■ Company Overview

Sakai Heavy Industries <6358> is a specialized manufacturer of road construction machinery, including road rollers for road paving, and is a leading manufacturer with a domestic share exceeding 70%. As early as 1970, the company established a joint venture in Indonesia, actively expanding overseas, and as of the end of March 2024, has four domestic subsidiaries and four overseas subsidiaries (USA, China, and two in Indonesia). Regarding stocks, the company was listed on the Tokyo Stock Exchange (hereinafter, TSE) Second Section in 1964, and was subsequently designated to the First Section in 1981. With the reorganization of the TSE in April 2022, it transitioned to the Main Board.

■ Business Overview

Aiming for growth through high value-added services and expansion of overseas share.

1. Business Description

The company's main business is the manufacturing and sales of road rollers used for road paving, with road roller-related products accounting for approximately 95% of revenue. The corporate philosophy is "to contribute to the development of national land worldwide through the road construction machinery business." For the fiscal year ending March 2024, the sales revenue by region was 14,320 million yen (revenue composition ratio 43.4%) for Japan, 9,700 million yen (29.4%) for North America, 7,566 million yen (22.9%) for Asia, and 1,432 million yen (4.3%) for QITABANKUAI.

2. Characteristics and Strengths

The company's characteristics and strengths are as follows.

(1) A long history as a specialized manufacturer.

The company's greatest feature (strength) is its long history as a specialized manufacturer of road construction machinery, including road rollers. In other words, by enhancing expertise through a Global Strategy based on selection and concentration, it has accumulated unique technology.

(2) Technical capability.

Simply stating "compacting and paving roads" varies in required pressure, rotation force, etc. (compaction technology) depending on soil quality and conditions of each region. Therefore, construction companies often require different conditions of road rollers suitable for each construction site (ground, etc.). The company, having long operated as a specialized manufacturer of road construction machinery, possesses high technological capability in "compaction technology," which is not easily matched by competitors.

(3) Creditworthiness.

Creditworthiness backed by abundant on-site experience and achievements is also the company's strength. The technology for ensuring the quality of underground compaction is a black box, making it difficult for latecomer manufacturers or non-specialized manufacturers to imitate. For example, asphalt mixture transported at high temperatures needs to be worked on within a limited time, and if there is a construction defect, it entails great costs for rework. Moreover, the occurrence of quality issues in the construction of roads or embankments tends to have a delayed effect, leading to compaction quality at the time of completion becoming a black box. The accumulation of years of knowledge through abundant on-site experience has become the company's strength, earning trust from many customers.

3. Share and competition.

According to data from the Japan Construction Machinery Industry Association, in the fiscal year 2023, the total shipments of construction machinery for domestic use and export amount to approximately 3.7 trillion yen, with about 2.3% consisting of road machinery such as road rollers, which are the company's main products. In the road roller market, the company's share exceeds 70%, making it the top manufacturer. Competitors include Hitachi Construction Machinery <6305>, but none are specialized manufacturers. Some overseas manufacturers have also entered the market, but their presence is weak. Therefore, it can be said that the rise and fall of the market directly links to the company's performance.

In the world market (overseas market), although there are no accurate statistics, the company's share (based on production volume) is estimated to be around 5-6%. However, this is based on the entire globe, and when limited to the markets where the company primarily operates, namely Japan, ASEAN, and North America, the share appears to be about 12%. Notably, the main competitors in the global market include Caterpillar, FAYAT SAS, HAMM AG, and Volvo Personvagnar AB, but no specialized manufacturers of road rollers seem to be present.

(Written by Fisco Guest Analyst Noboru Terashima)