BRIDGE REPORT
(7242)

東証1部

KYB Corporation (7242)
President Yasusuke Nakajima
President Yasusuke Nakajima
Corporate Profile
Company
KYB Corporation
Code No.
7242
Exchange
TSE 1st Section
Industry
Equipment for transportation
President
Yasusuke Nakajima
Address
World Trade Center Bldg., 4-1, Hamamatsu-cho 2-chome, Minato-ku, Tokyo
Year-end
End of March
URL
Stock Information
Share Price Number of shares issued Total market cap ROE (Actual) Trading Unit
¥6,870 25,748,431 shares ¥176,891 million 9.3% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥135.00 2.0% ¥614.58 11.2times ¥6,871.35 1.0times
*The share price is the closing price on November 22. The number of shares issued, ROE were the values for the previous term.
*The company conducted 1-for-10 reverse share split on Oct. 1, 2017. DPS represent the amounts taking the 1-for-10 reverse split into account.
 
Earnings Trends
Fiscal Year Net Sales Operating
      Income
Pretax
      Income
Net
    Income
EPS DPS   
Mar. 2014 (results) 352,710 18,170 20,390 12,761 55.26 9.00
Mar. 2015 (results) 370,327 14,461 14,892 8,354 31.45 12.00
Mar. 2016 (results) 355,320 4,327 2,825 -3,161 -12.37 11.00
Mar. 2017 (results) 355,316 19,247 18,852 14,544 56.93 12.00
Mar. 2018 (estimate) 388,000 23,000 22,800 15,700 614.58 135.00
*The forecast is from the company. From the term ended Mar. 2016, the IFRS has been used. The amounts in the term ended Mar. 2015 are those after the IFRS adjustment. From the term ended Mar. 2016, net income is profit attributable to owners of the parent.
*The company conducted 1-for-10 reverse share split on Oct. 1, 2017. DPS for the term ending Mar. 2018 represent the amounts taking the 1-for-10 reverse split into account.

This report outlines the financial results of KYB for the term ended Mar. 2018 and its second-quarter management plan.
 
Key Points
 
 
 
Company Overview
 
The largest manufacturer of independent hydraulic equipment in Japan. Based on hydraulic technology, the company offers products and technologies in a wide range of fields such as "four-wheeled vehicles", "two-wheeled vehicles", "construction machinery", "industrial vehicles", "aircraft", "railroads" and "specially equipped vehicles".
KYB has a high market share with many products. For instance, shock absorbers for four-wheeled vehicles account for 43% of the domestic market and 15% of the global market.
 
1-1 Corporate history
The roots come from "Kayaba Research Center", which was established by Shiro Kayaba, who is an inventor and a founder, in November 1919.
In January 1927, a self-employed enterprise, Kayaba Seisakusho, was established for manufacturing hydraulic dampers, catapults, etc. for aircraft.
In March 1935, Kayaba Manufacturing Co., Ltd. was established.
After the end of World War II, in June 1956, Kayaba Auto Service Co., Ltd. was established for offering products and services.
In October 1959, company's stocks were listed on the Tokyo Stock Exchange.
In July 1974, KYB Corporation of America was established in the United States in order to enter the North American commercial market. Then, the company actively entered foreign markets such as Asia and Europe.
In October 1985, the company name "Kayaba" was changed from kanji (Chinese characters) to katakana (Japanese Characters).
In October 2015, the trade name was changed from Kayaba Manufacturing Co., Ltd. to KYB Corporation in order to further strengthen the brand image.
 
1-2 Corporate Philosophy / Management Philosophy
◎KYB Corporate Symbol
As they changed the corporate name from "Kayaba Manufacturing Co., Ltd." to "KYB Corporation" in 2015, they aim to popularize the KYB brand on a global basis.
Therefore, as shown below, the logo "KYB" has the meaning and spirit.
 
 
(Logo Meaning)
Slanted slits in each letter represent comfortable sunlight cast through the trees and sunbeams illuminating the road ahead. The logo represents an image of unconstrained growth and flexible response to the trends of the era. The right side of the letter "B" represents liquid pressure indicating the origin of KYB. Using italic letters expresses a sense of speedy movement, progressiveness, growth potential, innovativeness.

