221

14,322

YoY

35.0%

55.5%

47.1%

31.0%

27.1%

19.2%

6.5%

-5.0%

-8.4%

-11.0%

-8.9%

0.7%

Japan

12,01812,55913,952

14,31015,414

14,891

14,963

13,536

12,937

12,17812,367

12,419

YoY

35.2%

56.4%

46.7%

31.1%

28.3%

18.6%

7.2%

-5.4%

-16.1%-18.2%-17.3%-8.3%% of revenue

95.1%

95.3%

95.2%

95.6%

96.0%

94.8%

95.9%

95.2%

87.9%

87.0%

87.0%

86.7%

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North America

-

1,154

1,167

1,149

YoY

-

-

-

-

-

0.0%

7.8%

8.3%

8.1%

7.8%

% of revenue

1,116

China

419

402

464

434

357

519

338

368

296

318

351

396

YoY

31.3%

20.4%

34.9%

18.5%

-14.8%

29.1%-27.2%-15.4%-17.1%-38.7%

3.8%

7.6%% of revenue

3.3%

3.0%

3.2%

2.9%

2.2%

3.3%

2.2%

2.6%

2.0%

2.3%

2.5%

2.8%

Other

197

222

240

223

290

303

303

321

328

330

354

394

YoY

30.5%

94.7%

126.4%

59.2%

47.2%

36.5%

26.3%

43.6%

13.1%

8.9%

16.8%

22.7%

% of revenue

1.6%

1.7%

1.6%

1.5%

1.8%

1.9%

1.9%

2.3%

2.2%

2.4%

2.5%

2.7%

Operating profit

990

951

1,191

1,125

1,213

1,009

945

611

551

669

665

637

243.0%

222.8%

96.9%

41.7%

22.5%

6.1%

-20.6%-45.7%-54.6%-33.6%-29.6%

4.4%

YoY
Japan
YoY

940

908

1,144

1,112

1,184

961

926

739

548

663

706

710

264.3%

200.7%

94.6%

40.2%

26.0%

5.8%

-19.1%-33.5%-53.7%-31.0%-23.8%-3.9%

Operating profit margin

7.8%

7.2%

8.2%

7.8%

7.7%

6.5%

6.2%

5.5%

4.2%

5.4%

5.7%

5.7%

% of operating profit

95.1%

95.6%

96.1%

98.8%

97.7%

95.3%

97.9%

121.0%

99.5%

99.1%

105.8%

111.5%

-126

-35

-19

-54

-97

-

-

-

North America
YoY
Operating profit margin

-

-

-

-

% of operating profit

-

-

-

-

-

China

15

YoY

23

22

-

10

-11

21

-3

-7

-6

-11

-15

-7

-25.0%-

100.0%

-

-

-8.7%

-

-

-

-

-

-

Operating profit margin

3.6%

5.7%

4.7%

2.3%

-

4.0%

-

-

-

-

-

-

% of operating profit

1.5%

2.4%

1.8%

0.9%

-

2.1%

-

-

-

-

-

-

Other

33

19

25

4

39

26

23

5

44

36

30

31

YoY

266.7%-

316.7%-50.0%

18.2%

36.8%

-8.0%

25.0%

12.8%

38.5%

30.4%

520.0%

Operating profit margin

16.8%

8.6%

10.4%

1.8%

13.4%

8.6%

7.6%

1.6%

13.4%

10.9%

8.5%

7.9%

% of operating profit

3.3%

2.0%

2.1%

0.4%

3.2%

2.6%

2.4%

0.8%

8.0%

5.4%

4.5%

4.9%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/24 results
Summary
Revenue: JPY57.3bn (-7.1% YoY)
Operating profit: JPY2.5bn (-33.2% YoY)
Recurring profit: JPY2.8bn (-28.6% YoY)
Net income attributable to owners of the parent: JPY1.9bn (-30.0% YoY)

Changes in market conditions and demand
The semiconductor production equipment industry, which significantly affects the company’s group performance, is expected
to see an increase in demand in the medium term for semiconductors driven by DX, AI, and EV. However, more and more
semiconductor manufacturers moved to adjust their inventory and production to review their capital investment plans in
response to slowing demand for mobile devices such as smartphones and PCs, servers, and other IT equipment. In theaerospace industry, demand for commercial aircraft recovered, and government demand, particularly in defense, was strong.
Meanwhile, the recovery of demand in the machine-tool industry delayed due to concerns about global inflation and highinterest rates.
The company established a new base (Iga Warehouse) in Iga, Mie Prefecture, to strengthen its processing services, andfocused on developing new customers in the aerospace and automotive industries, which the company considers to be
growth areas. In addition, the company focused on re-engaging dormant customers and introducing and expanding sales of
new products such as draw-processed products and environmentally friendly Eco-Series products.
The company has been focused on expanding the functions of its 24/7 online quoting and ordering website, Hakudo Net
Service, and users can now access the quoting service without the need for registration. Furthermore, the company has
expanded the availability of the service to individual users as well as corporate customers, making progress in building afoundation for future earnings growth, as well as enabling immediate quoting and ordering of metal 3D printed products anddraw-processing through the website. The company has also increased the number of products available on Hakudo Net
Service from 50,900 items as of end-March 2023 to 84,900 items as of end-March 2024, to enhance the site's convenience.
The company also actively pursued overseas expansion and business development. In the US, the company established alocal subsidiary, Hakudo USA Inc. in December 2022. Hakudo USA acquired a 51% stake in West Coast Aluminum &Stainless, LLC in March 2023 and prepared for market development and new business in the US.
In other regions, Shanghai Hakudo Precision Materials Co., Ltd. experienced a decline in domestic and export demand, andAQR Co., Ltd. was affected by ongoing downturn in the semiconductor production equipment industry, and revenues in bothsubsidiaries decreased in FY03/24. Hakudo (Thailand) Co., Ltd. saw an increase in revenue against the backdrop of recovery
in the automotive industry in Thailand and acquisition of new customers.

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Financial results: Decrease in sales and profit
Revenue declined 7.1% YoY, due largely to the continued downturn in the semiconductor production equipment industry.
Sales of standard stock items (non-consolidated basis) decreased by JPY3.8bn YoY (unit price +JPY2.0bn and volume JPY5.9bn). Sales of special-order items (non-consolidated basis) decreased by JPY5.0bn YoY (unit price -JPY268mn andvolume -JPY4.7bn). Revenue of consolidated subsidiaries (including adjustments) increased by JPY4.5bn, driven by the fullyear contribution of North American subsidiary and its subsidiary, which were included in the scope of consolidation in
FY03/23, and brisk performance of the Thai subsidiary.
As of end-March 2024, market prices for key raw materials were up at JPY1,370,000/t for electrolytic copper (+JPY1,000/t
from end-March 2023) and at JPY400,000/t for aluminum ingots (+JPY92,600/t). Market prices for stainless steel dropped
to JPY600,000/t (-JPY80,000/t).
Gross profit declined 8.7% YoY to JPY9.3bn and the gross profit margin fell 0.3pp to 16.2%. Lower sales volume of standard
stock items and special-order items due to the slowdown in the semiconductor production equipment market and a decrease
in inventory valuation gain due to raw material market conditions were the main factors behind the decline in profit. SG&A
expenses increased 5.8% YoY to JPY6.7bn due to an increase in personnel and other expenses associated with adding its
North American subsidiary and its subsidiary to the scope of consolidation. Accordingly, operating profit fell 33.2% YoY.
Inventory valuation gain in FY03/24 was JPY105mn (a decrease of 399mn from FY03/23).

Performance by segment
Japan: Segment revenue of JPY49.9bn (-15.1% YoY), operating profit of JPY2.6bn (-31.0% YoY)
North America: Segment revenue of JPY4.6bn (–), operating loss of JPY205mn (loss of JPY126mn in previous year)
China: Segment revenue of JPY1.4bn (-14.0% YoY), operating loss of JPY39mn (loss of JPY0mn the previous year)
Others: Segment revenue of JPY1.4bn (+15.5% YoY), operating profit of JPY141mn (+51.6% YoY)
Hakudo's reporting segments indicate where its earnings were generated. Its Japan segment includes results stemming fromthe parent company and AQR Co., Ltd., while its China segment reflects the performance of Shanghai Hakudo Precision
Materials Co., Ltd. Its North America segment reflects the performance of Hakudo USA Inc. and West Coast Aluminum &Stainless, LLC, and its Others segment indicates earnings from Hakudo (Thailand) Co., Ltd. Hakudo anticipates its
collaboration with Oristar Corporation in Vietnam to continue. In FY03/23, the company added North America as areportable segment.
The Japan segment saw revenue and profit decline, with an OPM of 5.3% (-1.2pp YoY), partly due to a JPY399mn reduction in
the impact of inventory assets. Subsidiary AQR Co., Ltd. also reported lower revenue, affected by the slowdown in thesemiconductor production equipment business.
The operating loss increased in the North America segment. Although revenue of West Coast Aluminum & Stainlesscontributed to consolidated revenue in FY03/24, the segment posted an operating loss due to recording PMI-related
expenses.
The China segment posted lower revenue and increased its operating loss. Consolidated subsidiary Shanghai Hakudo
Precision Materials Co., Ltd. was impacted by a slowing Chinese economy and downturn in export demand.
The Other segment reported an increase in revenue and operating profit, and a 3.1pp rise in OPM to 5.6%. Hakudo(Thailand) Co., Ltd. performed strongly, mainly driven by the recovery of the automotive industry and acquisition of new
customers in Thailand.

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Full-year company forecasts
FY03/23(JPYmn)1H Act.

Revenue

2H Act.

31,775

FY03/24FY Act.

29,827

1H Act.

61,602

FY03/25

2H Act.

28,709FY Act.

28,544

1H Est.

2H Est.

FY Est.

57,25330,80033,30064,100

7.3%

16.7%

12.0%

YoY

23.1%

0.7%

11.1%

-9.6%

-4.3%

-7.1%

Cost of revenue

26,37225,07751,45024,14823,83747,985Gross profit

5,403

4,750

10,153

4,561

4,707

9,268

YoY

11.5%

-13.0%-1.5%-15.6%

-0.9%

-8.7%

Gross profit margin

17.0%

15.9%

16.5%

15.9%

16.5%

16.2%

SG&A expenses

3,181

3,194

6,375

3,341

3,404

6,744

YoY

9.4%

1.5%

5.3%

5.0%

6.6%

5.8%

SG&A ratio

10.0%

10.7%

10.3%

11.6%

11.9%

11.8%

Operating profit

2,222

1,556

3,777

1,220

1,303

2,523

1,400

1,660

3,060

YoY

14.5%

-32.8%-11.2%-45.1%-16.3%-33.2%

14.7%

27.4%

21.3%

Operating profit margin

7.0%

5.2%

6.1%

4.3%

4.6%

4.4%

4.5%

5.0%

4.8%

Recurring profit

2,360

1,629

3,989

1,420

1,428

2,848

1,500

1,700

3,200

YoY

18.4%

-31.6%-8.8%-39.8%-12.3%-28.6%

5.7%

19.1%

12.4%

Recurring profit margin

7.4%

5.5%

6.5%

4.9%

5.0%

5.0%

4.9%

5.1%

5.0%

Net income

1,643

1,094

2,738

985

932

1,917

1,000

1,140

2,140

YoY

21.2%

-32.0%-7.6%-40.1%-14.9%-30.0%

1.5%

22.4%

11.7%

Net margin

5.2%

3.7%

4.4%

3.4%

3.3%

3.3%

3.2%

3.4%

3.3%

The company announced its FY03/25 earnings forecast on May 10, 2024.
Revenue: JPY64.1bn (+12.0% YoY)
Operating profit: JPY3.1bn (+21.3% YoY)
Recurring profit: JPY3.2bn (+12.4% YoY)
Net income attributable to owners of the parent: JPY2.1bn (+11.7% YoY)
Net income per share: JPY188.68 (Previous period result: JPY168.99)
Due to soaring resource and energy prices, the depreciation of the yen leading to inflation, and delays in the relaxation ofstringent financial policies primarily in Western countries, the business environment faces increased uncertainty andheightened risk aversion.
An adjustment phase is continuing in the semiconductor production equipment industry, although semiconductor demand
expansion is forecast in the longer term due to the growth of IoT, DX, generative AI, and EV markets. The company assumes
recovery will start in the semiconductor production equipment-related business in 2H FY03/25. Demand (mainly for export)
also remains subdued in the machine tool business, but in the aircraft business, the company expects demand forcommercial aircraft and public-sector demand (mainly defense-related) to pick up. In terms of profit, the company is aiming
to strengthen cost control per volume to improve profitability, as well as streamlining product delivery by switching to its own
delivery services. Hakudo has not announced forecasts by segment.
Regarding the impact of inventory assets, the company only took into account the impact for Q1 in its earnings forecast. The
company also revised its dividend policy in February 2024. Under the revised policy, the company intends to pay dividends
based on either a full-year payout ratio of 45% or an annual dividend of JPY80 per share (new minimum), whichever ishigher (see Dividend policy section for details).

Historical differences between initial company forecasts
and results
Results vs. Initial Est.

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Revenue (Initial Est.)

27,00031,80033,20036,90046,00045,40039,00048,00062,10063,200

Revenue (Results)

29,92332,461

34,62743,70945,22841,79839,21955,441

61,60257,253Results vs. Initial Est.

10.8%

2.1%

4.3%

18.5%

-1.7%

-7.9%

0.6%

15.5%

-0.8%

-9.4%

Operating profit (Initial Est.)

1,720

2,100

2,050

2,240

2,990

2,330

1,500

2,920

3,970

Operating profit (Results)

2,038

1,707

1,986

2,785

2,250

1,659

1,982

4,256

3,777

2,523

18.5%

-18.7%

-3.1%

24.3%

-24.8%-28.8%

32.1%

45.8%

-4.9%

-15.0%

Recurring profit (Initial Est.)

1,770

2,160

2,100

2,310

3,050

2,410

1,560

3,000

4,080

3,180

Recurring profit (Results)

2,073

1,750

2,043

2,846

2,334

1,697

2,083

4,374

3,989

2,848

17.1%

-19.0%

-2.7%

23.2%

-23.5%-29.6%

33.6%

45.8%

-2.2%

-10.5%Net income (Initial Est.)

1,100

1,440

1,410

1,570

2,070

1,630

1,070

2,070

2,860

2,150

Net income (Results)

1,351

1,195

1,405

2,028

1,565

1,149

1,282

2,964

2,738

1,917

Results vs. Initial Est.

22.8%

-17.0%

-0.3%

29.2%

-24.4%-29.5%

19.8%

43.2%

-4.3%

-10.9%(JPYmn)Results vs. Initial Est.

Results vs. Initial Est.

FY03/24

2,970

Source: Shared Research based on company data

Substantial differences between forecasts and results occurred in FY03/13 and from FY03/18 to FY03/22.
In FY03/13, as in the previous year, Japanese manufacturing capex was sluggish due to a global economic slowdown causedby yen appreciation and the European financial crisis.

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In FY03/18, brisk sales to customers in the semiconductor production equipment industry (a key customer segment) led tohigher-than-expected revenue. Profit outstripped company expectations, due to higher revenue and favorable raw materials
prices. Performance declined in FY03/19, rebounding negatively from strong performance in semiconductors the year
before. Semiconductor memory prices fell, the supply/demand gap loosened, and capex in the semiconductor industry
entered an adjustment phase. The LCD manufacturing equipment industry also decelerated rapidly. In FY03/20,
semiconductor demand was sluggish as a result of US–China trade friction, causing lackluster results in the semiconductor
production equipment sector. These factors, plus a deterioration in raw materials prices, lowered company profits.
In FY03/21, the company expected performance to be affected significantly by the COVID-19 pandemic. However, in 2H,
demand for semiconductors began to pick up due to an increase in ICT applications, such as IoT, AI, and 5G. This situation
caused the market for semiconductor production equipment to expand, and raw materials prices rose, pushing performance
beyond initial expectations.
Two upward revisions were made during FY03/22. In August 2021, the revision was mainly due to a lower cost of sales ratioon the back of higher revenue, as well as the impact of raw materials prices. In December 2021, demand exceeded initial
forecasts for the semiconductor production equipment industry, which is the company's main area of business. With thesoaring prices of raw materials and increased demand for semiconductor production equipment, both sales and recurring
profit reached record highs.
Full-year revenue hit a record high in FY03/23, mainly due to a rise in unit selling prices due to the impact of higher raw
material costs. However, operating profit fell YoY owing to sluggish commissions associated with volume declines, atemporary increase in expenses due to the acquisitions of an overseas company, and a sharp decline in sales to customers inthe semiconductor production equipment industry (a key customer segment) in Q4.
In FY03/24, the company's financial results fell below expectations due to a delayed recovery in demand for semiconductorrelated equipment, which it had expected to start in 2H.

