(287A) Kuroda Group - New Analyst Report 12/20

The Kuroda Group is a pure holding company that operates a manufacturing business selling electronic components like HDD parts and electrical materials like LCD production materials, as well as a trading business selling electronic components and electrical materials to customers in the automobile and electronics industries. In addition to Japan, it operates in 12 overseas countries including China and Southeast Asia, with overseas revenue accounting for 45.2% of total revenue in the 24/3 fiscal year.

The Kuroda Group traces its roots back to KM Holdings, established in October 17. KM Holdings was founded as an investment vehicle by MBK Partners JC IV, L.P., an MBK Partners group fund, to privatize Kuroda Electric, which was listed on the TSE first section.

Kuroda Electric was established in October of 45 years with the purpose of wholesaling electrical insulating materials such as bakelite boards. Since its establishment, it has been a specialist in handling electrical materials and electronic components, building a global network with group companies established domestically and overseas, and engaging in manufacturing and processing businesses. It has shaped the current Kuroda Group business as a "trading company capable of manufacturing," experiencing an expansion in sales scale against the backdrop of the rapid spread of LCD TVs and smartphones after being listed on the OSE second section in 96 and moving to the TSE first section in 00.

Since around 2015, the business environment surrounding Kuroda Electric and the business policies of its trading partners have undergone significant changes. Merely providing the basic functions of credit, inventory, and logistics as a trading company made it difficult for customers to recognize the value, and the business model focusing on expanding sales scale was reaching its limit.

Therefore, in order to switch from the expansion of sales scale to the improvement of operating profit margin and the expansion of operating profit, the management's basic policy was changed. Along with the MBK Partners Group who agreed with this policy, a system that would most contribute to the improvement of corporate value from a medium- to long-term perspective was considered.

As a result, it was considered important to rebuild the shareholder composition and capital structure, and to establish a system where a few stakeholders who share the same purpose can make decisions quickly. Therefore, KM Holdings was established, the company conducted a tender offer, and Kuroda Electric became a private company in March 2018.

Before becoming private, Kuroda Electric, which handled the trading business, was at the top of the group, but the manufacturing business accounted for about 70% of the group's total operating profit at that time. Through privatization, it transitioned to a holding company structure with KM Holdings at the top. In April 2020, KM Holdings changed its name to Kuroda Group and classified business segments into manufacturing and trading businesses, placing subsidiaries side by side to strengthen the governance structure. Also, from the fiscal year 2023, it transitioned from Japanese accounting standards to International Financial Reporting Standards (IFRS).

In the fiscal year 2024, the composition ratio of segment-by-segment revenue (equivalent to revenue) was 23.5% for the manufacturing business and 76.5% for the trading business.

The Kuroda Group consists of a total of 29 standalone and consolidated subsidiaries (including 13 manufacturing business companies, 15 trading business companies, and 1 management business company).

The manufacturing business subsidiaries operate in niche business areas, manufacturing and selling unique products to customers in Japan, Thailand, China, and Vietnam. The trading business subsidiaries, which have bases in Japan and 12 other countries overseas, supply electronic components, electrical materials, etc. globally to customers in the automotive industry. They also establish a supply system customized for each country's customers, delivering electrical materials, general electronic components, semiconductors, equipment, and devices.