Company Overview

1. Business content The main business of Sakai Heavy Industries <6358> is the manufacturing and sale of road rollers used for road paving, and road roller related products account for about 95% of its revenue. In addition, the company's corporate philosophy is to contribute to the world's land development through its road construction machinery business. 2. Characteristics and strengths As previously mentioned, the company is a specialist manufacturer of road construction machinery such as road rollers, but has the following characteristics and strengths. (1) Long history as a specialist manufacturer The company's biggest feature (strength) is its long history as a specialist manufacturer of road construction machinery, including road rollers. In other words, by focusing on and specializing in its global niche strategy, it has accumulated its own unique technologies. This long history and experience have enabled it to enhance its technical and credit strengths. (2) Technical strengths Simply saying "compacting or paving roads" requires different pressures, rotation forces, etc. (compaction technology) depending on the location, soil conditions, etc. According to the company, the construction function of the roller itself determines the final quality (density, flatness, lifespan) of the road or embankment, and it is generally said that if the compaction density is increased by 1%, the road lifespan is extended by 10%. Therefore, for construction clients and contractors, product quality (performance) is also a very important factor, in addition to the price of road rollers. Since the company has been a specialist manufacturer of road construction machinery, including road rollers, for a long time, it boasts high technical strengths in compaction technology that are not easily matched by other companies in the same industry. In summary, the technical strength of the company can be described as "knowledge about entities and concepts." In other words, it is their engineering ability to oversee the entire construction project and their ability to adapt to a variety of materials. Specifically, it is the combination of various technologies, such as mixing with tires, vertical vibration to increase the compaction force, horizontal vibration to scrape the ground, vertical vibration to form a thick layer of compaction, further high-density compaction by tire vibration, and solution to difficult compaction problems through high-frequency vibration. An example of the company's high technical strength is the ability to control the relationship between "mechanical vibration technology" and its "vibration suppression technology." Various mechanical vibrations are an important means of improving construction performance in road rollers, but this vibration itself can cause machine malfunctions and have a significant impact on operator comfort. Therefore, the power (technology) to control the conflicting relationship between vibration compaction strength and machine quality is important, and this cannot be accumulated in a short period of time.

SFP Holdings <3198> has become a popular business type with 24-hour operations in front of the station and downtown areas (street stores), focusing on operating "Isomaru Suisan" (seafood izakaya) and "Toriyoshi Shoten" (specialty chicken restaurant), among others, as its main business, striving to establish a second pillar of profitable mass tavern business with low investment. Since 2020, the industry as a whole has been affected by the COVID-19 pandemic, but the company is enhancing its revenue structure and adapting to environmental changes, with current performance steadily recovering.

The business segment consists of a single segment of the food and beverage business, divided into the founding business segment "Toriyoshi Business Division," the main business segment "Isomaru Business Division," the "Qitabankuai Division," including new business types, and contributions from the Food Alliance members (consolidated subsidiary) added since the fiscal year ended February 2020, categorized into four segments. The "Isomaru Business Division" accounts for approximately 60% of the revenue. Although the company has mainly expanded in Tokyo and the capital region, they are also making efforts to expand into regional cities.

*Consists of two companies, Joe Smile Co., Ltd. (Kumamoto Prefecture) and Cluek Dining Co., Ltd. (Nagano Prefecture). The aim is to expand into regional cities through M&A (providing brands in a franchise format within the group).

