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. Product Listings

The products handled by Hashimoto Sogyo Holdings <7570> include pipe materials such as pipes, fittings, valves, chemicals, and tool-related equipment, as well as sanitary ceramics and metal fittings such as toilets, hand washers, and washbasins. In addition, they handle housing equipment such as hot water supply and kitchen equipment, as well as various air conditioners and pumps, making them a supplier of pipes and gas-related products. The main suppliers are major and leading manufacturers in the industry and Japan, such as Mizsei Chemical Industries for housing building materials, TOTO for sanitary ceramics, Panasonic Holdings <6752> for building and electrical materials, Kitz <6498> for valves, and Daikin Industries <6367> for air conditioners. In particular, TOTO's procurement volume accounts for about 30% of the total procurement volume and is crucial to manufacturers. They have approximately 2.5 million registered items, mainly specialized products, and maintain a stock of over 0.01 million best-selling items at major warehouses. They also stock approximately 1,000 items of locally based inventory at each location, and some items are available for same-day delivery. As for the sales composition ratio by segment for the fiscal year ending March 2024, it is 29.3% for pipe materials, 29.3% for sanitary ceramics and metal fittings, 17.3% for housing equipment, 23.3% for air conditioning equipment and pumps, and 0.8% for other categories.

The pipe materials market is a solid market with long-term growth prospects.

2. Industry Environment

The company belongs to the construction materials industry, particularly the pipe materials industry. The market size of the construction industry is said to be 70.5 trillion yen, including new construction and renovations, accounting for about 10% of GDP. The market size of the pipe materials industry is also large, totaling 5 trillion yen, including pipes and fittings, housing equipment, and air conditioning equipment. In the pipe materials industry, the company acts as a primary wholesaler, connecting major manufacturers with secondary wholesalers, construction stores, and contractors nationwide. In Japan, there are challenges such as inflation and an aging population, but there is steady demand for condominium sales and renovations. In addition, the increase in dual-income households has led to an increase in childcare facilities, while aging has led to an increase in facilities for the elderly. The renovation of public facilities facing aging is also a challenge, leading to expanding demand. Therefore, the medium- to long-term market environment can be considered a solid market in terms of profitability and growth. In this industry environment, the company has expanded its business scope from pipe materials to environmental and facility equipment, as well as building materials, electrical materials, civil engineering, and overseas markets in response to the requests of their business partners.

A strong value chain is a strength.

3. The company's strengths

In recent years, the growth of internet retailers such as MonotaRO <3064>, Ascle <2678>, and Amazon.com has been remarkable. Although there were concerns about the erosion of existing distribution channels due to their wide range of construction materials, the impact on existing distribution channels has been limited to some extent, such as individual craftsmen called 'Ichinin-Oyakata'. This is because internet retailers focus more on self-sales, mainly in MRO※, rather than specialized products, while specialized trading companies offer a wide range of products, inventory, abundant information, and accurate proposals, as well as efficient ordering and convenient delivery at a high frequency to professional customers, which is believed to be the reason. In particular, the company's characteristics, such as the wide range of products and services among primary wholesalers, have been supported and have had little impact. The company's inventory management and control are also considered strengths. By taking inventory risks with low-priced products and trendy items, which are less prone to competition, the company has improved profitability. In the event of a situation where it is difficult to take inventory risks, such as a sharp increase in raw material prices, the company controls procurement prices and selling prices based on its experience during the COVID-19 pandemic to improve profitability.

※MRO (Maintenance, Repair and Operations): Indirect materials. It refers to the expenses for purchasing non-specialized materials such as tools and consumables, which are widely used not only in the construction materials industry but also in other industries, excluding highly specialized direct materials that are directly related to production.

In addition, the company has fostered the industry itself by providing specialized products, in-depth assortment, product information, regional to macro information, and well-developed services such as training and education for personnel, and has been involved in the industry's development from the design stage. As a result, the company's distribution has been highly value-added, and its efforts with suppliers have become more extensive, resulting in the construction of a strong value chain that integrates manufacturers, secondary wholesalers, general contractors, construction stores, and construction companies. The company refers to this as the 'Four-in-One' approach, involving suppliers, retailers/construction stores, and the company. This is a strength that not only internet retailers, home improvement stores, and primary wholesalers in the same industry do not possess. In addition, the company's strengths include stocking popular items at major warehouses and various locations, providing support such as management consultation and succession planning, and supporting the introduction of IT technology. In particular, the company actively supports IT technology and operates a member-exclusive website called 'OPS (Online Partner System)' where orders and inventory searches can be made 24/7. In addition, the internet catalog 'e設備NET' allows users to access catalogs and drawings required at construction sites online. Such IT technology is highly appreciated as it directly contributes to the operational efficiency of retailers, and the proportion of web orders is increasing year by year.

(Author: FISCO guest analyst Nobumitsu Miyata)