Long-term Outlook (3) Equalization of Operating Rates (Avoidance of Opportunity Loss) Given that most of Heiwaist's direct drive equipment is sold by THK, it goes without saying that the sales of the former's direct drive equipment are influenced by the order trends of THK's industrial equipment. THK experienced large peaks in order trends during 2017 and 2022. On the other hand, the sales and equipment investment of Heiwaist also increased in 2017 and 2022, and are highly correlated with THK's order trends. However, the company has stated, "There is indeed a correlation, but during these two past peaks, production capacity was not sufficient, and considerable opportunity loss occurred." To avoid such opportunity loss, the company has decided to expand production capacity in line with THK's 2026 plan (mentioned earlier) since a few years ago and is actively investing in equipment. This policy will continue into the future. On the other hand, when production capacity generally increases, operating rates decline and unit cost rates rise when orders/production decrease. However, the company states that, "Even if orders decline somewhat, we will maintain a certain level of operating rate centered on standard products to avoid future opportunity loss." Of course, it should be noted that maintaining a certain level of operating rate during a period of low orders will result in an increase in inventory. Nevertheless, the company states, "We will take on some inventory burden to challenge this policy in preparation for the future," and will practice President Ozaki's words, "No challenge, no success." We look forward to seeing how the company will progress towards 2026. (4) Review of Product Groups (Scrap & Build) Many of the company's products are close to custom made and there are many small quantity products. Therefore, the profitability of these product groups is not necessarily the same, and there are high and low profitable products. For example, the Hybrid Flange Linear Ball Bush (JFK) is a low-profit item. In the future, the company will review these product groups and consider withdrawing low-profit products while advancing negotiations with customers. On the other hand, they will also concentrate resources on highly profitable products. The plan is to improve profitability by pursuing "scrap & build" of product groups.
Hi-Hyce＜6433＞ announced its mid-term management plan on June 27, 2023, which set forth "smart production," "strengthening the product power of direct drive equipment," and "balancing the operation rate (avoiding opportunity loss)" as mid-term strategies (key initiatives) for the future. In addition, in the future, it plans to consider withdrawing from low-profit products and concentrate resources on high-profit products (scrap and build of product line).
(1) Smart Production
Smartbull's account should be used.
Following this plan, for the increased production of direct drive equipment, the company proceeded with the construction of a new factory building within its Saitama factory site, which was completed in April 2023. The company stated that the reason for constructing this factory was that "the demand for semiconductors is increasing year by year due to the progress of digitization, and the demand for automation and medical devices is expanding, and existing factories are continuing to operate at a high occupancy rate, so a situation is predicted where the supply of products will be disrupted in the future. In addition, in the equipment investment plan aimed at after the end of the new coronavirus infectious disease epidemic, it is also predicted that the existing factories will become cramped. Therefore, to establish a smart production system for direct drive equipment, a new factory building was newly established at the Saitama factory to strengthen production and production for direct drive equipment." The investment amount was about 200 million yen (excluding production equipment and moving costs), and it was financed by self-capital and borrowings. As a result, the productivity of direct drive equipment is expected to improve further, and profitability is expected to increase significantly when orders increase.
(2) Strengthening the Product Power of Direct Drive Equipment
THK, one of the main customers of the company, announced in the "briefing material for the settlement of accounts meeting for the year ending December 2022" that it aims to increase sales of the "industrial machinery business + other" from 282.1 billion yen in the year ending December 2022 to 365 billion yen (a 29.4% increase compared to the year ending December 2022) by the year ending December 2026, but it seems that this target has not changed even at the time of announcement of the financial results for the first quarter of the year ending December 2024. In line with this, the company also intends to strengthen its product power and improve production capacity.
In the market for products used in various machinery, the company boasts top share in straight type, but has lower share in flange type and is working on strengthening its production power in flange type. In addition, it is also improving the product power of direct drive equipment by adding new products to the lineup for THK and it will be an important challenge to what extent it can use the THK brand as OEM products.
(Written by FISCO guest analyst Noboru Terashima)