Medium-term management plan:
Moving forward, exceeding expectations (FY03/23–
FY03/25)
Hakudo released its medium-term management plan on May 26, 2022 (FY03/23 - FY03/25) with a subtitle of "Moving
forward, exceeding expectations." This is the first time the company announced a comprehensive company-wide businessstrategy with specific targets.

Progress toward medium-term plan targets through second year (FY03/24)
FY03/24 marked the second year of Hakudo's medium-term management plan. Although revenue hit a record high due tothe increase in unit selling price, both revenue and each level of profit fell short of the targets set in the plan in FY03/23
and marked YoY declines in FY03/24. This was primarily due to the prolonged adjustment phase in the semiconductor
industry, which led to a rapid stagnation in demand for the mainstay semiconductor production equipment from 2H
FY03/23 with no signs of recovery in FY03/24. FY03/23 results also reflected the booking of one-time expenses related tothe establishment of a U.S. subsidiary and its acquisition of a stake in West Coast Aluminum & Stainless as part of thecompany's measures to strengthen its business the US. The acquisition had a positive impact on revenue, but West Coast
Aluminum & Stainless continues to post a loss, which is contracting.
Of the initiatives for meeting the management targets (revenue and recurring profit growth) and key financial indicators set
forth in the medium-term management plan, the following measures were implemented by April 2024.
Enhance core businesses
Strengthen Hakudo Network: Implemented standardization of domestic aluminum products and revised the rollmargin, launched a cashback campaign for using Hakudo Network Service (October 2022); started using e-commerce
sales system at Hakudo's subsidiary in Thailand, Hakudo (Thailand) Co., Ltd. (January 2023), made it an open ecommerce website (April 2023), and strengthened functions of Hakudo Network Service (September, October, andNovember 2023)
Strengthen processing functions and supply capabilities: introduced an automatic inspection and packing system at the
Shiga Factory (June 2022), established new business base (Iga Warehouse) in Iga, Mie Prefecture (April 2023)

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Expand business domain
Expand business into growth fields: Reorganized the sales department, consolidating customers from growth fields(semiconductor, automotive, aerospace) into specific departments (April 2022); obtained a company-wide certification
for JIS Q9100, an internationally recognized quality management standard for the aerospace industry (July 2022),
established new sales promotion section within Sales Department of Standard Products to improve overall order rateby strengthening inside sales activities (October 2023).
Expand overseas business: Established a new overseas sales department within the Sales Department of Special Order
Products (April 2022); Established Hakudo USA Inc., a wholly-owned subsidiary of Hakudo, in California, US(December 2022); Hakudo USA acquired a stake in West Coast Aluminum & Stainless, LLC. (March 2023).
Strengthen management foundation
Strengthen digital platforms: started using e-commerce sales system at Hakudo (Thailand) Co., Ltd. (January 2023)
Enhance manpower: Created individual annual training plans and held explanatory meetings for all employees(December 2022), began operation of start-of-fiscal-year employee training program (February 2024), revised
personnel performance appraisal system (March 2024)
Strengthen PDCA management to realize strategies: Publicly announced Medium-Term Management Plan (FY2022–2024) for the first time (May 2022). Strengthen governance: Risk Management Committee and IT System Departmentof Corporate Administration Division received certification for JIS Q27001, a standard for information security
management systems (December 2022); integrated and restructured Administration Division and Corporate Planning
Division to establish a new Corporate Administration Division (April 2023)
Below is the content of the Medium-Term Management Plan (FY03/22–FY03/25) announced on May 26, 2022, presenting
the company's vision for the future and describing management targets for the three-year period of the medium-term
management plan and specific measures for achieving them.

Company Vision
Hakudo's vision is to be a platform operator working to support the manufacturing industry. To differentiate itself fromcompetitors, "exceptional quality, speed and service at a satisfying price" is at the core of its business strategy. The company
envisions itself supporting global manufacturers by expanding the business model it has developed in Japan to overseas
markets.
The main regions it will target are Asia and North America. In addition to Hakudo's own and other companies' inventories,
parts and molded items which it currently handles, it plans to handle subsidiary materials and tools, as well as commercialize
processing with 3D printers. In FY03/32, 10 years on from initiating its plan, the company has set targets for revenue of
JPY100.0bn, recurring profit of JPY10.0bn, and an overseas sales ratio of 20%. The company considers this most recent
medium-term management plan as a step towards actualizing its Vision.

Management targets
The management targets set for the final year of the medium-term management plan are revenue of JPY71.8bn (average
growth rate of 9.0% over the plan period), recurring profit of JPY5.4bn (growth rate 7.3%), and key financial plan indexes
being ROIC of 15%, operating cash flow of JPY4.7bn, and dividend payout ratio of 40.0%. Plans include enhancing existing
businesses in Japan, developing new businesses, and expanding the company’s network overseas.

Medium- Term Management Plan Targets(JPYmn/%)
Revenue
YoY
Recurring profit

Management target

YoY
Recurring profit margin

FY03/22Act.

FY03/23Est.

FY03/24Plan

FY03/25Plan

55,441
41.4%
4,374

62,10012.0%
4,080

66,8007.6%
4,500

71,8007.5%
5,400

109.9%
7.9%

-6.7%
6.6%

10.3%
6.7%

20.0%
7.5%

Key financial plan indicator

ROIC
Operating cashflow

15.0%
4,500

-

-

15.0%
4,700

Shareholder return

Payout ratio

44.0%

-

-

40.0%

Source: Shared Research based on company data
Note: Current as of the time the medium-term plan was announced

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Policies
Enhancing core businesses
Manufacturers of semiconductor production equipment currently account for a large percentage of sales (45% of domestic
revenue in FY03/22). The company believes it needs to diversify its business by cultivating new customers. The company
plans to step up business in the aircraft and automotive fields, as these sectors take advantage of aluminum’s light weight andrecyclability. The company also believes aluminum will be important to achieving SDGs, as the metal has characteristics that
contribute to reducing environmental impact.
Strengthening the Hakudo Network
First, the company will work to augment its product lineup. The company has already expanded its own inventory. It will
expand its top line of standard stock items by increasing the stock it handles from other companies, along with introducing
environmentally friendly products (ECO series) and high value-added products. In addition, Hakudo will collaborate withother companies to expand its product lineup to include not only non-ferrous metal materials, but also tools and othermaterials that support manufacturing sector needs.
Next, though currently only the company has access to its Hakudo Network Service, it plans to expand the network’s
coverage to include distributors. Hakudo will promote its online estimate and ordering system by having distributors use theservice directly, as well as promote its combined use with enterprise resource planning.
The company will also work to improve the profit margin of the service. Specifically, it plans to increase the degree of millingof the components it sells, boost sales of high-margin products, and improve the rate of small and medium orders.
Enhancing processing performance and supply capacity
To start, the company will boost the processing capacity of its factories, expanding its ability to provide services. In addition,
for component processing services, the company will enhance its virtual supply capacity by building alliances with otherprocessing companies and expanding its network of partner factories. In addition, it plans to differentiate its parts processing
service by improving customer convenience through efforts like using CAD data to automate part quotations.
Reform supply chain management to enhance procurement and supply capabilities
Hakudo plans to introduce a purchase management system to improve ordering efficiency and inventory management while
reducing management expenses. It will also introduce a system to standardize operations among factories and reduce labor,
thereby cutting costs and making delivery more efficient. Depending on market trends, Hakudo may consider the merger ofexisting companies and expansion of supply capacity by adding new factories.

Expanding into growth business fields: semiconductors, aerospace, automotive
The company intends to enter these growing fields, forming a sales organization for each one and utilizing an inventory
management system for special-order items to help attract and retain customers. The company will develop products tailored
to demand trends specific to each field. This includes the development of new environmentally friendly materials for its ECO
material series for the semiconductor field, the expansion of its line of aviation industry materials for the aerospace field, andthe development of new technologies in collaborations with industry and academia for the automotive field.
Regarding the development of its processing system, the company has begun contract manufacturing of metal products using
3D printers for the automotive field, and has launched efforts to become a convenient source of aerospace-standard
materials. The company's Kanagawa and Shiga factories have acquired JIS Q9100 certification, meeting specific aerospaceindustry requirements. In January 2020, the company introduced a water jet used for cutting any material into any shapedesired, and the company expects it will be of value in the aerospace and aviation fields.

Expanding overseas business and entering new markets
The company already conducts business through its regional subsidiaries in Thailand and Shanghai, China. In Vietnam, it
works with Oristar Corporation (unlisted), a major local non-ferrous metals trading company, with business focusing on
Oristar's inventory. In the regions where Hakudo is already established, it is developing strategies based on the extent of its
presence. Hakudo Network Service has already been introduced in China, and the company plans to expand its productlineup of subsidiary materials and tools, as well as its processing capacity. In Thailand, it has plans to strengthen its logistics
network, and in Vietnam, it will expand the products it handles to include other companies' stock items, subsidiary materials,
and tools. It plans to introduce the Hakudo Network Service in both countries.
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New regions the company plans to enter through alliances with local companies include South Korea, Taiwan, and the US. It
also intends to introduce the Hakudo Network Service in all of these regions, with a product lineup that will include its own
and other companies' stock items, as well as subsidiary materials and tools. In the US, the company plans to expand its
processed items on offer as well as processing capabilities.

Strengthening of management baseEnhancing digital platforms
Hakudo will reform its operating processes by introducing new digital technologies. This includes utilizing AI to improve theefficiency of customer service operations; it will also leverage its DX Promotion Project to make operations more efficient bygoing paperless and boost efficiency through the use of RPA and IoT for in-house back office operations and manufacturingsite operations.
To strengthen intellectual property strategies, it will take specific measures to develop the Hakudo Network Service in Japanand overseas. To start, it will strengthen structures and register rights required to provide and use the Hakudo Network
Service and related intellectual property overseas.
Bolstering human resources (expand procurement, further train existing staff, improve engagement)
To implement these measures, the company understands the need to procure more talent and boost the skill level of its
current staff. Starting with the strategic procurement of talent needed to execute Hakudo’s strategies, the company will
clarify requirements by introducing human resource skill maps, raise their skill levels by expanding the training system, andenhance their development through establishing an HR department. In addition, it will improve employee satisfaction byimplementing work style reforms.
Strengthen PDCA management for strategy effectiveness
Hakudo will enhance progress management to make its medium-term management plan feasible. It plans to utilize measures
like target management charts to help maximize recurring profit. It will also introduce multifaceted corporate management
using indicators like ROIC and cash flow in addition to income statements.
Strengthen governance
Hakudo will do this to enhance corporate value over the medium to long term. Specific measures include further
strengthening the following: management and supervisory functions of directors; executive structure and functions(management committee members); sustainability management to increase corporate value over the medium to long term;
and the company's information security system, including through the acquisition of ISMS certification (ISO27001).

Sustainable management
Basic policy
The company has formulated a new Basic Sustainability Policy that balances the enhancement of corporate value withworking towards a sustainable society. Its content is as follows.
1. Deepening Hakudo's understanding of sustainable management as concerns ESG and SDGs, and contribute to theenvironment and society through its business.
2. Striving to give due consideration to nature and the global environment, helping prevent global warming, and creating a
recycling-oriented society.
3. Promoting the health of employees while recruiting a diversity of human resources and recognizing a variety of training
and working styles.
4. Work to improve the health, efficiency, and transparency of the Group and reduce various risks.
5. Endeavor to strengthen relationships with stakeholders involved in the Group’s business.
6. Undertake initiatives toward the realization of a society in which everyone can live with peace of mind.

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Initiatives
In line with the Basic Sustainability Policy outlined above, the company will address the following material issues with a goalof contributing to society and sustainably increasing corporate value. The company has established an ESG/SDGs
Management Committee consisting of six subcommittees, which will play a central role in promoting these initiatives.

Sustainable management issues and initiatives
Major material issues

Specific Initiatives

Reducing environmental
impact and1
responding to climatechangeIn addition to reducing the business’s environmental
impact,Hakudo will contribute to society through providing
environmentally friendly products

Related SDGs Goals

・Reducing CO2 emissions
・Reducing waste and conservation of

379,111,213

resources

・Offering more environmentally friendly
products
・Promoting green procurement
・Strengthening relationships with
suppliers
・Respecting human rights
・Contributing to local communities
Hakudo creates new value through its partnerships and・Collaborating with industry andcontributes to local communities
academia
・Increasing employee satisfaction
Hakudo strives to be organization that’s easy to work for・Promoting diversity
and with, where a diversity of talent gains satisfaction from ・Creating a healthy and pleasant work
their work
environment
・Improving employee education
・Bolstering compliance
Through thorough compliance and risk management,
・Improving information security
Hakudo seeks to run its business operations smoothly・Thorough risk and crisis management

Building an environmentally
Hakudo takes environmental responsibility seriously
2 responsible
through its efforts to build a sustainable supply chain
supply chain

81,2133 Social initiatives

4,911

4 Investing in people

5 Corporate governance345,810

3,111,216

Source: Shared Research based on company data

Investment plan
The key strategy policies above can be broadly categorized into three fields: strengthening supply capacity and enhancing
processing capabilities, strengthening M&A and alliances, and strengthening digital transformation and the Hakudo Network
Service. Investment during the planning period for these three fields is as follows.

Investment plan per item
Investment items
Enhancement of supply capability and machining functions
Strengthening of M&A activities and alliances
Further digital transformation and enhancement of Hakudo Network
Service
Total

Investment amount (JPYmn)
4,500
2,500
1,000
8,000

The key strategic policies regarding strengthening supply capacity and enhancing processing capabilities are to develop a
network of processing companies, to enhance procurement and supply capabilities through SCM reform, and to expand
fields of growth while boosting sales and marketing. Expansion of overseas business is a key policy regarding strengthening
M&A and alliances. For strengthening digital transformation and the Hakudo Network Service, the key policies are to fortify
and expand the customer base and improve profitability by further developing the Hakudo Network Service while improving
the digital platform to boost corporate value.

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Business
Business model
Overview
The company’s business centers on vendor-managed inventory (VMI). The company buys non-ferrous materials (such asaluminum and copper) cuts them into standard sizes and shapes, and supplies them to customers in accordance with their
specifications. The company carries approximately two months of inventory worth of standard stock items. One difference
from other providers of VMI services lies in the company’s extensive processing capabilities, allowing it to machine items tocustomer specifications. VMI arrangements typically work by suppliers and purchasers sharing inventory information. In
Hakudo’s case, purchaser’s inventory information is based on customer order histories.
The company believes the factors that differentiate it from competitors include better product quality, and more attractive
delivery times. The company’s brand promise is “exceptional quality, speed and service at a satisfying price.” The company
places great importance on the quality of its materials and processing services, as well as on meeting the deadlines specified
in its product catalogs. The company adds value with its inventory and processing functions.

Performance fluctuations in tandem with market prices for key materials and changing
customer demand
In the decade to FY03/24, revenue ranged from a low of JPY29.9bn (FY03/15) to a high of JPY61.6bn (FY03/23). Operating
profit ranged between JPY1.7bn (FY03/16) and JPY4.3bn (FY03/22). Over this same period, OPM ranged from 4.0%
(FY03/20) to 7.7% (FY03/22).
Performance fluctuates in line with changing market prices on the main materials the company handles (aluminum andcopper) and volatility in demand from the customers who purchase these materials (such as manufacturers of semiconductor
production equipment). In recent years, the company’s performance declined in FY03/20 due to a downturn in economic
activity resulting from the COVID-19 pandemic. From FY03/22, the market environment improved quickly due to a reboundin non-ferrous metal prices and shortage of supply for semiconductor production equipment. In 2H FY03/23, though,Hakudo began feeling the effects of the semiconductor market entering the adjustment phase and demand remained weakthrough FY03/24.

Business overview
Customers
The company’s main customers are manufacturers of semiconductor production equipment, OA equipment, and otherindustrial machines. The company does not disclose sales by customer. Semiconductor production equipment uses large
quantities of aluminum, whose corrosion resistance, machining accuracy, and low gas generation suit it to this application.
While demand for semiconductor production equipment is affected in the near term by semiconductor prices, Shared
Research expects prices to increase over the longer term owing to global consolidation of production facilities. In FY03/24,
aluminum accounted for about 60% of the company’s revenue.
Among Hakudo’s customers are manufacturers of semiconductor production equipment (that use aluminum components intheir vacuum chambers), precision instruments such as OA equipment, and various industrial machines.
Hakudo says it has approximately 13,000 customer accounts, although Shared Research assumes the actual number of active
accounts is lower. The company has more than 10,000 customers registered to use its online Hakudo Network Service.
Shared Research estimates that the company does business with around 10,000 customers per day, also including those thatplace orders by phone and fax (which the company explains tend to be special-order items). In FY03/24, revenue totaled
JPY57.3bn. Assuming 250 business days a year, the average order size calculates to around JPY23,000. The company
provides delivery services tailored to each customer’s needs, regardless of order size, so orders are small compared withcompanies that handle steel products in bulk. Hakudo notes that a large-volume customer will make purchases of around
JPY2.0bn per year.

