■ Mid-term Growth Strategy

Sakai Heavy Industries <6358> announced the "mid-term management policy" with the final year ending in March 2026 in June 2021. The ultimate goal is to enhance corporate value and shareholder value, and to achieve this, they are promoting business growth strategies and efficient capital strategies. Quantitative targets include achieving sales of 30 billion yen, operating profit of 3.1 billion yen, and ROE of 8.0% by March 2026, and aiming to maintain a stable dividend payout ratio of 50%. While both sales and operating profit exceeded the targets by the end of March 2024, due to the expected decrease in sales and profit for the ongoing period ending in March 2025, these numerical targets have been kept unchanged at the current stage.

1. Business Strategy

(1) Domestic Market: Value Creation through Stabilization and Next-Generation Business Development

The domestic market for road rollers is already in a mature stage, and due to the company's high market share, the aim is to achieve growth through the development of new added value (high functionality, etc.) for existing products, in other words, aiming for growth through next-generation business development.

(2) Overseas Market: Expansion of Market Share and Business Areas

In the overseas market, there are many regions (countries) with expanding demand, and the company also has a low market share, indicating significant growth potential. Therefore, growth is targeted through two strategies: deepening existing markets and expanding business areas.

2. Capital Strategy

The basic policy of capital policy aims for an ROE of 8.0%. Therefore, it aims to improve shareholder value (improve capital efficiency) through shareholder returns.

In general, there are two necessary improvements to enhance ROE. One is, needless to say, the improvement (increase) of net income attributable to the parent company shareholders, but the other is to control shareholder equity (not increase shareholder equity unnecessarily or decrease it). The company is promoting the previously mentioned business strategy to improve operating profit, while executing a dividend policy that ensures not to increase shareholder capital unnecessarily: 'Return 100% of dividends if ROE falls below 3%', 'Return 3% of DOE if ROE is between 3-6%', and 'Return 50% of dividends if ROE exceeds 6%'.

Regarding the acquisition of treasury stocks, the company plans to purchase flexible treasury stocks with an upper limit of 5-2 billion yen by the end of the fiscal year ending in March 2026. Also, from the perspective of the business strategy, the company is reviewing its investment securities. In addition, for growth investments, the company emphasizes the return on invested capital (ROIC) and considers leveraging.

3. Mid-term Management Policy: Progress of KPIs

The progress of the major KPIs announced in the mid-term management policy shows that in the revised full-year performance forecast, the revenue is 27.2 billion yen, with an ROE of 5.8%, both of which are expected not to meet the targets. For the previous period's improvement in profit structure, in addition to the penetration of price revisions and normalization of transportation costs, there are factors of potential upside other than performance improvement, such as a weak yen. Therefore, in the future, the company aims to achieve a profit structure that can continuously achieve an 8.0% ROE.

4. Initiatives on ESG

The company is actively engaged in ESG initiatives and is promoting various measures. In particular, the following initiatives are underway:

(1) Reduction of CO2 emissions from construction machinery

Starting from October 2024, Honda Motor Co., Ltd. <7267> has begun selling the electric hand-guided roller HV620evo equipped with a detachable portable battery made by the company. In order to promote the adoption of the product, the company aims to obtain certification from the "GX Construction Machinery Certification System*" established by the Ministry of Land, Infrastructure, Transport and Tourism by the end of March 2026.

* The system initiated by the Ministry of Land, Infrastructure, Transport and Tourism aims to promote the spread of GX (Green Transformation) construction machinery that contributes to carbon neutrality, reduces carbon dioxide emissions in construction work, and contributes to environmental conservation on a global scale. It is eligible for subsidies from the Ministry of the Environment.

(2) Contribution to road construction in Indonesia and expansion of business areas

As part of JICA's "Business Demonstration Project," activities are underway in Indonesia to work towards standardization and certification of CAE Method (roadbase recycling technology) as a road maintenance technique in Japan. Efforts are ongoing towards obtaining certification from the Indonesian government by the end of March 2025, contributing to infrastructure development in Indonesian roads, and aiming to expand sales of stabilizers manufactured by P.T. SAKAI INDONESIA for use in the CAE Method.

(3) Efforts towards reducing policy-owned shares

In the first quarter of the fiscal year ending March 2025, a review of the "Policy on Policy-Owned Shares" was conducted, explicitly stating the policy to maintain the balance of policy-owned shares at less than 20% of consolidated net assets, and implementing the sale of some policy-owned shares. During the second quarter of the fiscal year ending March 2025, 332 million yen was sold, reducing the policy-owned shares balance from 5,358 million yen at the end of September 2024 to 17.8% of consolidated net assets (5,993 million yen as of the end of March 2024, 20.5%).

(Written by FISCO guest analyst Noboru Terashima)