2. Company Features

The company's strength lies in establishing a unique revenue model in addition to the typical izakaya business model. The main business type, "Isomaru Suisan," deliberately opens street stores in high-rent areas in front of stations and downtown areas, maximizing its attractiveness through distinctive high-visibility facades, easily accessible open atmosphere, and catering to a wide range of demands with 24-hour operations, highlighting a unique revenue model that leverages attracting power of prime locations through high occupancy rates. In simple terms, even though it pays high rent that is not financially viable in the typical izakaya business model, it can leverage the structure by securing high revenue. Of course, this is only viable through location analysis schemes, development skills for street stores, operations for 24-hour service, and know-how to switch to optimal menus by time periods, making it not easily replicable. Particularly, the high cost of opening stores and the challenges of 24-hour operations are considered significant hurdles for other companies. The company's accumulation of know-how ahead of others and the enhancement of brand power through concentrated store openings in the capital region have further reduced store opening risks. Restrictions on people flow, shortened business hours, limits on the number of customers, and restrictions on alcohol provision due to the COVID-19 pandemic have partially offset some of the advantages of "Isomaru Suisan" (prime location in front of the station, high turnover, catering to a wide range of needs with 24-hour operations), but these are considered to be due to policy-based force majeure during the COVID-19 crisis, without significant changes in the superiority of the revenue model itself. Existing stores have returned to pre-COVID-19 levels after the pandemic. Additionally, the open atmosphere of street locations, convenience through mobile ordering and cashless payments, and the enjoyment of grilling fresh seafood oneself in the "Isomaru Suisan" style, which is popular among visitors to Japan, have contributed to the bottom-line performance through inbound demand.

In addition, there is great potential for further evolution by applying the established revenue model of "Isomaru Suisan" (referred to as the "Isomaru Suisan" model) to other business types. "Toriyoshi Shoten" has successfully implemented the "Isomaru Suisan" model from its founding business type "Toriyoshi" and put it on track. In particular, the key points lie in overlapping store openings with "Isomaru Suisan" (simultaneous openings or openings in existing areas) and selecting store locations tailored to market characteristics (location, business type). Furthermore, by flexibly adapting to necessary tuning (fine adjustments) according to post-COVID-19 environmental changes (such as changes in consumer behavior), the company's core value lies in actively pursuing hypotheses and verification-based evolution. It has started expanding the "Machizushi Torotaku" brand that can be opened in the existing store areas of "Isomaru Suisan" while leveraging the strengths of street-front locations with a focus on small, high-turnover, low-investment, stable earnings tavern business type.

3. History

The company was founded in April 1984, tracing back to when the founder, Ryo Sakakawa (former Representative Director and Chairman, retired in December 2015), opened the 'Toriryo' specialty shop for fried chicken wings in Musashino City, Tokyo. By offering a unique version of Nagoya's famous fried chicken wings as the flagship menu, the company steadily increased the number of stores. In 2001, they aimed to 'Create a comprehensive food service business that enriches food culture' as their vision. While diversifying their operating styles, by 2008, they expanded the business to a total of 50 stores.

Subsequently, in response to the impact of economic downturns such as the Lehman Shock and changes in the industry environment, the company revised its vision to 'Aim to become a group of specialty stores that enrich Japan's food culture.' They shifted their focus towards specialty store operations. In 2009, they opened 'Isomaru Suisan' based on their unique revenue model, laying the foundation for growth.

As 'Isomaru Suisan' began to thrive and a path to growth became visible, they decided that the quickest way to 'create a sustainable corporate organization' was to go public. In December 2010, they received capital participation from Polaris Second Investment Business Limited Partnership, a private equity fund (Polaris Capital Group Inc.), and made the decision to enhance the precision of management and organizational operations by introducing an objective perspective and rational methods.

In April 2013, they formed a capital alliance with Create Restaurants Holdings Inc. <3387>, which specializes in operating restaurants and food courts in suburban shopping centers, becoming a consolidated subsidiary. After listing on the Tokyo Stock Exchange (TSE) Second Section in December 2014, they upgraded to the TSE First Section in February 2019, and transitioned to the new market classification 'TSE Prime Market' in April 2022. Meanwhile, they shifted to a holding company structure in September 2016, leading to a change in their corporate name to SFP Holdings Co., Ltd. in June 2017, reflecting their current form.

With the stock listing as a catalyst, the pace of new store openings by the popular 'Isomaru Suisan' brand accelerated, reaching a milestone of 100 stores in May 2015. Starting in Aichi Prefecture, Nagoya City, they also began franchising 'Isomaru Suisan' stores and initiated the opening of 'Toriryo Shoten'.

Since the fiscal year ending in February 2020, they have been actively expanding their presence in regional cities through their unique 'SFP Food Alliance Concept', focusing on opening new stores via mergers and acquisitions (providing brands in the group as franchised businesses).

(Written by Fisco Guest Analyst Ikuo Shibata)