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Adding value through processing and maintaining standard stock items
Rather than selling purchased materials as is, the company cuts them into specific sizes and shapes (standard stock items)
before selling them. Once placed in inventory, these items are valued at market prices. Transaction prices are based onmarket prices at the time of sale, so the company can face valuation losses if market prices change while products are in
inventory. Among its main materials, aluminum prices are updated every three months, while copper prices change daily.
The company adjusts purchasing decisions based on market prices, inventory levels, and customer demand trends.

Method for determining unit transaction prices
To determine transaction prices, the company starts with the market price of the target material. To this, it adds a trading
company margin, processing fees, the customer’s portion of shipping costs, and a margin based on customer payment
conditions. If multiple pieces of aluminum materials are ordered, the price is calculated as follows. The unit price is primarily
based on the market price per unit weight of aluminum at the time of order, which was JPY400,000 per ton as of the end of
March 2024.
First, the unit price is determined, based on the market price per weight of aluminum (JPY400,000/ton as of end-March
2024). Next, a customer-specific transaction price is calculated by taking into account various fees (including inventory costs),
processing fees for parts and materials, the customer’s purchase/payment history, and credit information. The unit price isthen multiplied by the number of items. For similar companies that do not offer processing services, the transaction price issimply the market price of the raw material plus a trading company commission.

Flow of business
Hakudo purchases non-ferrous materials from external suppliers and holds them in inventory (standard stock items). The
company maintains around 5,400 standard stock items. Customers can also backorder items that the company does not keep
in stock. Backorder items are those the company does not typically handle and whose volumes are too small to keep ininventory.
Hakudo purchases non-ferrous materials from external suppliers and holds them in inventory (standard stock items). The
company maintains around 5,300 standard stock items. Customers can also backorder items that the company does not keep
in stock. Backorder items are those the company does not typically handle and whose volumes are too small to keep ininventory.

Purchasing
The company buys non-ferrous materials from specific suppliers in Japan. The material Hakudo buys the most of is aluminum,
which it purchases from large companies such as UACJ Corporation (TSE Prime: 5741) and Nippon Light Metal Holdings Co.,
Ltd. (TSE Prime: 5703). Hakudo purchases copper from a range of Japanese and overseas manufacturers, such as Mitsubishi
Materials Corporation (TSE Prime: 5711) in Japan. To diversify supply risk, the company does not limit its suppliers to specificcompanies, except in the case of specialized parts.
According to the Japan Aluminum Association, high electricity prices mean that Japanese production of primary aluminum
ingots has not been cost-competitive since the two oil shocks the country faced in the 1970s. As a result, the country isentirely dependent on imports for new aluminum ingots. Japanese production centers on secondary (recycled) aluminum
ingots, which are imported from overseas and processed in Japan into plates, extrusions, and foils. Processed aluminummaterials are then supplied to manufacturers of final products such as transport equipment and construction-related
equipment.
“Copper” products may include products made solely from copper or alloys containing zinc, tin, or nickel before being
melted, cast, rolled, drawn, or forged into plates, tubes, bars, wires, or other shapes. The Japan Copper and Brass Association
estimates FY2024 demand for products made from copper and copper alloys at 676,700 tons (+5.9% YoY).
Because it must maintain a certain amount of standard stock items in inventory, the company is unlikely to be at an advantage
when negotiating with suppliers. The company explains that for this reason, it has established a stable supply system bycontinuing to purchase products from multiple sources.

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Inventory (processing of standard stock items)
The company classifies procured metal materials as “standard stock items.” The company handles around 5,400 standard
aluminum products, which are divided into shapes such as plates, bars, and tubes, and each has its own standard dimensions
and thickness.
For aluminum products, the company purchases sheets, strips (coiled), rods, and tubes of aluminum alloy from manufacturersof these materials, and keeps them in inventory. Aluminum alloy plates in inventory (base material) tend to be around three
sqm in size. Processing and inventory management take place at five factories in Japan (in Fukushima, Saitama, Kanagawa,
Shiga, and Kyushu; outlined below).

Order receipt, sales
In general, the flow from order to shipment follows the steps below.
The company receives an estimate request or order via telephone, fax, e-mail, or online service. Order data is entered into
the company’s “comprehensive information system (proprietary computer system)” at the East Japan Customer Center, WestJapan Customer Center, or each of its sales offices. Data is then sent to individual factories as shipment order forms. Bar
codes are printed onto shipment order forms to ensure traceability.

Printing a shipment order form (factory)

Source: Company website

Depending on the order, cutting may be performed at the factory instructed to handle the shipment. Cutting takes place atfive factories in Japan. The company has a variety of cutting machines including circular saws, band saws, shears, and contour
machines. The same five factories also handle milling (machining of complex shapes and drilling), using general-purpose andspecialized machines. As of end-FY03/23, the company had about 500 machines installed. The company uses rotating
blades (milling machines) to perform processing into complex shapes as well as drilling, according to the customer's needs.
In addition to cutting and milling, the types of processing include irregular shape/machining, polishing, and chamfering.
Other processes include deform/machining, polishing, and chamfering.

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Machining processes (cutting, milling)

Source: Company website

Contour machine processing machining

rotary polishing

Source: Company website

After machining is complete, the product is inspected. Dimensions may be measured using 3D measuring instruments or
manually, according to the customer’s request. After inspection, the product is packaged for delivery. Packaging
specifications vary depending on the variety, shape, and processing service. The company aims to provide the best packaging
it can to maintain product quality. The company uses a barcode system to perform final checks on unloads and delivery
addresses, and then delivers the goods quickly using its own trucks, route-based services, and in some cases, couriers.

Shipment and delivery

Source: Company website

Hakudo Network Service
The Hakudo Network Service is a proprietary online estimate and ordering service, handling about 80% of the company's
estimates. Customers can login (or register as new users) via the Hakudo Network Service portal on the company’s website.
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The system offers three types of entry mode as illustrated below: standard, simplified, and multiple detail. New customers
and those unfamiliar with online ordering tend to choose the simplified mode, which is limited to standard products. The
multiple detail entry mode allows customers to place orders involving detailed machining requests and attach Excel or CSV
data, ordering up to 15 items at a time.

Hakudo Network Service screens for orders and estimates
Simplified modeStandard mode

Multiple detail entry mode

Source: Company website

Sales structure
Hakudo divides Japan into eight regions and has a sales office for each: the Sendai Sales Office (located in Sendai, Miyagi
Prefecture, and responsible for the Hokkaido and Tohoku regions), the Takasaki Sales Office (located in Takasaki, Gunma
Prefecture, and responsible for the Joetsu and Northern Kanto regions), the Tokyo Sales Office (located within headquarters
and responsible for the Tokyo metro area), the Atsugi Sales Office (Atsugi, Kanagawa Prefecture), the Nagoya Sales Office(located in Nagoya, Aichi Prefecture, and responsible for the Tokai and Hokuriku regions), the Osaka Sales Office (located in
Osaka and responsible for Wakayama Prefecture and the Kyoto/Osaka/Kobe region), the Hiroshima Sales Office (located in
Hiroshima and responsible for the Chugoku and Shikoku regions, except for Yamaguchi Prefecture), and the Kyushu Sales
Office (located in Tosu, Saga Prefecture, and responsible for the Kyushu region, including Yamaguchi Prefecture). Locatedwithin headquarters is the Sales Department of Special Order Products, which serves large manufacturing customers
nationwide. The Sales Department of Standard Stock Products maintains two call centers, the East Japan Customer Center(Kawasaki) and the West Japan Customer Center (Osaka), as well as the Shizuoka Branch Office.

Sales offices in Japan
OfficeLocation

Area covered

Sendai Sales Office
Tokyo Sales OfficeSendai, Miyagi Prefecture
Chiyoda-ku, Tokyo

Hokkaido and Tohoku
Tokyo metro

Takasaki Sales Office
Atsugi Sales Office

Takasaki, Gunma Prefecture
Atsugi, Kanagawa Prefecture

Joetsu and Northern Kanto
Southern Kanto and Chubu

Nagoya Sales OfficeOsaka Sales Office
Hiroshima Sales Office

Nagoya, Aichi Prefecture
Osaka
Hiroshima

Tokai and Hokuriku
Wakayama Prefecture, Kyoto/Osaka/Kobe
Chugoku and Shikoku (excl. Yamaguchi Prefecture)

Kyushu Sales OfficeTosu, Saga Prefecture

Kyushu (incl. Yamaguchi Prefecture)

Source: Shared Research based on company data

Factories in JapanThe company has five factories in Japan. In April 2023, the company established a new base (Iga Warehouse) in Iga, Mie
Prefecture, where it began operation of water-jet cutting and machining equipment, and wire-cutting machines.
Fukushima Factory (Koriyama, Fukushima Prefecture): Has grinding/polishing and machining equipment and conducts
these processing for the company.
Saitama Factory (Kazo, Saitama Prefecture): Mainly handles cut-to-length stock, extruded aluminum, copper pipe, andshaped copper and stainless steel (rectangular bars and small-diameter rods).
Kanagawa Factory (Atsugi, Kanagawa Prefecture): This center has the largest product lineup in the Hakudo group, as wellas the largest inventory and shipping volumes. This center functions as a core factory for the group, working to increase
the quality of products the group handles and augment the group’s technologies.
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Shiga Factory (Gamo-gun, Shiga Prefecture): This factory handles a diverse lineup of products. The factory maintains
inventories of aluminum plates ranging in thickness from 1mm to 350mm and cuts/machines this stock to customer
requirements. The facility has water-jet cutting and machining equipment.
Kyushu Factory (Tosu, Saga Prefecture): At this location, the company focuses on maintaining close ties with local
businesses, working alongside salespeople to reflect customer feedback in its product quality, technologies, and services.

Factories (“process centers”) in Japan
Factory
Fukushima Processing Center

Location
Koriyama, Fukushima Prefecture

Characteristics
Polishing and machining equipment

Saitama Processing Center
Kanagawa Processing Center

Kazo, Saitama Prefecture
Atsugi, Kanagawa Prefecture

Cut-to-length board, extruded aluminum, copper pipe, copper, stainless steelGroup’s largest product lineup and inventory/shipping volumes

Shiga Processing Center
Kyushu Processing Center

Gamo-gun, Shiga Prefecture
Tosu, Saga Prefecture

Large stock of aluminum plates, water-jet cutting and machining equipment
Close ties to the local businesses

Source: Shared Research based on company data

Overseas locations
In China, the company has its own inventory and processing centers with sales offices in Guangzhou and Tianjin, as well as aconsolidated subsidiary in Shanghai (Shanghai Hakudo Precision Materials Co., Ltd.). In Thailand, Hakudo has a subsidiary,
Hakudo (Thailand) Co., Ltd, as well as a local partner, Fujimaki Steel (Thailand) Co., Ltd. In other ASEAN countries, thecompany is collaborating with local partners in Vietnam (Oristar Corporation), Malaysia (PHH Special Steel SDN BHD), andIndonesia. It also has established a representative office in Vietnam. The table below indicates the company’s overseas
locations.
In FY03/23, the company established Hakudo USA Inc. with the aim of strengthening its business in the American market.
Subsequently, this subsidiary invested in a local company, West Coast Aluminum & Stainless, LLC. In FY03/23, the company
added North America as a new reportable segment.

Overseas locations
Country
China

Thailand

Vietnam
Malaysia
AmericaIndonesia

Subsidiary
Location
Subsidiary

Shanghai Hakudo Precision Materials Co., Ltd.
Shanghai, China
Hakudo (Thailand) CO., LTD.

Location
Local partner
Rep office
Local partner

Bangkok, Thailand
Fujimaki Steel (Thailand) Co., Ltd.
The Representative Office of Hakudo Co., Ltd. in Ho Chi Minh City
ORISTAR CORPORATION

Local partner
SubsidiarySub-subsidiary
Local partner
Local partner

PHH SPECIAL STEEL SDN BHD
Hakudo USA Inc.
West Coast Alminium &Stainless, LLC
PT. Fujimaki Steel Indonesia
PT. PHH Special SteelSource: Shared Research based on company data

Process for determining transaction prices
The company refers to market prices at the time of transaction to calculate transaction prices. A problem can arise due to a
gap between the market price of the product at the time of sale and the price at which the original material was purchased.
In particular, the company may face a loss if the market price of the material declines (the risk of holding items in inventory).
When market prices are rising, transaction prices are based on the most recent market price, so marginal gains may occur.
When market prices are falling the mechanism for determining transaction prices results in a net loss.
The company does not adjust purchases based on market trends, unless it is certain that transaction prices will rise or fall.
However, the company minimizes marginal losses through efficient processing (minimizing the amount of scrap generated
when processing standard products) and by offering selling prices that take credit information (based on customers’ payment
histories) into account. The company uses an integrated information system (which it calls the “proprietary computer system”)
to manage information centrally. The company uses this system to direct operations related to inventory, adjusting stocklevels to meet assumed demand and minimize differential losses.

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Product lines
As of end-FY03/24, the company catalog listed 84,900 items for sale, including standard stock items and backorder items.
The main items are described below.

Standard stock items
These are items the company keeps in stock at its factories around Japan. Currently, the company maintains 5,300 standard
stock items. Cover images of the product catalogs (standard stock items) on the company website are shown below. The
English version was published in 2018; the Japanese version is from 2023.

Catalogs of standard stock items (English on the left, Japanese on the right)

Source: Company website

Hakudo explains that its standard stock items benefit customers in six ways. First, the lineup is extensive. The company
specializes in non-ferrous metals such as aluminum and copper, as well as stainless steel, titanium, specialty steels and plastic
materials, and provides processed industrial materials. The company offers around 5,400 standard products.
The second advantage is the ability to fill small-lot orders. The company machines materials based on a single plate, piece, orgram to the customer’s desired size and shape, and delivers products throughout Japan. The company’s policy is to cut andprocess small materials down to 5 x 5mm to the exact dimensions specified by the customer, and deliver the required
quantity as soon as the next business day.
The third advantage is quick response. From customer centers located in eastern and western Japan, the company responds
quickly to quotations, orders, and inquiries via fax, phone, e-mail, and online. In sales, the company has a policy of notkeeping the customer waiting. Professional staffers at customer centers using leading-edge IT systems provide prompt quotes
on both standard stock items and special-order items.
The fourth advantage is quick delivery. The company maintains inventory and processing centers (“factories”) at five locations
across Japan, and can deliver products as soon as the day after it receives an order. The company has a system in place to shiporders to customers from each center by the most appropriate means, depending on delivery distance and inventory status.
The fifth advantage is the wide variety of machining options. In addition to cutting products to customer-specified
dimensions, the company offers milling and polishing services for all products in its inventory. The company provides 34
types of cutting and processing methods to offer products with the shape and accuracy desired by customers. The company iscapable of cutting various shapes (squares, circles, and rings), milling and polishing to specified dimensions in increments of
0.1mm, and machining shaped parts using machining centers and water jet cutting machine.

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The sixth advantage is high-precision machining. For its milling and polishing processes, the company guarantees accuracy interms of thickness, width, length, squareness, angularity, and flatness. The company has installed the latest equipment,
including specially designed high-precision milling machines and machining centers, to meet the demands of its customers.
The company is also researching and seeking to improve its machining processes and inspection methods to further increase
machining accuracy.

Items handled (standard stock items)
Aluminum

Aluminum products (standard stock items on the left and backorder items on the right)

Source: Company website

Standard aluminum stock items are classified broadly by shape (plates, bars, and tubes), and then classified further in terms ofsize and material.
The example below is a catalog entry for a standard stock item. “A1050” is a standard 1000 grade aluminum (purealuminum), 99.5% pure aluminum sheet (1,000mm by 2,000mm), commonly referred to as “meter sheet*.” Catalog entries
are listed by size.

Catalog listing of “A1050” aluminum plate item (English at left, Japanese at right)

Source: Company website

The Japanese version (but not the English version) indicates the weight per sheet (kg) and uses color to show which of thecompany’s five factories produces and stocks the product.