(What the corporate color means)
Red represents enthusiasm to create a society where industrial crafting brings happiness to everyone and to provide the technologies that bring a warm and comfortable life. KYB names this red "KYB Red" as the corporate color.
 
◎Corporate Statements
 
 
The characteristics of products such as precise quality and reliable technology are expressed with the statement.
It means that not only providing reliable quality to general consumers and business partners leads to stakeholders' "advantage (superiority)", but also the joy of manufacturing, which enables each employee to realize that they can change the world with sure quality, becomes "advantage (merit)".
 
◎Corporate Spirit
As a KYB group that contributes to society by providing technologies and products that make people's lives safe and comfortable, they have the following management philosophy and management vision.
 
 
 
1-3 Environment Surrounding the Company
(1) Market Environment
The automobile market and the construction machinery market have a great effect on KYB's performance.
KYB recognizes the current and future situations of the two markets as follows.
 
①Automobile Market
The global demand for automobiles is expected to increase slightly, driven by emerging countries such as Southeast Asia.
Domestic car sales are expected to see a certain amount of demand, but the impact of negotiations for eliminating trade deficit with the United States is unpredictable.
The commercial market is expected to expand mainly in emerging countries.
 
KYB supplies shock absorbers (SA) for new vehicles directly to automobile manufacturers as Tier 1, and also supplies them to auto parts stores, repair shops, etc. through agencies for aftermarket as well.
The company calls the former "OEM" and the latter "marketed".
Japanese cars are popular in Asia, the Middle East and others, and the commercial market is important for KYB.
 
 
②Construction Machinery Market
The Japanese market has grown slightly due to the Tokyo Olympics and Paralympics demand and the fourth exhaust gas regulation, which will expire in August 2017.
The Chinese market, which is said to occupy about one-third of the global market, is gradually recovering after the peak of oversupply, which was caused by economic stimulus measures following the Lehman Brothers' fall.
The Indian market continues to grow with strong infrastructure investment.
 
As for excavators of 6 tons or heavier, KYB expects the market to continue steady growth for the time being.
 
 
(2) Competitors
① AC Business
KYB's domestic competitors include Showa Corporation (7274, TSE 1st section), 33.4% of whose shares are held by Honda, and Hitachi Automotive Systems, Ltd. (unlisted), a group company of Hitachi.
Its global competitors consist of Sachs in Germany, Tenneco in the U.S., and so on. Sachs has a long history and intimate relationships with European automobile manufacturers.

The company's share in the commercial product market is slightly less than 20%. Tokico (which was acquired through M&A by Hitachi and is unlisted; today it is one of the brands of Hitachi Automotive Systems) and Monroe (a commercial brand of Tenneco) have earned a large market share in Japan and globally, respectively.

KYB competes with Showa, which is closely related to Honda, in the market of shock absorbers for motorcycles, and with JTEKT Corporation (6473, TSE 1st section) and NSK Ltd. (6471, TSE 1st section) in the steering market.
 
② HC Business
In the market of cylinders, which are the parts with the highest sales ratio in KYB, Chinese manufacturers and the like are extending their influences.
KYB's competitors include Nabtesco (6268, TSE 1st section) in the market of control valves for which KYB has the advanced technology, and Nabtesco and Nachi-Fujikoshi (6474, TSE 1st section) in the market of travel motors.
In addition, the largest construction machinery manufacturer in Japan manufactures a number of parts internally.
 
 
1-4 Business contents
(1) Segments
KYB's business segments are composed of the following three segments: the "AC Business" consisting of hydraulic shock absorbers for automobiles and motorcycles, power steering, etc., the "HC Business" including hydraulic equipment for industrial use mainly for construction machinery, and the "Others" segment which handles special purpose vehicles such as concrete mixer trucks, aircraft components, system products, electronics, and the like.
 
 
① AC (Automotive Components) Business
This segment consists of hydraulic shock absorbers for automobiles and motorcycles, hydraulic equipment for automobiles, and other products.
 
 
<Major Products>
◎ Automobiles
(Shock absorbers)
A shock absorber is a device that absorbs vibration of the car body, being mounted between the body and the tires together with a spring.
 
