Business Overview 4. DX Regional Collaboration Project Signpost's DX and Regional Collaboration Project started in March 2022 with the establishment of the DX and Regional Collaboration Division. It aims to provide products and services that contribute to regional collaboration by collaborating with local financial institutions nationwide, utilizing its own DX technology and open innovation. In August 2022, it began working with Oita Made Co., Ltd., which was established with the investment of multiple companies in Oita Prefecture, including Oita Bank, to sell original products made in Oita Prefecture to both domestic and overseas markets and to match local companies and Signpost's products and services in order to promote the revitalization of Oita Prefecture's economy. In addition, in April 2024, it started offering DX support services for medium-sized and small businesses. As the first effort, it supports the creation of DX declaration by (The) Fourth Hokuriku Bank, Ltd. (Niigata City, Niigata Prefecture) to deploy DX declaration support services to the market. Furthermore, it will realize new solutions by commercializing its own technology and open innovation and promote regional collaboration through innovation.

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.

Sakai Heavy Industries <6358>'s main business 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.

The regional revenue in the fiscal year ending in March 2024 was 14,320 million yen (43.4% of the revenue composition ratio) domestically, 9,700 million yen (29.4%) in North America, 7,566 million yen (22.9%) in Asia, and 1,432 million yen (4.3%) in other regions.

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.

The company 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.

The company's greatest characteristic (strength) is its long history as a specialized manufacturer of road construction machinery, including road rollers. In other words, it has enhanced its expertise and accumulated unique technologies through a global niche strategy based on selection and concentration.

(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.

Simply saying "compacting and paving roads" does not mean the required pressure and rotational force (compaction technology) differ depending on the soil and ground conditions of each land. Therefore, construction companies often require different types of road rollers that are suitable for each construction site (including the ground). The company, as a long-standing specialist manufacturer of road construction machinery, boasts high technical expertise in compaction technology, which is not easily caught up by other companies in the same industry.

(3) Creditworthiness.

The company's credibility is also supported by its abundant field experience and track record. The technology to ensure the quality of compaction underground is a black box and cannot be easily imitated by latecomer manufacturers or non-specialist manufacturers. For example, asphalt mixture transported at high temperatures needs to be installed within a limited time, and in the case of construction defects, it comes with a significant cost for rework. Moreover, issues related to the construction quality of roads and embankments have a delayed effect, making it difficult to determine the compaction quality at the completion stage. The company's strength lies in its wealth of field experience and accumulated knowledge over the years, earning trust from many customers.

3. Market share and competition. According to the data by Japan Construction Machinery and Construction Equipment Association, the domestic and export construction machinery shipment in 2023 was approximately 370 billion yen, of which the main products of the company, such as road machinery including road rollers, accounted for about 2.3%. In the road roller market within the road machinery market, the company's share exceeds 70% and it has become the top manufacturer. Competitors include Hitachi Construction Machinery, Ltd. <6305> and others, but none are specialized manufacturers. In addition, although some foreign manufacturers have also entered, they have a weak presence. Therefore, in Japan, it can be said that the ups and downs of the market is directly linked to the company's performance. In the global market (overseas market), although there are no accurate statistics, the company's estimated share (based on production volume) is around 5-6%. However, this is based on the entire world market, and in the market that the company is focusing on, such as Japan, ASEAN, and North America, the share is about 15%. The main competitors in the global market are Caterpillar, FAYAT SAS, WIRTGEN GROUP, Volvo Personvagnar AB, etc., but there are no specialized manufacturers for road rollers.

According to the data from the Japan Construction Equipment Manufacturers Association (Japan Construction Machinery Association), the shipment value of construction machinery in Japan, including exports, in fiscal year 2023 was approximately 3.7 trillion yen, of which road machinery such as road rollers, which are the company's main products, accounted for about 2.3%. In the road roller market, the company's market share exceeds 70% and is the top manufacturer. Competitors in this market include Hitachi Construction Machinery Co., Ltd., which is not a specialist manufacturer. Additionally, overseas manufacturers have also made some inroads, but their presence is limited. Therefore, it can be said that the fluctuations in the domestic market directly affect the company's performance.

In the global market (overseas market), there are no accurate statistics, but the company's market share (in terms of production volume) is estimated to be around 5-6%. However, this is based on the entire world, and if we focus on the markets where the company is mainly active, such as Japan, ASEAN, and North America, the market share seems to be around 12-15%. The main competitors in the global market include Caterpillar, FAYAT SAS, HAMM AG, Volvo Personvagnar AB, but there is no dedicated road roller manufacturer.

(Written by FISCO guest analyst Noboru Terashima)