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* “Meter sheet” refers to a type of cut-to-length stock measuring 1,000mm by 2,000mm.
The main types of steel plate and plate-metal materials used in precision plate metal and plate-metal processing are
distributed in the market as cut-to-length stock of specific dimensions. Typical plate sheet sizes are 3 x 6 (914mm x
1,829mm), 3 x 8 (914mm x 2438mm), and 5 x 8 (1,524mm x 2,438mm). These standard sizes are generally not used forstainless steel, aluminum, copper, and brass plate. Instead, these materials are typically found in “meter sheet”
dimensions (1,000mm x 2,000mm), which are not used for steel sheet.
The 4 x 8 size (1,219mm x 2,438mm) is generally used for steel, stainless steel, aluminum, copper, and brass plate. Thissize of material is used to make large plate metal products, for which 3 x 6 and 1 x 2 sizes would be too small. The 5 x
10 size (1,524mm x 3,048mm) is also used for steel plate but generally not for copper or brass plate.

Copper products

Copper products (standard stock items at left, backorder items at right)

Source: Company website

The company lineup also includes copper plates, bars, and tubes. Due to its high electrical and thermal conductivity,
durability, and color, copper is used in a wide range of applications. Copper is frequently used in air conditioning (copper
pipes) and electronic components (semiconductor lead frames). Standard stock items are categorized broadly into plates,
bars, and tubes, and further classified according to size and material quality.
The following example is a product called “chrome copper round bar,” which is an alloy of copper and chrome withextremely high electrical conductivity and hardness. It has excellent wear resistance at high temperatures and good
toughness due to its uniform microstructure. This product is mainly used for welding electrode materials, electrodematerials, cooling parts for connector equipment, die-casting molds, and various machine parts (parts requiring thermal
conductivity and electric conductivity).

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Catalog listing for “chrome copper round bar” (English at left, Japanese at right)

Source: Company website

As with aluminum, the Japanese version of the catalog (but not the English version) indicates the weight per sheet (kg) anduses color to show which of the company’s five factories produces and stocks the product.
Stainless steel

Stainless steel products (standard stock items at left, backorder items at right)

Source: Company website“Rust-resistant iron” is made by adding nickel, chrome, or other substances to iron. Due to its rust resistance, this material isoften used in food machinery and kitchen equipment, as well as for decorative piping for railings and monuments. The
material is finding growing use in machine parts, and the company believes demand will increase further as new applications
for the material are developed.
The following example is a catalog entry for structural stainless steel extruded pipe. The material is called “304 seamlessround pipe (TKA)” TKA refers to mechanical-structural stainless steel pipe. In machined items, this product is used as thickwalled pipe (such as pipe made from hollowing out round stock or sheet materials).

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Catalog entry for seamless round stainless-steel pipe (English at left, Japanese at right)

Source: Company website

Other products (ordinary steel, specialty steel, titanium, plastic)

Source: Company website

Ordinary and specialty steels are made by adding carbon and other substances to iron to increase its hardness. The company
offers a wide variety of products for different applications. Traditionally used for knives and tools, in recent years thesematerials have also been used for molds that require hardness (ultra-precision molds for IT-related products).
Titanium is lighter, stronger, and more corrosion-resistant than other metals. It has a wide range of applications, including in
the aerospace industry.
The company handles a wide variety of plastic materials, from general-purpose plastics (PVC, acrylic) to engineering plastics.
Engineering plastics, which have enhanced hardness and resistance to heat and chemicals, are used in a wide range ofapplications because they have the advantage of being lighter than metals.
In addition, the company handles thermal insulation and heat insulation materials and ceramics.

Backorder items and special-order items
Standard stock items are held in stock at company factories. Alongside these items, customers can place orders for backorderand special-order items, which Hakudo may then order from other companies. Hakudo’s management costs on these items
are lower, as it buys them from other suppliers rather than processing them in house. Also, they carry no inventory costs . For
these reasons, Hakudo includes other companies’ inventory in its own product catalogs.
The company handles 27,400 items, which are available for order via the Hakudo Network Service. Hakudo also encourages
other companies in the industry to sell their products via this online site as partner suppliers. The company increased thenumber of items handled by 34,000 YoY, most of which Shared Research understands to be backorder and special-order
items.
The company also handles special-order items, which are manufactured in collaboration with various material and parts
manufacturers. In this category, the company offers aerospace-standard materials, custom mold bases, aluminum extrusion
molds, custom-molded parts, castings, and forgings. The company also provides contract machining services.

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The catalog also includes standard stock, backorder, and special-order items in various fields, in aerospace-standard, metal,
and plastic materials.

Catalog of backorder and special-order items (Japanese only)

Source: Company website

Product shipping and delivery
The company has a regular truck delivery service that it uses for the domestic market. The company also uses other trucking
or parcel delivery services when delivery timing does not coincide with its regularly scheduled routes. To develop its
nationwide sales and logistics network, the company requires detailed knowledge of the locations of customers’ factories andother facilities. Accordingly, the company commonly uses local transporters who are familiar with the local geography.
The company uses ship or air transport to send products overseas. According to the company, its arrangements can reduceoverseas transport by as much as six days compared with other companies’ export methods. (The company calculates thissavings by cutting the time to provide a quotation from two–three days to one or on the same day, shortening packaging
time from three–four days to one, and shipping on the same day rather than on the following day.)Customers
Customer accounts
The company does not disclose the exact number of customer accounts or sales results by customer. However, the company’s
customer accounts numbered around 13,000 as of FY03/21, and more than 9,000 of these were for companies registered
to use the Hakudo Network Service. Hakudo handles around 20,000 inquiries and invoice requests each day (total forphone, fax, email, and online). According to the company, online inquiries are increasing.
According to the company, about half of quotations lead to actual orders (the order rate). This factors in some degree of
duplication with quotations. The transaction price is often cited as the reason for not placing an order. The company explainsthat it uses prevailing market prices as the starting point for setting transaction prices. It then works to convince the customer
by presenting quotations in terms that match customer characteristics (necessary transportation method, payment method,and credit conditions).

Customers by industry
Aluminum is the material Hakudo handles most frequently, accounting for 59.8% of the total in FY03/24. The company’s
main customers are manufacturers of semiconductor production equipment and related companies. While the company's
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products often are shipped directly to component manufacturers, its end customers are the semiconductor production
equipment makers who process and assemble these parts and materials. These include Tokyo Electron Ltd. (TSE Prime:8035), ULVAC, Inc. (TSE Prime: 6728), and SCREEN Holdings Co., Ltd. (TSE Prime: 7735).
Demand for aluminum plate is high in the semiconductor production equipment industry. Aluminum alloy components areoften used in semiconductor production equipment, such as vacuum chambers themselves, various parts in the chambers,
and internal transport systems.
Aluminum is lightweight and offers corrosion resistance, machining accuracy, and low gas generation. Because of thesecharacteristics, the company’s aluminum materials are in demand from large Japanese manufacturers of semiconductor and
LCD manufacturing equipment, as well as from overseas manufacturers of semiconductor production equipment.
Demand for semiconductor production equipment is expected to remain strong due to the shortage of semiconductors andthe need to manage associated manufacturing risks. As a result, the company believes these manufacturers will be an
important customer category for the foreseeable future. Meanwhile, greater semiconductor mounting density is driving theneed for higher-precision products and more stringent delivery conditions. In response, the company is developing its own
high-spec series of products with improved flatness and precision.
Manufacturers of OA equipment and other industrial machinery are another important customer segment. Largemanufacturers of OA equipment, such as Canon Inc. (TSE Prime: 7751) and Ricoh Company, Ltd. (TSE Prime: 7752) aremajor customers. The standard stock items the company carries track trends in machine tool orders.

Business overview by segment
By segment

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23(JPYmn)

Act.

Act.

Act.

Act.

Act.

Act.

Act.

Act.

Act.

Act.

FY03/24
Act.

Revenue

25,571

29,92332,461

34,62743,70945,22841,79839,21955,441

61,60257,253

YoY

15.4%

17.0%

8.5%

6.7%

26.2%

3.5%

-7.6%

-6.2%

41.4%

11.1%

Japan

24,58028,675

31,10333,227

41,98343,33940,06937,34552,83958,80449,901

YoY

15.3%

16.7%

8.5%

6.8%

26.4%

3.2%

-7.5%

-6.8%

41.5%

11.3%

-15.1%-7.1%% of total

96.1%

95.8%

95.8%

96.0%

96.1%

95.8%

95.9%

95.2%

95.3%

95.5%

87.2%

North America

-

-

-

-

-

-

-

-

-

-

4,586

YoY

-

-

-

-

-

-

-

-

-

-

-

% of total

-

-

-

-

-

-

-

-

-

-

8.0%

China

991

1,242

1,168

1,130

1,349

1,306

1,132

1,364

1,719

1,582

1,361

YoY

20.3%

25.4%

-5.9%

-3.3%

19.4%

-3.2%

-13.3%

20.5%

26.1%

-8.0%

-14.0%% of total

3.9%

4.2%

3.6%

3.3%

3.1%

2.9%

2.7%

3.5%

3.1%

2.6%

2.4%

6

190

270

377

582

597

511

882

1,217

1,406
15.5%

Other
YoY

-

-

-

42.2%

39.6%

54.5%

2.5%

-14.4%

72.6%

37.9%

% of total

0.0%

0.0%

0.6%

0.8%

0.9%

1.3%

1.4%

1.3%

1.6%

2.0%

2.5%

Segment profit

1,665

2,038

1,706

1,985

2,784

2,249

1,658

1,981

4,256

3,777

2,523

101.5%

22.4%-16.3%

16.4%

40.3%

-19.2%-26.3%

19.5%

114.8%-11.3%-33.2%

6.5%

6.8%

5.3%

5.7%

6.4%

5.0%

4.0%

5.1%

7.7%

6.1%

YoY
Operating profit margin

4.4%

Japan

1,570

1,922

1,630

1,933

2,734

2,236

1,677

1,941

4,104

3,810

2,627

YoY

88.5%

22.4%

-15.2%

18.6%

41.4%

-18.2%-25.0%

15.7%

111.4%-7.2%-31.0%

Operating profit margin

6.4%

6.7%

5.2%

5.8%

6.5%

5.2%

4.2%

5.2%

7.8%

6.5%

5.3%

% of total

94.3%

94.3%

95.5%

97.4%

98.2%

99.4%

101.1%

98.0%

96.4%

100.9%

104.1%

North America

-

-

-

-

-

-

-

-

-

-126

-205

YoY

-

-

-

-

-

-

-

-

-

-

-

Operating profit margin

-

-

-

-

-

-

-

-

-

-

-

% of total

-

-

-

-

-

-

-

-

-

-

-

China

94

122

84

49

40

-22

-43

21

70

0

-39

YoY

-

29.8%

-31.1%-41.7%-18.4%---

233.3%--

Operating profit margin

9.5%

9.8%

7.2%

4.3%

3.0%

-

-

1.5%

4.1%

-

-

% of total

5.6%

6.0%

4.9%

2.5%

1.4%

-1.0%

-2.6%

1.1%

1.6%

0.0%

-

Other

-

-6

-8

2

9

35

25

19

81

93

141

YoY

-

-

-

-

350.0%

288.9%-28.6%-24.0%

326.3%

14.8%

51.6%

Operating profit margin

-

-

-

474.1%

2.4%

6.0%

4.2%

3.7%

9.2%

7.6%

10.0%

% of total

-

-0.3%

-0.5%

0.1%

0.3%

1.6%

1.5%

1.0%

1.9%

2.5%

5.6%

Source: Shared Research based on company data

The company reports segment information by geographic location. In FY03/23, Japan accounted for 95.5% of revenue. In
addition, the company derives its revenue from China and other locations mainly from Japanese manufacturers doing
business overseas; most of the company’s customers are Japanese.
The North American segment was launched in FY03/23, but the company only recorded upfront expenses associated withinvestments in the local company and no revenue in the first year, with business operations starting in earnest in FY03/24.

Japan
For the past 10 years, the Japan segment has consistently accounted for approximately 90% of the company’s sales. The
company does not disclose data by customer. However, it supplies non-ferrous metal products to industrial equipment
manufacturers and peripheral manufacturers. Of these, the company’s main customers are manufacturers of precision
instruments (semiconductor production and OA equipment).

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In FY03/21, demand for semiconductor manufacturing equipment increased amid a global semiconductor supply shortage.
According to the company, sales to the semiconductor and LCD manufacturing equipment industry previously accounted foraround 20% of the total, but by FY03/22, this weighting had increased to roughly 45%. That growth trend continued into
FY03/23, but demand slowed in 2H, due partly to the downturn in the semiconductor market. With demand remaining
weak, revenue and profit declined in FY03/24. Most materials supplied to the semiconductor manufacturing equipment
industry are aluminum sheets, which is one of the reasons for the increase in Hakudo's aluminum handling volume.

North America
The company established Hakudo USA, Inc. in FY03/23, marking the start of its business in the North American market.
Hakudo USA subsequently acquired a 51% stake in West Coast Aluminum & Stainless, a local company, and made it into a
subsidiary (sub-subsidiary of Hakudo). Although the North America segment recorded revenue in FY03/24, it continued topost an operating loss due to post-merger integration (PMI) and other factors. Before the merger, West Coast Aluminum &Stainless had sales of JPY5.2bn in FY12/21 (+27.4% YoY).

China
This segment accounts for around 2–3% of revenue, or about JPY1.4bn for FY03/24. Main clients in this segment are
Japanese companies doing business in China. The company receives orders from Chinese production bases and transports
products to these customers from Japan, by sea or air. It also sources some products locally.

Others
The segment mainly sells to Thailand and other ASEAN nations. As with China, sales are mainly to Japanese companies doing
business locally.

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Market and value chain“Non-ferrous metal” is a catch-all term for metals other than iron. The reason for this classification is that iron is used inoverwhelmingly greater quantities. There are many types of non-ferrous metals, each with different properties, but they canbe broadly classified into three categories: base metals, precious metals, and rare metals. Non-ferrous metals are also added
to steel to significantly change and improve its properties. Non-ferrous metals can be used on their own or as alloys withother non-ferrous metals.

Production of non-ferrous metals
Base metals are those that are produced in large quantities and for which large reserves exist. They are widely used inindustrial materials and everyday items. Iron is also a base metal. Aluminum and copper are major non-ferrous base metals.
Precious metals (such as gold, silver, and platinum) are used for jewelry, but they are also widely used as industrial materials.
Rare metals (such as lithium, titanium, and nickel) are scarce, either because few reserves exist or because they are difficult
to mine or extract.
The company mainly handles non-ferrous metals that are used in large quantities (mainly aluminum and copper). In
FY03/24, aluminum accounted for 59.8% of handling volume, copper for 14.7%, stainless steel for 20.7%, and othermaterials including specialty steels for 4.8%.

AluminumHigh demand for aluminum stems from its numerous physical characteristics. For one, aluminum’s specific gravity is 2.7,
which is about one-third that of iron (7.8) and copper (8.9). Aluminum’s strength doubles when other elements are added toform an alloy, hence increasing its specific strength. Even alloys of aluminum have approximately the same specific gravity as
aluminum, as only small amounts of other elements are added. When exposed to air, aluminum forms a strong and stable
oxide film, providing excellent corrosion resistance. Corrosion resistance can be improved further by anodizing, which
artificially creates an oxide film. High ductility makes aluminum suitable for plastic working. It has a low melting point(660°C), which can be reduced further by eutectic alloying. This characteristic and its good flowability make aluminumsuitable for casting.
Aluminum has high electrical and thermal conductivity. For the same mass, aluminum has twice the electrical conductivity ofcopper and three times the thermal conductivity of iron. Aluminum reflects more than 90% of radiant energy and has highlight and heat reflectance. As its color resembles white, aluminum need not be painted. Being non-toxic, it can be used for
packaging daily necessities, food, and medicine. Aluminum is non-magnetic and has excellent vacuum characteristics (lowgas release rate even in vacuum). For this reason, aluminum is widely used in semiconductor production and LCD
manufacturing equipment, which require some production processes to be conducted in a vacuum state. Aluminum is also
highly recyclable; only 3% as much energy is needed to re-melt and recycle used products as is used in electrolytic
refining.
Aluminum market prices are updated every three months.