 
Each automobile is equipped with a "suspension" which is the system that improves riding comfort and operational stability.
Suspensions have two main functions; one is, as buffers, to prevent transmission of rough road profiles to the car body and another is to set the position of the wheels and axles and press the wheels down on the roads.
Basically, a suspension is composed of a suspension arm which fixes the wheel position, a spring which supports the car weight and absorbs vibration, and a shock absorber (damper) which dampens vibration of the spring.

Automobiles absorb shock caused by uneven road profiles by contracting the springs, but due to their characteristics, the springs rebound to get back to their original position after the contraction.
The top of a spring is connected to the car body and the bottom is coupled with a suspension that includes the heavy tires and brake, which results in, due to inertia, repetition of expansion and contraction of a spring in a range wider than one necessary for returning to its original position.
The role of shock absorbers is to reduce the above-mentioned excess vibration as soon as possible in order to stabilize the car body
 
 
The vehicle in which the shock absorber is functioning properly achieves the following:
Reduction in unnecessary movement of springs to secure riding comfort
Improvement of the brake performance
Smoothness in taking corners
 
The force that controls expansion and contraction of springs and reduce vibration is called "damping force." The "hydraulic technology," which KYB has cultivated and improved since its inauguration, plays a significant role in generating "damping force."

The tube of a shock absorber contains oil with a piston moving in it.
A piston has holes through which oil passes when the piston moves following vibration, and the resistance of the oil generates "damping force." In addition, the moving speed of pistons varies with the degree and velocity of vibration from the car body, and the faster a piston moves, the larger "damping force" becomes. This is called "damping force characteristics."
 
 
KYB's shock absorbers developed based on its sophisticated technology has earned reputation from a number of automobile manufacturers worldwide, leading to the large market share as mentioned below.
Furthermore, it is said that shock absorbers usually need to be replaced after 5 years from the date of first registration or when the travel distance reached 100,000 km as they deteriorate due to various factors including travel distance and lapse of time and the function decreases.
This replacement demand, which in other words is the commercial product market, is one of the greatest business opportunities for the company.
 
(Steering)
It is the steering system that provides "the function of taking curves," one of the three basic functions of automobiles including "driving," "taking curves," and "stopping."
 
 
KYB's steering components include the "hydraulic steering (PS)" that uses the hydraulic power assist unit to support turning of the steering wheel done by drivers and steer the tires, and the "electric steering (EPS)" that uses the electric power assist unit composed of a motor, a controller, a torque sensor, etc. to support turning of the steering wheel and steer the tires.

The "PS" enables steering operation by a mere movement thanks to hydraulic force and is an indispensable component for safe driving because of its ability to expeditiously avert risks, whereas the "EPS" whose power source is a battery improves fuel efficiency compared to the "PS" whose power source is the engine of a car.
 
 
◎ Motorcycles
(Suspensions)
Suspensions minimize shock to the car body regardless of road surface conditions, pursuing comfort.
 
 
*Rear cushion unit (RCU)
The company's RCUs boost riding comfort by maintaining the posture of vehicles and absorbing vibration and shock from the road surfaces.
 
 
② HC (Hydraulic Components) Business
The HC Business consists of hydraulic equipment for industrial use and other products.
 
 
<Major Products>
The mechanism of the drive system of construction machinery such as shovels consists of various parts as shown below, including control valves, piston pumps, travel motors, swing motors, and cylinders; it is the control valve, which is the "brain" of construction machinery, that controls a variety of actuators (a drive unit which converts energy to translational or rotary motion through hydraulic pressure and electric motors) to enable smooth movement of driving, turning, and bending and stretching of the arms.
KYB's control valves have realized more advanced control by combining electric control with its special hydraulic technology.

In addition, KYB is one of the few manufacturers that manufacture all of the above-mentioned parts.
KYB's competitive edge is that it can make suggestion to construction machinery manufacturers because it manufacturers all kinds of parts as just mentioned.
 
 
③ Other
The other businesses are composed of special purpose vehicles, hydraulic equipment for aircraft, system products, electronics, and such.
 