Aluminum prices
2018(JPY'000/MT)
Aluminum ingots

2019

End-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

219

246

227

216

208

190

188

193

173

169

184

209

2021
(JPY'000/MT)
Aluminum ingots

2020

End-Mar

2022

2023

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

238

269

312

306

415

343

319

325

307

308

323

316

End-Sep

End-Dec

2024(JPY'000/MT)
Aluminum ingots

End-MarEnd-Jun

400

Source: Shared Research based on World Bank data

CopperCopper is widely used in electrical and electronic products due to its excellent thermal conductivity, electrical conductivity,
workability, and ductility. “Copper” products may include products made solely from copper or alloys containing zinc (brass),
tin and phosphorous (phosphor bronze), or nickel and zinc (nickel silver) before being melted, cast, rolled, drawn, or forged
into plates, tubes, bars, wires, or other shapes.

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Market prices for copper are updated daily.

Electrolytic copper prices
2017(JPY'000/MT)
Electrolytic copper price2018

End-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

704

674

774

810

766

810

718

727

759

677

658

705

2020
(JPY'000/MT)
Electrolytic copper price2021

Electrolytic copper price2022

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

606

659

750

848

1,022

1,111

1,079

1,128

1,264

1,270

1,159

1,185

End-Sep

End-Dec

2023(JPY'000/MT)

2019

End-Mar2024

End-MarEnd-JunEnd-Sep

End-Dec

End-Mar

1,239

1,240

1,278

1,267

1,370

End-Jun

Source: Shared Research based on data from the Japanese Electric Wire & Cable Makers’ Association

Stainless steel
Stainless steel is a rust-resistant alloy consisting mainly of iron (more than 50%) and containing more than 10.5% chromium.
In addition to being corrosion resistant, stainless steel offers heat resistance, workability, strength, and other characteristics, aswell as being easy to maintain. It is also 100% recyclable.
When added to iron, the chromium combines with oxygen to form a thin protective film (passive film) on the surface of thesteel. This passive film helps prevent rust. Although this film is thin (3 millionths of a millimeter), it is tough. If the film isbroken, it regenerates automatically in the presence of oxygen.
Stainless steel is used in a wide range of applications, from general home applications to the nuclear power and spacedevelopment sectors. Stainless steel can also be selected to match various performance requirements, such as corrosion
resistance, heat resistance, strength, and formability.
Stainless steel prices are determined by negotiation between buyer and seller whenever manufacturers revise their prices.

Stainless steel prices
2017(JPY'000/MT)
Stainless steel sheet

2018

End-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

330

330

330

330

350

360

360

360

355

350

350

360

2020
(JPY'000/MT)
Stainless steel sheet

2021

Stainless steel sheet

2022

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

End-MarEnd-JunEnd-Sep

End-Dec

370

360

360

360

380

400

420

450

500

600

680

680

End-Sep

End-Dec

2023(JPY'000/MT)

2019

End-Mar2024

End-MarEnd-JunEnd-Sep

End-Dec

End-Mar

680

660

640

610

600

End-Jun

Source: Shared Research based on data from the Japan Metal Daily

Key customer trends
The company’s main customers are manufacturers of semiconductor production equipment, OA equipment, and otherindustrial equipment. A shortage of semiconductors and the uneven distribution of manufacturing locations have become aproblem, and the global system of semiconductor production is being reconfigured as a result. Consequently, the company
expects demand for semiconductor fabrication equipment to grow steadily for the foreseeable future. In relation to otherequipment, orders for the company’s standard stock items tend to track orders for machine tools. In the category of industrial
machinery, demand for non-ferrous materials is growing in line with efforts to reduce environmental impact.

Demand for semiconductor production equipment
Japan-based equipment sales(JPYbn)Semiconductor production
equipment
FPD production equipment
Total

Act.

Forecast

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023E

2024E

2025E

1,127.8

1,292.1

1,308.9

1,564.2

2,043.6

2,247.9

2,073.0

2,383.5

3,443.0

3,922.2

3,177.0

4,034.8

4,438.3

348.5

271.7

299.3

485.7

491.6

536.4

475.8

463.8

480.9

428.2

321.1

353.2

476.9

1,476.3

1,563.8

1,608.2

2,049.9

2,535.2

2,784.3

2,548.8

2,847.3

3,923.9

4,350.4

3,498.1

4,388.0

4,915.2

CAGR

YoY
Semiconductor production
equipment

9.7%

14.6%

1.3%

19.5%

30.6%

10.0%

-7.8%

15.0%

44.5%

13.9%

-19.0%

27.0%

10.0%

FPD production equipment

66.8%-22.0%

10.2%

62.3%

1.2%

9.1%

-11.3%

-2.5%

3.7%

-11.0%-25.0%

10.0%

35.0%

Total

19.3%

5.9%

2.8%

27.5%

23.7%

9.8%

-8.5%

11.7%

37.8%

10.9%

-19.6%

25.4%

12.0%

4.2%

Source: Shared Research based on data from Semiconductor Equipment Association of Japan

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Machine tool demand
Total order
value

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

1,509,397

1,480,592

1,250,003

1,645,554

1,815,771

1,229,900

901,835

1,541,419

1,759,601

1,486,519

YoY

135.1%

98.1%

84.4%

131.6%

110.3%

67.7%

73.3%

170.9%

114.2%

84.5%

Domestic
demand496,391

586,240

530,545629,369

750,343

493,188324,455

510,324

603,231476,821

YoY

123.8%

118.1%

90.5%

118.6%

119.2%

65.7%

65.8%

157.3%

118.2%

79.0%

Overseasdemand

1,013,006

894,352

719,458

1,016,185

1,065,428

736,712577,380

1,031,095

1,156,370

1,009,698

YoY

141.4%

88.3%

80.4%

141.2%

104.8%

69.1%

78.4%

178.6%

112.1%

87.3%

Source: Shared Research based on data from the Japan Machine Tool Builders’ Association

Main competitors
Hakudo is a trading company specializing in non-ferrous metals (aluminum, copper, and stainless steel) and handling plastics
and other metals. One competitor category is sales companies affiliated with materials manufacturers that maintain trading
company functions. Examples include Nippon Steel Trading Corporation (TSE Prime: 9810), which is affiliated with Nippon
Steel Corporation (TSE Prime: 5401), and JFE Shoji Corporation (unlisted), which is a group company affiliated with JFE
Holdings, Inc. (TSE Prime: 5411). Steel is also handled by general trading companies, due to the large quantities involved.
Such relationships also exist between manufacturers of non-ferrous materials (which are handled in smaller quantities) andsales subsidiaries. Manufacturer-affiliated trading companies include SDAT Co., Ltd. (unlisted), a group company of Showa
Denko KK (TSE Prime: 4004). Some trading companies are affiliated with general trading companies, such as Itochu Metals
Corporation (unlisted), which is affiliated with Itochu Corporation (TSE Prime: 8001), and Marubeni Metals Corp. (unlisted), agroup company of Marubeni Corporation (TSE Prime: 8002). Hakudo is different, being unaffiliated with any manufacturer
or general trading company. Rather, Hakudo exists independently, having expanded from its origins as a privately owned
firm.
Rather than dealing only with specific materials, Hakudo handles a variety (including aluminum, copper, stainless steel, andplastic). Hakudo also differs in the way it positions itself. Hakudo sees itself as a convenience store for non-ferrous metals. In
addition to cutting materials to standard shapes and sizes, it handles other companies’ products, offering a wide range ofitems that can be ordered 24 hours a day.
We have compared Hakudo with listed companies that conduct similar activities. Alconix Corporation (TSE Prime: 3036) and
UEX, Ltd. (TSE Standard: 9888) are similar to Hakudo in that they also have a processing function.

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Comparison of listed companies in the same industry）

Hakudo (7637(JPYmn)Alconix (3036)

MonotaRo (3064)

Onoken (7414)

FY03/22

FY03/23

FY03/24

FY03/22

FY03/23

FY03/24

FY12/21

FY12/22

FY12/23

FY03/22

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Revenue

55,441

61,60257,253

156,286

178,333

174,901

189,731

225,970

254,286

222,759

262,653

281,933

Gross profit

10,310

10,153

9,268

25,767

5,075

22,92154,04565,43775,964

27,16026,086

26,740

SG&A expenses

6,054

6,375

6,744

14,746

16,682

17,457

29,91639,22444,654

15,403

16,35018,520Operating profit

4,256

3,777

2,523

11,020

8,393

5,463

24,12926,21331,30911,756

9,735

8,219

Recurring profit

4,374

3,989

2,848

11,009

8,176

5,447

24,302

26,39831,538

11,977

9,950

8,342

Net income

2,964

2,738

1,917

7,507

5,488

1,598

17,552

18,65821,813

8,145

7,022

5,761

ROE

15.7%

13.3%

8.8%

15.1%

9.2%

2.5%

33.1%

28.4%

27.5%

10.4%

8.2%

6.3%

ROA (RP-based)

11.7%

9.4%

6.7%

6.8%

4.4%

2.9%

27.5%

25.4%

26.3%

7.6%

5.5%

4.2%

Operating profit
margin

7.7%

6.1%

4.4%

7.1%

4.7%

3.1%

12.7%

11.6%

12.3%

5.3%

3.7%

2.9%

Total assets

41,781

43,15042,016

176,437

191,890

182,890

95,789111,737

128,352

170,468

188,688

208,502

Net assets

19,82921,22922,481

57,331

63,047

66,35060,28372,621

86,982

83,27590,321

95,550Equity ratio

47.5%

49.2%

53.5%

32.2%

32.6%

35.9%

61.9%

64.5%

67.3%

48.5%

47.5%

45.4%

Cash flows fromoperating activities

4,556

321

2,528

-3,329226

15,215

12,25815,48329,932-5,139-4,395

15,942

Cash flows frominvesting activities-677-1,553-1,612-3,257-7,045-2,622-14,290-12,535-8,401-5,036309-20,778

Cash flows fromfinancing activities-1,202-1,417-1,329

5,760

5,896

-19,281-5,766-5,514-11,705

10,455

4,600

8,662

Cash and deposits

8,675

6,038

5,701

25,94425,814

19,721

11,068

8,586

18,454

2,099

2,613

6,440

0

351

0

61,471

71,82355,199

9,620

5,584

1,089

30,08836,351

46,764

Interest-bearing debt

Shinsho Corporation (8075)(JPYmn)UEX (9888)

FY03/24

Misumi Group (9962)

FY03/22

FY03/23

FY03/24

FY03/22

FY03/23

FY03/24

FY03/22

FY03/23

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Revenue494,351584,856

591,43145,52453,82952,113366,160

373,151

367,649

Gross profit

33,53338,51839,144

9,224

11,949

9,949

166,863

171,078

167,377

SG&A expenses

23,47825,05825,847

7,102

7,676

7,865

114,652

124,463129,011

Operating profit

10,054

13,45913,296

2,122

4,273

2,084

52,21046,61538,365Recurring profit

9,726

12,66812,814

2,252

4,350

2,260

52,50047,83841,265

Net income

7,136

9,196

9,111

1,400

2,828

1,296

37,55734,28228,152

ROE

12.0%

13.6%

11.5%

10.7%

18.7%

7.7%

14.8%

11.7%

8.6%

ROA (RP-based)

3.0%

3.3%

3.2%

5.3%

9.0%

4.4%

16.5%

13.2%

10.4%

Operating profit
marginFY03/23

FY03/24

2.0%

2.3%

2.2%

4.7%

7.9%

4.0%

14.3%

12.5%

10.4%

Total assets

364,029

395,092

396,408

45,66350,931

51,976347,390

378,458

413,517

Net assets

63,75373,89687,48014,437

17,135

18,134279,959

314,224

347,679

Equity ratio

17.3%

18.3%

21.7%

30.3%

32.3%

33.4%

79.8%

82.3%

83.3%

Cash flows fromoperating activities-9,279

7,664

9,090

1,932

1,288

1,019

55,391

31,44754,567

Cash flows frominvesting activities-806-1,523-2,789

-448

-501

-589

-22,761-19,033-18,995

Cash flows fromfinancing activities

4,068-9,188-7,240-1,137-466-46-9,609-11,169-18,968

Cash and deposits

15,397

12,80012,308

5,419

5,811

6,376

101,443

106,640

133,376

Interest-bearing debt

66,461

63,56360,757

8,256

8,291

9,426

7,184

7,684

6,818

Source: Shared Research based on company data

Among the six companies, Hakudo and UEX have the smallest revenue. This reflects the fact that Onoken Co., Ltd. (TSE
Prime: 7414) and Shinsho Corporation (TSE Prime: 8075) mainly handle steel and construction materials. Alconix handles alarge volume of rare earth materials. Although specializing in stainless steel, UEX’s business model is relatively close to
Hakudo’s. Another company that could be considered a competitor with a similar business model is Shinx Corporation(unlisted, FY03/23 revenue of JPY17.5bn, +7.4% YoY), which was established by former Hakudo employees and specializes
in aluminum materials.
Misumi Group Inc. (TSE Prime: 9962) is comparable to Hakudo because it has established a trading company function to
support manufacturing through its VONA (Variation & One-stop by New Alliance) strategy. This function is like Hakudo’s
backorder items business. Like the Misumi Group, MonotaRO Co., Ltd. (TSE Prime: 3064) has a business model of supplying
materials to construction sites, and thus could be considered a competitor.
Hakudo’s OPM is higher than all except Misumi Group and MonotaRO. Shared Research understands that Hakudo generates
higher margins by offering a combination of products and services, adding value through quality and delivery times.
Hakudo is among the smallest in terms of assets; UEX is around the same size. UEX, however, specializes in stainless steel.
Although Hakudo also handles stainless steel, it has diversified into other areas, focusing on aluminum and copper.

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Strengths and weaknesses
Strengths
In addition to its inventory function (as a trading company), the company has aprocessing function, which helps lower customers’ manufacturing costs.
Hakudo has a variety of processing capabilities that other specialized trading companies lack. Customers can take advantageof these capabilities to have Hakudo process materials for them, as well as to stock these materials. This arrangement can
reduce manufacturing time and costs for customers. Customers typically place small orders (15kg to 20kg per order);maintaining their own processing equipment for batches of this size would be costly.
Hakudo does not limit itself to cutting materials, and has the ability to process materials to a high quality (e.g., milling andforming special shapes), including complexity, detail, and tolerance level accuracy (margin of error) to reduce customers'
manufacturing costs. The company has a total of 30 types of metal processing equipment at its five processing plants with a
network of business bases capable of providing processing services nationwide. These processing services are included as
added value in the transaction price, which has enabled the company to maintain a high OPM compared with other metal
trading companies like Alconix, UEX, and Shinsho Corporation.

The Hakudo Network Service is a highly convenient service that enables immediate
order placement and delivery, using such data as market prices, processing costs, andcustomer information.
According to Hakudo, it is one of only two non-ferrous trading companies in Japan that have a 24-hour online system forordering. (The other company is Shinx Corporation [unlisted], which was established by former Hakudo employees.) Hakudo
handles a wide range of non-ferrous metals, such as aluminum and copper. Customers can get quotations and place orders
for products regardless of office hours, which is convenient and reduces ordering costs.
The company's online service can present the optimal price estimate on the spot based on accumulated data such as
inventory of standard items, items ordered from other companies, the current price of materials, processing cost, and thecustomer's order history and credit information. The number of registered users (companies) of Hakudo Network Service
exceeds 10,000. Based on the METI 2016 Economic Census for Business Activity, there were 20,651 business sites of
production equipment manufacturers in Japan, which means that on a simple calculation basis, around 48% of thesecompanies are registered with Hakudo Network Service. Given the usefulness of the service, Hakudo is also working on an ecommerce platform for nonferrous metals by inviting competitors to sell products on the network.

Accumulated customer data allows the company to manage inventories and control
processing costs.
Hakudo led its competitors in introducing a computerized system (in 1968) and developing a database. After repeated
improvement and more than 50 years of using the system, Hakudo has accumulated information on 13,000 (mainly
Japanese) customers. This information includes order histories, payment terms, and credit information. The company uses
this database to calculate customer-specific transaction prices (including shipping fees). The system allows the company toadjust its sourcing volumes based on perceived customer trends, identify methods of processing from base materials (assourced) into end materials (in inventory after processing), and optimize inventory management. This system is also used to
manage processing costs by calculating how to shape source materials (at the point of sourcing) to minimize scrap.
The customer database is not only used to calculate transaction prices (price including delivery), but also for adjustment ofpurchases for the next order onward based on an estimate of customer trends, processing method of the purchased basematerial into the end material (inventory item or other), and inventory control optimization. The data can also be used to
calculate the optimal pattern placement on the base material to minimize scrap (Hakudo's term: "pick and cut system").
Other metal trading companies mainly handling copper do not have these functions.

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Weaknesses
The company is susceptible to volatility in raw material prices, as it handles non-ferrous
materials for specific customer segments.
Hakudo handles various non-ferrous materials, centering on aluminum and copper. The company processes these materials
into standard stock items that it sells based on market prices at the time transactions occur. Most customers are manufacturersof precision industrial and electrical equipment (such as semiconductor production and OA equipment), which use a large
amount of components made of these materials. If raw material prices decline while products are in inventory, the company
can incur inventory valuation losses. This situation is amplified during recessions following demand expansion, when market
prices and sales decline at the same time. In FY03/20, the company incurred a loss of JPY170mn due to such a difference inmarket value, equivalent to around 10% of recurring profit for the year (of JPY1.7bn). The company is particularly sensitive tofluctuations in market prices on aluminum and copper, which are in high demand among its customers.

A focus on small order quantities and rapid deliveries makes it difficult to achieve
economies of scale in logistics and control logistics costs.
The company provides detailed delivery services to its customers, but orders are small compared with companies that handle
steel products in bulk. (Shared Research estimates that orders average JPY23,000 in FY03/23). This situation can cause
transportation expenditure to rise. Transportation expenses account for a larger proportion of SG&A spending (on average,
just over 30% over the past three years) than personnel expenses, which are typically high at trading companies. Looking atsimilar companies over the same three-year period, the figure was 15.1% for UEX. (Alconix does not disclose transportation asa key expense category.)
The company seeks to differentiate itself by the convenience its “exceptional speed” provides, but this can lead to substantial
delivery costs because orders are often small (averaging 15–20kg), and the company handles around 10,000 orders perday. The company has its own regular truck service, but the number of items and delivery conditions vary from customer tocustomer, so the company also uses courier services as well as overseas sea and air transport services. As a result,transportation expenses tend to be higher than other companies.

The company has limited ability to meet the needs of Japanese customers that are
expanding overseas.
While Japanese manufacturers are shifting their production bases overseas, Hakudo is applying the business model it hasdeveloped in Japan (sales activities and processing plants) to its Japanese customers that are developing business overseas. In
other words, Hakudo is attempting to extend its domestic business by exporting from Japan. This situation makes it difficult
for Hakudo to showcase the strengths that differentiate the company from competitors in Japan through services that meetthe demands of local customers. As existing customers shift more production overseas, they will begin to require the samelevel of sophistication there as they do in Japan. To satisfy this need, they are likely to expand relationships with local
companies. Hakudo currently has overseas sales companies in the US, China, Thailand, and Vietnam, but its partners in thosecountries have less extensive processing capabilities than those in Japan. In deploying its business model overseas, thecompany faces different operating environments and business customs from Japan. To leverage the business it has built inJapan, the company will need to re-establish sales, processing, and cost management systems tailored to local markets.

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Historical performance and financial
statements
Income statement
Income statement

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

FY03/24(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Revenue

29,92332,461

34,62743,70945,22841,79839,21955,441

61,60257,253

YoY

17.0%

8.5%

6.7%

26.2%

3.5%

-7.6%

-6.2%

41.4%

11.1%

-7.1%

Cost of revenue

24,43627,116

28,61336,18338,02735,30932,54945,131

51,45047,985Gross profit

5,487

5,345

6,014

7,527

7,201

6,489

6,670

10,310

10,153

9,268

Gross profit margin

18.3%

16.5%

17.4%

17.2%

15.9%

15.5%

17.0%

18.6%

16.5%

16.2%

SG&A expenses

3,449

3,639

4,029

4,742

4,951

4,830

4,688

6,054

6,375

6,744

SG&A ratio

11.5%

11.2%

11.6%

10.8%

10.9%

11.6%

12.0%

10.9%

10.3%

11.8%

Operating profit

2,038

1,707

1,986

2,785

2,250

1,659

1,982

4,256

3,777

2,523

YoY

22.4%

-16.3%

16.3%

40.3%

-19.2%-26.3%

19.5%

114.7%-11.2%-33.2%

Operating profit margin

6.8%

5.3%

5.7%

6.4%

5.0%

4.0%

5.1%

7.7%

6.1%

4.4%

Non-operating income

93

95

96

95

121

131

126

155

241

372

Interest income

8

10

7

7

6

8

7

7

10

13

Dividend received

8

9

10

6

7

10

8

30

102

109

Real estate rent

69

71

72

91

71

79

85

86

102

104

7

6

7

11

29

28

15

6

8

47

59

52

39

34

37

92

24

37

30

47

Expenses of real estate rent

20

23

14

13

24

36

16

25

20

25

Commission for purchase of treasury shares

20

Commission expenses

1

1

1

0

0

1

0

0

0

0

Foreign exchange losses

7

18

13

8

Loss on retirement of non-current assets

3

4

7

3

5

3

6

15

Cancellation penalty

1

-

Other
Non-operating expenses

Litigation expenses

28
3

10

6

Valuation losses on golf membership

5

7

6

6

4

4

5

11

3

8

4

2

2,073

1,750

2,043

2,846

2,334

1,697

2,083

4,374

3,989

2,848

YoY

21.7%

-15.5%

16.7%

39.3%

-18.0%-27.3%

22.8%

109.9%-8.8%-28.6%

Recurring profit margin

6.9%

5.4%

5.9%

6.5%

5.2%

4.1%

5.3%

7.9%

6.5%

5.0%

Other
Recurring profit

Extraordinary gains
Gain on sales of investment securities
Extraordinary losses

16

197

Loss on valuation of investment securities
Impairment losses

16

Retirement benefit expenses

197

Other
Income taxes
Implied tax rate
Net income attributable to non-controlling interests

705

556

637

818

769

549

693

1,410

1,251

957

34.3%

31.7%

31.2%

28.7%

32.9%

32.3%

36.7%

32.2%

31.4%

33.6%

-0

-0

-0

0

0

0

0

0

0

-26

Net income attributable to owners of the parent

1,351

1,195

1,405

2,028

1,565

1,149

1,282

2,964

2,738

1,917

YoY

27.4%

-11.6%

17.6%

44.3%

-22.8%-26.6%

11.6%

131.2%-7.6%-30.0%Net margin

4.5%

3.7%

4.1%

4.6%

3.5%

2.7%

3.3%

5.3%

4.4%

3.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

In the past decade, revenue trended upward consistently. Since then, revenue has declined in some years, but mainly due toexternal factors. In FY03/20 and FY03/21, revenue declined due to the global economic impact of the COVID-19
pandemic, and in 1H FY03/23 through FY03/24, demand from semiconductor production equipment manufacturers (corecustomers) tuned down amid a weak semiconductor market.
Operating profit has hovered between 5% and 6%; the trading company business makes it difficult to leverage operating
profit by increasing sales. For wholesalers engaged mainly in trading, OPM tends to average between 1% and 2%. However,Hakudo also offers a processing service that machines products to customer specifications. This arrangement allows thecompany to maintain higher profit margins by setting its own prices, based on customer requirements and characteristics inaddition to market prices.
SG&A spending run to around 11% of revenue. Transportation expenses account for more than 30% of this amount, which iseven higher than personnel expenses (typically the largest expense item for most trading companies). Shared Researchunderstands that the increase in transportation expenses is connected to the way the company’s sale structure emphasizes
delivery.

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SG&A expenses
SG&A expenses

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

SG&A expenses

2,845

3,015

3,449

3,639

4,029

4,742

4,951

4,830

4,688

6,054

Freightage expenses

741

904

1,082

1,147

1,298

1,540

1,596

1,578

1,531

1,864

Provision for employee bonuses

12

1

-3

-3

1

-0

3

-2

1

-4

Salaries and allowances

679

661

666

708

758

871

948

1,042

1,026

1,105

Employee bonuses

196

189

140

152

141

226

212

125

103

332

Provision for employee bonuses

-

-

171

141

188

231

170

151

209

334

Provision for directors' bonuses

21

17

43

50

73

98

56

37

48

214

Retirement benefit expenses

28

30

28

26

34

32

34

38

41

52

Outsourcing costs

224

298

369

391

419

447

492

461

490

684

Depreciation

90

69

68

70

68

97

105

131

144

156

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

FY03/24

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Source: Shared Research based on company data

Balance sheet
Balance sheet(JPYmn)
AssetsCash and deposits

4,301

4,256

4,820

5,902

6,088

4,969

5,924

8,675

6,038

5,701

Notes and accounts receivable

9,857

10,137

11,25914,04512,001

10,78010,847

13,323

12,592

11,657

398

950

1,330

1,753

2,004

3,688

4,243

4,396

4,750

4,446

4,953

5,450

5,866

6,077

5,961

7,803

10,632

10,222

181

172

245

278
181

Electronically recorded monetary claims - operating
Inventories
Deferred tax assets
Other

51

65

99

130

81

138

140

154

348

Allowance for doubtful accounts

-22

-15

-16

-15

-23

-21

-25

-26

-24

-28

19,11919,06021,75826,74025,343

23,69524,851

33,616

33,83032,128

Buildings and structures

1,697

1,553

1,420

1,918

1,866

1,832

1,717

1,637

1,529

7,863

Machinery, equipment and vehicles

1,560

1,785

2,505

2,518

2,894

2,748

2,590

2,495

2,578

9,193

Land

1,900

1,900

1,900

1,900

1,904

1,904

1,900

1,900

1,900

1,900

Other

79

79

153

151

172

124

163

66

243

949

5,236

5,317

5,977

6,487

6,835

6,608

6,370

6,098

6,250

6,653

Total intangible assets

239

217

219

261

407

412

402

509

1,414

1,423

Investment securities

436

403

384

438

444

368

908

944

1,018

1,232

Deferred tax assets

7

11

26

300

291

338

399

429

436

348

Net defined benefit asset

76

77

69

65

59

53

Total current assets

Total tangible fixed assets

178

237

597

185

185

203

597

575

650

982

1,031

1,355

1,492

1,558

1,656

Total fixed assets

Other

6,073

80

6,109

6,846

7,451

8,273

8,376

8,264

8,165

9,320

9,888

Total assets

25,191

25,16928,60434,191

33,61632,071

33,11541,781

43,15042,016

10,067

9,929

9,113

10,108

7,508

6,774

5,797

7,844

7,482

7,159

2,907

5,662

6,921

6,736

7,335

10,80911,5399,988

Investments and other assets

83

171

1,812

Liabilities
Notes and accounts payable
Electronically recorded obligations
Short-term debt

357

351

Accrued expenses

509

544

651

769

693

702

749

987

860

788

Income taxes payable

523

155

486

541

372

210

469

1,146

580

324

Deferred tax assets
Provision for directors' bonuses

43

50

73

98

57

37

48

214

123

74

Provision for bonuses

286

239

312

373

306

274

372

605

485

384

Other

207

216

231

350

461

212

419

299

349

635

11,636

11,133

13,772

17,900

16,63014,94615,19021,903

21,76819,42012

Total current liabilities
Long-term debt
Deferred tax assets

1

0

0

0

Reserve for retirement benefits

27

13

15

11

10

Long-term guarantee deposited

12

14

15

14

14

15

16

15

15

Other

17

16

16

16

16

16

25

22

128

88

29

31

31

30

58

44

56

48

152

114

11,665

11,16313,804

17,93016,68814,99015,246

21,952

21,92019,535

Capital stock

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

Capital surplus

621

621

621

621

621

621

621

621

621

621

13,001

12,10513,00014,364

15,07915,354

15,97817,74019,06020,001

Total fixed liabilities
Total liabilities

15

Net assets

Retained earnings
Treasury stock-1,547

Accumulated other comprehensive income

-1

-1

-1

-1

-2

-2

-2

-2

-2

451

281

181

277

230

107

272

470

526

860

Total net assets

13,526

14,006

14,801

16,261

16,92817,081

17,87019,82921,22922,481

Working capital

4,540

4,655

7,099

9,387

10,35910,083

11,01013,281

15,743

14,719Total interest-bearing debt

357

Net debt-4,301-4,256-4,820-5,902-5,730351-4,969-5,924-8,675-5,688-5,701

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Over the past decade, assets have expanded nearly in lockstep with revenue, with trade receivables and payables bothgrowing. Assets increased due to capex around FY03/18. Performance declined in FY03/20 and FY03/21 and assets
remained almost unchanged, but performance began to recover in FY03/22 and remained favorable in FY03/23, against
which backdrop assets increased for two consecutive years. Assets decreased YoY in FY03/24 due to decreases in working
capital and trade receivables and payables, impacted by the contraction of business with semiconductor production
equipment manufacturers amid a semiconductor market downturn.
Cash and deposits have been stable, so working capital is essentially self-financed. The company has focused on remaining
debt-free. Over the past 10 years, the company has had virtually no interest-bearing debt, except for FY03/19 and FY03/23,
when it had borrowings of about JPY300mn.

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Cash flow statement
Cash flow statement

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

FY03/24(JPYmn)

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cash flows from operating activities (1)

1,255

1,269

2,414

3,103

2,074

1,503

2,128

4,556

321

2,528

2,056

1,750

2,043

2,846

2,334

1,697

1,887

4,374

3,989

2,848

503

578

657

768

801

892

836

840

845

1,048

4

3

7

3

3

10

1

3

5

-1,006

-185

30

-53

-4

-363

-535

-393

-1,983

-577

-337

86

-1,301-1,379-1,028-1,367-553-677-1,553-1,612-828-715-1,199-1,362-1,167

-925

-552

-664

-696

-1,338

13

12

3

3

2

13

9

0

3

6

917

1,354

1,113

1,724

1,046

136

1,575

3,879

-1,231916-1,990

-544

-511

-664

-850

-1,230-657-1,202-1,417-1,329

-424

-544

-510

-663

-850

-873

-657

-1,202-1,417-974-1,016

754

565

1,082

186

-1,119956

2,751-2,636-338

Income before income taxes
Depreciation
Gains (losses) on sale of fixed assets
Change in working capital
Cash flows from investing activities (2)Purchase of property, plant and equipment andintangible assets
Proceeds from sales of property, plant andequipment and intangible assets
Free cash flow (1+2)
Cash flows from financing activities
Cash dividends paid
Change in cash and cash equivalents

13

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

Cash flows from operating activities
Over the past 10 years, operating activities have been a net source of cash, mostly in line with sales growth. The company
explains that it handles nearly 20,000 inquiries and estimates each day, and around half of these result in orders. Orders are
based on market prices. The company adds fees for extra services it provides and specifies the transaction price as the sum ofthese figures. Due to this methodology, most of the company’s orders generate profit equivalent to the company’s added
value. Accordingly, the company has posted stable pre-tax net income, although fluctuating in tandem with sales changes. In
FY03/23, the company strategically increased inventories and increased corporate tax payments, resulting in a significant
decrease in cash flows from operating activities, but this trend was reversed in FY03/24 on a decrease of inventories andtrade payables.

Cash flows from investing activities
Over the past 10 years, investing activities have typically used cash. The company differentiates itself from competitors
through the ability to provide standard products immediately (by having them fully stocked), and the ability to perform
complex and highly precise machining functions as requested by customers. To maintain and strengthen thesecharacteristics, the company has five factories in Japan that serve as both warehouses for inventory products and processing
plants. In FY03/23, cash outlays increased with the purchase of metalworking machines with new functions, theestablishment of a new company in preparation for doing business in North America, and the consolidation of new
subsidiaries through investment. Cash flows from investing activities were little changed from the previous year in FY03/24
due to domestic capex and IT investment.

Cash flows from financing activities
Financing activities have been a net use of cash in each of the past 10 years. Cash flows from financing activities haveessentially paralleled dividend payments. However, expenditures exceeded dividend payments in FY03/15 (due to therepurchase of treasury stock) and in FY03/20 (due to the repayment of long-term debt). In FY03/22, total dividends
doubled. The company again doubled total dividends in FY03/23, resulting in a 45.2% YoY increase in dividend payout ratio.
Cash flows from financing activities were little changed from the previous year in FY03/24, because the company repaid
long-term borrowings associated with the subsidiary of a US subsidiary which was included in the scope of consolidation in
FY03/23, as well as paying dividends.

Historical performance
Cumulative Q3 FY03/24 results
Summary
Revenue: JPY42.9bn (-9.4% YoY)
Operating profit: JPY1.9bn (-40.4% YoY)
Recurring profit: JPY2.2bn (-34.7% YoY)
Net income attributable to owners of the parent: JPY1.5bn (-33.9% YoY)

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Changes in market conditions and demand
The semiconductor production equipment industry, which significantly affects the company’s group performance, is expected
to see an increase in demand in the medium term for semiconductors driven by DX, AI, and EV. However, the industry was ina phase of ongoing inventory and production adjustment, as more and more semiconductor manufacturers moved to adjust
their inventory and production to review their capital investment plans in response to slowing demand for mobile devices
such as smartphones and PCs, servers, and other IT equipment. In the aerospace industry, demand for commercial aircraft
recovered from the COVID-19 pandemic, and demand from the public sector, especially defense-related, was strong.
However, the recovery of demand in the machine-tool industry delayed due to rising interest rates in various countries, a
slowdown in the Chinese economy, and postponed capital investment, mainly in semiconductor production equipmentrelated and automobile-related industries in the domestic market.
The company established a new base (Iga Warehouse) in Iga, Mie Prefecture, to strengthen its processing services, andfocused on developing new customers in the aerospace and automotive industries, which the company considers to be
growth areas. In addition, the company made efforts to launch new items and expand sales of draw-processed products andenvironmentally friendly Eco-Series products.
The company has been focused on expanding the functions of its 24/7 online quoting and ordering website, Hakudo Net
Service, and users can now access the quoting service without the need for registration. Furthermore, the company has
expanded the availability of the service to individual users as well as corporate customers, enabling immediate quoting andordering of metal 3D printed products and draw-processing through the website. The company has also increased thenumber of products available on Hakudo Net Service from 50,900 items as of end-March 2023 to 84,100 items as of endDecember 2023, to make the site more convenient.
The company also actively pursued overseas expansion and business development. In the US, the company established alocal subsidiary, Hakudo USA Inc. in December 2022. Hakudo USA acquired a 51% stake in West Coast Aluminum &Stainless, LLC in March 2023 and prepared for market development and new business in the US.
In other regions, Shanghai Hakudo Precision Materials Co., Ltd. experienced a decline in domestic and export demand, andAQR Co., Ltd. was affected by ongoing downturn in the semiconductor production equipment industry, and revenues in bothsubsidiaries decreased in cumulative Q3. Hakudo (Thailand) Co., Ltd. saw an increase in revenue against the backdrop of
recovery in the automotive industry in Thailand.

Financial results: Decrease in sales and profit
Revenue declined 9.4% YoY in Q3 FY03/24.
On a non-consolidated (stand-alone) basis, revenue generated from standard stock items declined as sales volume fell by
17.2% YoY despite a 7.2% YoY decline in the unit selling price. By customer sector, the largest decrease was in sales tomanufacturers of semiconductor FPD production equipment, which accounts for about 40% of revenue on a nonconsolidated basis. These sales fell by about 17% YoY due to the ongoing slump in the semiconductor market. However,revenue from sales targeted at growth areas, such as the space-related and automotive (motorcycle) industries, increased.
In Q3 FY03/24, revenue by product type were as follows: aluminum JPY25.6bn (-17.3% YoY), copper alloy JPY6.3bn (+0.6%
YoY), stainless steel JPY8.9bn (+13.7% YoY), and others JPY2.1bn (-8.0% YoY).
As of end-December 2023, market trends for key raw materials that affect the unit selling price were up at JPY1,280,000/t
for electrolytic copper (+JPY50,000/t from end-March 2023) and JPY380,000/t for aluminum ingots (+JPY11,000/t).
Meanwhile, market prices for stainless steel dropped to JPY610,000/t (Japan Metal Daily median; -JPY70,000/t).
Gross profit was JPY6.9bn (-12.1% YoY), with a gross profit margin of 16.1% (-0.5pp YoY). The main reasons for the decrease inprofit include a larger-than-expected reduction in sales volumes due to the slowdown in the semiconductor production
equipment industry and a decrease in inventory valuation gain due to raw material market conditions. The inventory
valuation gain in Q3 FY03/24 was JPY57mn (compared to a gain of JPY451mn in Q3 FY03/23). SG&A expenses increased to
JPY5.0bn (+7.0% YoY) due to increased personnel expenses and goodwill amortization associated with the acquisition ofWest Coast Aluminum & Stainless, LLC ("WCAS") by consolidated subsidiary Hakudo USA Inc. As a result, operating profit
decreased by 40.4%, and the operating profit margin was 4.4% (-2.3pp YoY). From FY03/24, the company included thefinancial results of WCAS in its results, which is an important consideration for YoY comparisons.

Performance by segment
Japan: Segment revenue of JPY37.5bn (-17.2% YoY), operating profit of JPY1.9bn (-37.6% YoY)
North America: Segment revenue of JPY3.5bn (–), operating loss of JPY108mn (–)
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China: Segment revenue of JPY965mn (-20.5% YoY), operating loss of JPY32mn (profit of JPY7mn in Q3 FY03/23)
Others: Segment revenue of JPY1.0bn (+12.9% YoY), operating profit of JPY110mn (+25.0% YoY)
Hakudo's reporting segments indicate where its earnings were generated. Its Japan segment includes results stemming fromthe parent company and AQR Co., Ltd., while its China segment reflects the performance of Shanghai Hakudo Precision
Materials Co., Ltd., and its Others segment indicates earnings from Hakudo (Thailand) Co., Ltd. Hakudo anticipates that its
collaboration with Oristar Corporation in Vietnam will continue. In FY03/23, the company added North America as asegment.
In the Japan segment, revenue and profit declined. On a non-consolidated (stand-alone) basis, sales remained low due to theslowdown in the semiconductor production equipment industry, while revenue declined at AQR Co., Ltd. for the same
reason. In the China segment, the company recorded a decrease in revenue and an operating loss. Shanghai Hakudo
Precision Material Co., Ltd., a major consolidated subsidiary, saw revenue declines both in China and for exports, leading toan operating loss. Revenue and profit in the Other segment increased. Hakudo (Thailand) Co., Ltd., a key consolidated
subsidiary, achieved growth in revenue and profit by capturing the recovery in demand within the automotive industry inThailand. The company has expanded its business activities to include Japanese clients and local enterprises.

1H FY03/24 results
Summary
Revenue: JPY28.7bn (-9.6% YoY)
Operating profit: JPY1.2bn (-45.1% YoY)
Recurring profit: JPY1.4bn (-39.8% YoY)
Net income attributable to owners of the parent: JPY985mn (-40.1% YoY)

Changes in market conditions and demand
The semiconductor production equipment industry, which significantly affects the company’s group performance, is expected
to see an increase in demand in the medium term for semiconductors driven by DX, AI, and EV. However, the industry was ina phase of ongoing inventory adjustment, as more and more semiconductor manufacturers moved to adjust their inventory
and production to review their capital investment plans in response to slowing demand for mobile devices such as
smartphones and PCs, servers, and other IT equipment. In the aerospace industry, demand for commercial aircraft recoveredfrom the COVID-19 pandemic, and demand from the public sector, especially defense-related, was strong. However, demand
from the machine-tool industry trended downward due to rising interest rates in various countries, a slowdown in the
Chinese economy, and sluggish capital investment, mainly in semiconductor production equipment-related and automobilerelated industries in the domestic market.
The company established a new base (Iga Warehouse) in Iga, Mie Prefecture, to strengthen its processing services, andfocused on developing new customers in the aerospace and automotive industries, which the company considers to be
growth areas. In addition, efforts were made to expand sales of draw-processed products and environmentally friendly EcoSeries products.
The company has been focused on expanding the functions of its 24/7 online quoting and ordering website, Hakudo Net
Service, and users can now access the quoting service without the need for registration. Furthermore, the company has
expanded the availability of the service to individual users as well as corporate customers, enabling immediate quoting andordering of metal 3D printed products through the website. The company has also increased the number of products
available on Hakudo Net Service from 50,900 items as of end-March 2023 to 64,700 items as of end-September 2023, tomake the site more convenient.
The company also actively pursued overseas expansion and business development. In the US, the company established alocal subsidiary, Hakudo USA Inc. in December 2022, and in March 2023, it acquired a 51% stake in West Coast Aluminum& Stainless, LLC, preparing for market development and new business in the US.

Financial results: Decrease in sales and profit
Revenue declined 9.6% YoY in 1H. On a non-consolidated (stand-alone) basis, unit selling prices increased for both standard
stock and special-order items, but sales volume declined. Revenue from sales to the semiconductor/FPD production
equipment industry fell 28% YoY due to the slowdown in the semiconductor market. In addition, demand related to various
capital investments, particularly in the machine-tool industry, declined due to uncertainty over the economic outlook.
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As of end-September 2023, market prices for key raw materials were up at JPY1,260,000/t for electrolytic copper(+JPY30,000/t from end-March 2022) and at JPY395,000/t for aluminum ingots (Nikkei monthly average; +JPY26,000/t).
Market prices for stainless steel dropped to JPY640,000/t (Japan Metal Daily median; -JPY40,000/t).
Gross profit stood at JPY4.6bn (-15.6% YoY) with a gross profit margin of 15.9% (-1.1pp YoY). The decrease in gross profit andgross profit margin was due to lower sales volume resulting from the slowdown in the semiconductor production equipment
market and the decrease in inventory valuation gain (-JPY355mn YoY) due to raw material market conditions. SG&A expenses
were JPY3.3bn (+5.0% YoY) due to increased expenses resulting from the consolidation of West Coast Aluminum & Stainless,
LLC. As a result, operating profit declined 45.1% YoY, and the operating profit margin was 4.8% (-1.6pp YoY).

Results by segment
Hakudo's reporting segments indicate where its earnings were generated.
Japan segment
Segment revenue of JPY25.1bn (-17.1% YoY) and operating profit of JPY1.2bn (-43.5% YoY)
The Japan segment consists mainly of the parent company, AQR Co., Ltd., and collaboration with the major non-ferrous metal
trading company Oristar Corporation in Vietnam (unlisted). In 1H, revenue and operating profit decreased at the parent
company and AQR due to a slowdown in the semiconductor production equipment industry. Revenue by sales method was
JPY16.8bn (-12.5% YoY) for standard stock items and JPY8.3bn (-25.1% YoY) for special-order items. Revenue by merchandiseand finished goods was JPY15.8bn (-21.3% YoY) for aluminum, JPY3.8bn (+0.1% YoY) for copper, JPY4.3bn (-13.7% YoY) for
stainless steel, and JPY1.1bn (-16.6% YoY) for others.
North America segment
Segment revenue of JPY2.3bn (N.A.) and an operating loss of JPY54mn
The company's local subsidiary, Hakudo USA Inc., established in December 2022, acquired a 51% stake in West Coast
Aluminum & Stainless, LLC in March 2023. As a result, the North America segment became the company's reporting
segment from FY03/23. In 1H, revenue by sales method was JPY0bn (N.A.; same below) for standard stock items and
JPY2.3bn for special-order items. Revenue by merchandise and finished goods was JPY488mn for aluminum, JPY0bn forcopper, JPY693mn for stainless steel, and JPY25mn for others. In terms of profit, the company recorded an operating loss
due to the inclusion of consolidation expenses.
China segment
Segment revenue of JPY614mn (-29.9% YoY) and an operating loss of JPY17mn (vs. a profit of JPY10mn in FY03/23)
The main subsidiary in the China segment is Shanghai Hakudo Precision Materials Co., Ltd. In 1H, a slowdown in domestic
and export demand in China resulted in a decrease in revenue for Shanghai Hakudo Precision Materials. Revenue by sales
method was JPY3.3bn (-27.1% YoY) for standard stock items and JPY2.9bn (-33.0% YoY) for special-order items. Revenue by
merchandise and finished goods was JPY350mn (-40.4% YoY) for aluminum, JPY29mn (+14.2% YoY) for copper, JPY2mn(+2.6% YoY) for stainless steel, and JPY172mn (-15.3% YoY) for others. On the profit front, the company recorded an operating
loss as it could not cover fixed costs due to the decline in revenue.
Others segment
Segment revenue of JPY658mn (+11.0% YoY) and operating profit of JPY80mn (+23.1% YoY)
The Others segment consists of earnings from Hakudo (Thailand) Co., Ltd. In 1H, Hakudo (Thailand) recorded increased
revenue and profits due to the recovery of the automotive industry in Thailand. Revenue by sales method was JPY0bn (N.A.)
for standard stock items and JPY0.7bn (+10.9% YoY) for special-order items. Revenue by merchandise and finished goods was
JPY222mn (-0.6% YoY) for aluminum, JPY293mn (+16.2% YoY) for copper, JPY130mn (+18.5% YoY) for stainless steel, andJPY14mn (+59.5% YoY) for others. On the profit front, operating profit increased in line with the revenue growth.

Q1 FY03/24 results
Summary
Revenue: JPY14.7bn (-8.4% YoY)
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Operating profit: JPY551mn (-54.6% YoY)
Recurring profit: JPY687mn (-46.0% YoY)
Net income attributable to owners of the parent: JPY474mn (-46.7% YoY)

Changes in market conditions and demand
The semiconductor production equipment industry, which significantly affects the company’s group performance, is expected
to see an increase in demand in the long term for semiconductors driven by IoT, DX, and AI. However, the industry was in aphase of ongoing inventory adjustment, as more and more semiconductor manufacturers moved to adjust their inventory
and production to review their capital investment plans. In the machine-tool industry, while the investment in the aerospaceindustry is showing signs of recovery, demand for other industrial sectors, both domestic and overseas, has decreased.
The company established a new base (Iga Warehouse) in Iga, Mie Prefecture, to strengthen its processing services, andfocused on developing new customers in the aerospace and automotive industries, which the company considers to be
growth areas. In addition, efforts were made to expand sales of draw-processed products and environmentally friendly EcoSeries products.
Furthermore, the company promoted the use of its 24/7 quotation and ordering website (Hakudo Network Service) that it
has been focusing on. The company also worked to increase the number of items listed on Hakudo Network Service (from50,900 at end-March 2023 to 54,100 as of end-June 2023) and make the site more convenient.
The company also actively pursued overseas expansion and business development. In the US, the company established alocal subsidiary, Hakudo USA Inc. in December 2022, and in March 2023, it acquired a 51% stake in West Coast Aluminum& Stainless, LLC, thus advancing market development in the US.

Financial results: Decrease in sales and profit
Revenue declined 8.4% YoY. Revenue from standard stock items totaled JPY8.7bn (-12.4% YoY), and from special-order items,
JPY6.0bn (-1.8% YoY). On a parent basis, which accounts for the majority of sales, unit selling prices increased on bothstandard stock items and special-order items due to a rise in procurement costs, but sales volume declined.
The decline in revenue was mainly due to a 30% decrease in revenue from the semiconductor/FPD production equipment
industry, driven by the slowdown in the semiconductor market. By product category, while copper and stainless steel revenue
increased YoY, revenue from mainstay aluminum fell to JPY9.1bn (-15.3% YoY). However, the company's market share foraluminum products increased from 27.8% in the same period last year to 33.6% in Q1, while shipments of aluminum rolled
products decreased 34% YoY (according to the Aluminum Association of Japan). The company stated that although it
experienced a decline in revenue due to the impact of the overall market conditions, its business with customers remained
stable.
As of end-June 2023, market prices for key raw materials were up at JPY1,260,000/t for electrolytic copper (+JPY30,000/t
from end-March 2022) and at JPY381,000/t for aluminum ingots (Nikkei monthly average; +JPY12,000/t). Market prices forstainless steel dropped to JPY660,000/t (Japan Metal Daily median; -JPY20,000/t).
Gross profit stood at JPY2.2bn (-21.1% YoY), with a gross profit margin of 15.0% (-2.4pp YoY). The decrease in profit was due tofactors such as a reduction in the scale of revenue, increased energy-related and other expenses, and a loss on inventory
valuation due to the impact of raw material market conditions (a loss of JPY2mn in Q1 versus a gain of JPY171mn in Q1
FY03/23). SG&A expenses were up 4.5% YoY to JPY1.7bn due to the costs related to the newly consolidated subsidiary in theUS, resulting in a 54.6% YoY decline in operating profit.

Performance by segment
Japan: Segment revenue of JPY12.9bn (-16.1% YoY), operating profit of JPY548mn (-53.7% YoY)
North America: Segment revenue of JPY1.2bn (–), operating loss of JPY35mn (–)
China: Segment revenue of JPY296mn (-17.1% YoY), operating loss of JPY6mn (loss of JPY11mn in Q1 FY03/23)
Others: Segment revenue of JPY328bn (+13.1% YoY), operating profit of JPY44mn (+12.8% YoY)
Hakudo's reporting segments indicate where its earnings were generated.
The Japan segment consists mainly of the parent company and AQR Co., Ltd. This segment also includes the collaboration
with Oristar Corporation in Vietnam. The segment experienced a decrease in revenue and profit due to the decline in

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revenue from the semiconductor/FPD production equipment industry, an increase in energy-related expenses, and a loss ininventory valuation due to the impact of raw material market conditions.
The China segment consists of the Shanghai Hakudo Precision Materials Co., Ltd results. In this region, revenue decreased
due to the same reason as in the Japan segment, as a large portion of revenue is generated from semiconductor/FPD
production equipment. However, operating loss decreased.
The North America segment was added in FY03/23. In Q1, the company posted revenue from West Coast Aluminum &Stainless, LLC for January–March 2023. However, due to one-time expenses related to the acquisition, it incurred a segment
loss.
The Others segment includes Hakudo (Thailand) Co. In this region, revenue and profit increased due to the recovery indemand from the automotive industry.

Full-year FY03/23 results
Summary
Revenue: JPY61.6bn (+11.1% YoY)
Operating profit: JPY3.8bn (-11.2% YoY)
Recurring profit: JPY4.0bn (-8.8% YoY)
Net income attributable to owners of the parent: JPY2.7bn (-7.6% YoY)

Changes in market conditions and demand
The semiconductor production equipment industry, which significantly affects the company’s group performance, is expected
to see an increase in demand for semiconductors driven by IoT, DX, and AI. However, the industry was in a phase of ongoinginventory adjustment. Elsewhere, orders fell in the machine-tool industry, especially for exports since 2H. In the aircraft
industry, capex remains sluggish despite some signs of recovery.
Given the constraints on customer visits and face-to-face sales, the company continued to promote the use of its 24/7
quotation and ordering website (Hakudo Network Service) and its sales activities using remote sales tools, and gradually
resumed its face-to-face sales in accordance with the relaxation of behavior restrictions. The company also worked to
substantially increase the number of items listed on Hakudo Network Service (from 32,700 at end-March 2022 to 50,900 asof end-March 2023) and make the site more convenient.
In FY03/23, Hakudo actively worked to advance and expand its operations overseas, and in December 2022 it established a
new local subsidiary Hakudo USA Inc. in the US. In March 2023, Hakudo USA acquired a 51% stake in West Coast Aluminum& Stainless, LLC, making it a subsidiary.

Financial results: Increases in revenue and profit
Revenue grew 11.1% to a record high of JPY61.6bn. The JPY6.2bn increase in revenue breaks down as follows. At the parent
company, inventory increased by JPY3.0bn YoY for standard items (unit price up JPY5.7bn, quantity down JPY2.7bn), and by
JPY3.0bn (unit price up JPY3.5bn, quantity down JPY557mn) for special-order items. Revenue from subsidiaries andconsolidation adjustments increased by JPY156mn YoY. While revenue from both standard items and special-order items
increased, this growth was due to higher unit selling prices, with volume declining. Revenue amounted to only 99.2% of theinitial plan, but Shared Research believes that this is because sales to customers in the semiconductor production equipment
industry (a key customer segment) swung downward in Q4, falling about 25% YoY.
Market prices for key raw materials that significantly affect the unit price as of end-March 2023 were JPY1,230,000/t forelectrolytic copper (+JPY70,000/t from end-December 2022) and JPY369,000/t for aluminum ingots (Nikkei monthly
average; -JPY24,000/t). Market prices for stainless steel remained unchanged YoY at JPY680,000/t (Japan Metal Daily
median; +JPY0/t).
Gross profit was JPY10.2bn (-1.5% YoY) and GPM was 16.5% (-2.1pp YoY). The reason for the decline in profit was that although
the unit price rose, sales volume declined and commissions slumped, while inventory valuation gains in FY03/23 were
JPY550mn (-9.8% YoY). SG&A expenses were JPY6.4bn (+5.3% YoY) due to the booking of various expenses associated withacquiring a stake in West Coast Aluminum & Stainless, and an increase in operating expenses such as travel expenses as
effects from the pandemic eased. As a result, operating profit decreased by 11.2% YoY.
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Performance by segment
Japan: Segment revenue of JPY58.8bn (+11.3% YoY), operating profit of JPY3.8bn (-7.2% YoY)
North America: Segment revenue of JPY–mn (–), operating loss of JPY126mn (–)
China: Segment revenue of JPY1.6bn (-8.0% YoY), operating loss of less than JPY1mn (profit of JPY70mn in FY03/22)
Others: Segment revenue of JPY1.2bn (+37.9% YoY), operating profit of JPY93mn (+14.8% YoY)
Hakudo's reporting segments indicate where its earnings were generated. Its Japan segment includes results stemming fromthe parent company and AQR Co., Ltd., while its China segment reflects the performance of Shanghai Hakudo Precision
Materials Co., Ltd., and its Others segment indicates earnings from Hakudo (Thailand) Co., Ltd. Hakudo anticipates that its
collaboration with Oristar Corporation in Vietnam will continue. In FY03/23, the company added North America as asegment, but no sales were recorded in FY03/23, adding only upfront expenses associated with acquiring a stake in West
Coast Aluminum & Stainless.

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News and topics
Revisions to earnings targets, a change of dividend policy, and arevision to the year-end dividend forecast (increased)2024-02-09

Hakudo Co., Ltd. announced revisions to its full-year FY03/24 earnings targets, a change of dividend policy, and a revision to
the year-end dividend forecast (increased).
Revisions to full-year FY03/24 earnings targets→

Revenue: (Previous) JPY63.2bn (+2.6% YoY)
(Revised) JPY56.4bn (-8.4% YoY)
Operating profit: JPY3.0bn (-21.4% YoY)
JPY2.3bn (-38.6% YoY)
Recurring profit: JPY3.2bn (-20.3% YoY) JPY2.6bn (-34.3% YoY)
Net income attributable to owners of the parent: JPY2.2bn (-21.5% YoY) JPY2.0bn (-35.7% YoY)
Net income per share: JPY189.56
JPY155.18 (FY03/23 result: JPY241.37)

→
→

→

→

Reasons for the revisions
The company stated two main reasons for the revisions. First, the recovery of demand in the semiconductor production
equipment industry, which significantly affects its group performance, has been slower than it anticipated. Second, thecompany expects revenue and profit to be lower than it had projected at its consolidated subsidiaries, Shanghai Hakudo
Precision Materials Co., Ltd. and West Coast Aluminum & Stainless, LLC, due to delays in the recovery of demand in China
and the US.
Changes to dividend policy and revisions to year-end dividend forecast (increased)
The company changed its dividend policy to enhance shareholder returns. Under the previous policy, the company targeted
a payout ratio of 40% or higher. However, under the revised policy, the company intends to pay dividends based on either afull-year payout ratio of 45% or an annual dividend of JPY80 per share, whichever is higher. As a result of this policy change,
the company will apply a minimum annual dividend of JPY80 per share to FY03/24. Therefore, the company increased theyear-end dividend by JPY2 per share from the previous forecast to JPY45 per share.

Payment of dividend
2023-11-10

Hakudo Co., Ltd. announced its decision regarding the payment of an interim dividend for FY03/24.
The company will pay an interim dividend of JPY35.0 per share for FY03/24 (JPY58.0 per share in the previous interim
period). The year-end dividend is JPY43.0 per share (year-end dividend of JPY51.0 per share in FY03/23).

Partial revisions to performance-linked compensation system andchanges to "Policy on Determining Individual Directors'
Compensation"
2023-06-28

Hakudo Co., Ltd. announced partial revisions to its performance-linked compensation system and changes to the "Policy on
Determining Individual Directors' Compensation."
At a board of directors meeting on the same day, the company reviewed its compensation system for directors and partiallyrevised its performance-linked compensation system. The company also decided to change the "Policy on Determining
Individual Directors' Compensation."
Previously, the company had only provided monetary compensation as performance-linked remuneration. However, in order
to offer incentives for the sustained improvement of the company's corporate value and to further align directors' interests
with those of shareholders, the company has changed the performance-linked compensation for directors (excluding

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directors who are audit and supervisory committee members and external directors) to include both monetary compensation
and restricted shares.
The revised system will be applied starting from the performance-linked compensation to be paid in July 2024, based on thecompany's performance in FY03/24. The specific details, including the maximum amount of compensation and number ofshares, will be subject to individual approval at a general meeting of shareholders. The first payment under this system isscheduled to be proposed at the general meeting of shareholders in June 2024.

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Other information
History
Year

Month

1932

Feb.

Hakudo Shoten was founded as private business Kyobashi-ku (now Hachobori, Chuo-ku), Tokyo.

1949
1967

Nov.
May

Hakudo Shoten was reorganized as a joint-stock company selling non-ferrous metals.
Trade name changed from Hakudo Shoten to Hakudo Co., Ltd.

1968
1974

Feb.
Oct.

A computer system was installed.
Launch of the Kanagawa Process Center in Kanagawa Prefecture.

Jun.

Start of next-day delivery service.

1983

Sep.
Jun.

Commencement of “cut-to-order” service.
Opening of Osaka office in Osaka Prefecture.

1990

Mar.

1991

Oct.

Start of operations at the Shiga Process Center.
Establishment of the former Kousei Co., Ltd. to hold real estate for the metals business.

1992

Apr.

The former Hakudo Co., Ltd. (now Kosei Co., Ltd.) took over selling operations related to the metals businessand changed its name from Dohkin Co., Ltd. to Hakudo Co., Ltd.

2000
2003

Mar.
May

Registered shares over the counter with the Japan Securities Dealers Association.
Establishment of Shanghai Hakudo Precision Materials Co., Ltd.

2004

Oct.

Listed on the Second Section of the Tokyo Stock Exchange.

2005
2006

Sep.
Feb.

Listed on the First Section of the Tokyo Stock Exchange.
Start of operations at the Koriyama Plant (now, Fukushima Process Center).

2008
2014

May
Oct.

Start of operations at the Kyushu Process Center.
Establishment of Hakudo (Thailand) Co., Ltd.

2017

Nov.

Start of operations at the Saitama Process Center.

2019
2022

Feb.
Dec

Conversion of AQR Co., Ltd. (formerly Takase Aluminum Co., Ltd.) to a consolidated subsidiary.
Establishment of Hakudo USA, Inc. in the US

2023

Mar

Conversion of West Coast Aluminum & Stainless, LLC into subsidiary by Hakudo USA

1978

Note: The former Kousei Co., Ltd. was merged into Hakudo in January 1992 in order to change the par value of its shares.

Source: Shared Research based on company data

Corporate governance and top management
Corporate governance
Based on its corporate philosophy, the company aims to ensure management transparency, fairness, and disclosure in orderto achieve management efficiency and sustainable growth.
The company’s Board of Directors is chaired by the president and consists of nine directors (including five outside
independent directors). In principle, the Board of Directors meets regularly on a monthly basis, holding extraordinary
meetings as necessary. The board decides on important management matters in accordance with laws and ordinances, theArticles of Incorporation, and the Board of Directors regulations. The board also supervises the execution of duties bydirectors.
The Nomination and Remuneration Advisory Committee is an advisory body to the Board of Directors and consists of outside
independent directors. This ensures transparency and objectivity in the appointment and remuneration of directors.
The company has an Audit and Supervisory Committee, with outside independent directors making up the majority ofmembers. The aims of this committee are to further strengthen the supervisory function of the Board of Directors overmanagement and corporate governance, and to enhance the soundness and efficiency of management.
The Audit and Supervisory Committee has four members (three outside independent directors), including its chair. In
principle, the committee meets regularly on a monthly basis, holding extraordinary meetings as necessary. Members of the
Audit and Supervisory Committee liaise with the Internal Audit Department and the accounting auditor, supervising thedecision-making process of the Board of Directors and the status of business execution.
The head of the Internal Audit Department periodically audits the business activities of each division, including subsidiaries,
for effectiveness, accuracy, and compliance, and reports to the president and the Audit and Supervisory Committee.
Business execution centers on management meetings attended by full-time directors and division heads, and department
head meetings attended by full-time directors, division heads, and departmental managers. The company has also established
the Risk Management Committee and other committees.

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Form of organization and capital structure
Form of organization
Controlling shareholder and parent company

Company with Audit & Supervisory Committee
None

Directors and Audit & Supervisory Committee members
Number of directors under Articles of Incorporation
Number of directors

149

Directors' terms under Articles of Incorporation
Chairman of the Board of Directors

1 yearPresident

Number of outside directors

5

Number of independent outside directors
Number of members of Audit & Supervisory Committee

44Number of outside members of Audit & Supervisory Committee
Number of independent outside members of Audit & Supervisory Committee

3
3

Other
Providing convocation notice in English
Implementation of measures regarding director incentives

Yes
Performance-linked compensation

Disclosure of individual director's compensation
Policy on determining amount of compensation and calculation methodology

Some information disclosed
Yes

Corporate takeover defenses

None

Source: Shared Research based on company data

Top management
Koji Tsunoda, President & Representative Director (born August 15, 1962)
Apr. 1986
Jul. 1986

Joined Tokyo Tsuun Co., Ltd.
Joined Hakudo Co., Ltd. (Kosei Co., Ltd.)May 2001
Apr. 2002

Head of central branch
Head of corporate planning division
Head of China office

Dec. 2002
Apr. 2004

President of Shanghai Hakudo Precision Materials Co., Ltd.
Executive officer of Hakudo, head of overseas sales department

Jan. 2009
Apr. 2009

Chairman of Shanghai Hakudo Precision Materials Co., Ltd.
Executive officer of Hakudo, head of developmental sales division

Apr. 2010

Head of developmental sales divisionJun. 2010
Jul. 2010

Director, head of developmental sales division
Director, head of sales division

Jul. 2011

Executive director

Apr. 2012

President and representative director (current position)

Dividend policy
Hakudo's basic dividend policy calls for strengthening its financial condition and distribution of profit from business activities
underpinned by earnings results. The company revised its dividend policy in February 2024 to strengthen shareholder
returns. Under the revised policy, the company intends to pay dividends based on either a full-year payout ratio of 45%(previously 40%) or an annual dividend of JPY80 per share, whichever is higher. As a rule, the company will apply aminimum annual dividend of JPY80 per share.
(JPY)

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

48.0

45.0

58.5

75.0

77.0

58.0

58.0

115.0

109.0

80.0

45.5%

42.7%

47.2%

41.9%

55.8%

57.3%

51.3%

44.0%

45.2%

47.3%

Dividend per share
Payout ratio

FY03/24

Source: Shared Research based on company data

Major shareholders
Shares held(000 shares)

Shareholding ratio

K P Asset Management LLC

Top shareholders

1,371

12.08%

Kids Learning Network Company
Soukou Co., Ltd.

1,140
1,132

10.05%
9.98%

N&N Asset Management LLC

925

8.15%

Tomonori Yamada
SY Management LLC

676
676

5.96%
5.96%

EastGate Corporation
The Master Trust Bank of Japan, Ltd.

652
647

5.74%
5.70%

Mitsushige Yamada

290

2.55%

119
7,629

1.05%
67.26%＆

Hakudo Employees' Stock Ownership Plan
Total

Source: Shared Research based on company data, as of end- March 2024.

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Employees
FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

236

240

247

265

299

338

353

347

363

382

Sales

92

84

90

94

102

103

102

100

99

105

Manufacturing

83

85

88

98

123

144

151

156

161

156

Administration

21

25

24

25

30

45

48

48

55

55

Sales

-

-

-

-

-

-

-

-

-

4

Manufacturing

-

-

-

-

-

-

-

-

-

6

Administration

-

-

-

-

-

-

-

-

-

3

Sales

16

17

14

16

15

13

16

14

13

14

Manufacturing

20

20

18

18

19

17

18

17

17

17

Administration

4

4

6

6

5

6

5

5

5

5

Sales

3

4

5

1

5

7

6

7

10

Manufacturing

0

0

0

0

0

0

0

0

0

Administration

2

3

3

4

5

6

1

6

7

Consolidated no. of employees
Japan

North America

China

Other

Parent (no. of employees)

196

194

202

217

255

280

287

294

305

306

Average age

41.8

43.2

43.5

43.1

40.3

41.9

41.6

41.4

41.8

41.9

Average years of service

18.0

18.3

18.7

17.8

16.6

15.9

15.7

15.8

16.0

16.0

Average annual salary (JPY'000)

6,836

6,963

8,120

8,179

8,385

7,481

7,146

6,789

8,365

8,993

Source: Shared Research based on company data

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Profile
Company Name

Head Office

Hakudo Corporation

11F, Mitsubishi Building, 2-5-2, Marunouchi,Chiyoda-ku, Tokyo

Phone

Listed On

03-6212-2811

Tokyo Stock Exchange, Prime Market

EstablishedExchange Listing

1949-11-01

2005-09-01
Fiscal Year-End
Mar

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About Shared Research Inc.
We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by
presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be foundon the web at https://sharedresearch.jp.

Contact Details
Company namePhone

Shared Research Inc.

+81 (0)3 5834-8787

AddressEmail2-6-10 Kanda-Sarugakucho Chiyoda-ku Tokyo, Japan

info@sharedresearch.jp

Websitehttps://sharedresearch.jp

Disclaimer
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