 
KYB's concrete mixer trucks have high mixing and emission performance, accounting for about 83% of the domestic market share.
It offers highly-reliable products for aircraft, including various actuators, weight-saving accumulators, and wheel brakes.
In addition, KYB has the largest market share in the Japanese market of seismic isolation systems and earthquake dampers to which its unique hydraulic technology has been applied.
 
 
(2) Clients and sales channels
◎ Clients
The following is a list of KYB's major clients.
Its shock absorbers are mounted on about 60% of automobiles manufactured by Toyota globally. They are also adopted to about 30% and about 10% of automobiles manufactured by Nissan and Honda, respectively, contributing to KYB's large market share.
 
 
◎ Sales channels
As previously mentioned, KYB supplies its shock absorbers through 2 sales channels including the OEM production system for new vehicles and sale on the market for used vehicles.
Although sales of OEM products are higher, its commercially-available products sold as its private brand show great profitability and thus the company will expand the business to the global markets.

KYB's commercially-available shock absorbers can be mounted on about 90% of Japanese, American, and European automobiles used worldwide today.
What is behind such a high coverage rate is the strong relationships KYB has with major automobile manufacturers including Toyota.
 
(3) Global network
In 23 countries worldwide including Japan, KYB has a total of 64 bases, including 49 group companies, regional headquarters (6), production bases (37), and sales office/other service (21), establishing strong global networks.
 
 
 
(4) Research and Development
(Structure)
KYB has established a global and optimum research and development (R&D) structure by setting R&D bases in 5 regions including Japan, North America, Europe, China, and Thailand.

While the R&D bases in regions other than Japan basically engage in development of model products and development for enhancing product appeal such as performance improvement and cost reduction, R&D from the long-term perspectives are carried out mainly in Basic Technology R&D Center (Sagamihara-shi, Kanagawa) and Production Technology R&D Center (Kani-shi, Gifu) in Japan and R&D of highly unique prior art, etc are performed.

In addition, the know-how about production equipment designing which has been cultivated in Production Technology R&D Center and each plant is gathered in Machine Tools Center (Kani-shi, Gifu) in order to strengthen and propel internal manufacturing of equipment, jigs, and tools for which KYB has strived to boost innovative spirit and reliability.
In Electronics Technology Center (Sagamihara-shi, Kanagawa), a system that collects technologies for designing and evaluating electronics, increases development capabilities, and conducts a series of processes ranging from product development to prototype evaluation and mass production in a smooth and prompt manner has been established.
Regarding high-functionality and systematization of its products, KYB, in addition to independent development, propels joint research and development with its clients or related equipment manufacturers. The company is also endeavoring proactively to developing advanced technology through industry-academia collaboration.

(Variation in R&D expenses)
Since the term ended Mar. 2013, the company has raised its awareness about the ratio of R&D expenses to sales, maintaining the ratio at about 2%.
 
 
(Area of focus)
KYB is propelling the development of products by dealing with performance improvement, high functionality, and systematization and considering eco-friendliness with respect to energy and environmental issues through weight saving, energy saving, reduction in environmentally hazardous substances. At the same time, it is striving to strengthen its production technology capabilities.
In addition, following the accelerated globalization, it aims to set up a strategic and global production, sales, and technological structure, including development of human resources with global outlooks and establishment of a standardized management system.

Lately, the company has focused on product development related to automatic driving systems.

One example is the technology that integrates EPS (electronic steering) and shock absorbers.
KYB considers that the technology, which enables more comfortable and smoother driving in any road surface conditions independently of the drivers' skills and judgment, is definitely indispensable for automobiles with the automatic driving system.

Furthermore, it deems the "steering by wire" system is another technology whose importance will grow in the future.
In the conventional steering operation, movement is transmitted to the steering gear box and tires through the steering shaft, whereas the "steering by wire" system conveys steering movement via electronic signals.
Some of the system's advantages include the capability of relieving drivers' fatigue due to less vibration from the tires, and the capability of automatically adjusting sideslips of the car body due to strong winds which conventionally needed to be adjusted through an intentional steering operation by drivers. In addition, thanks to the "steering by wire" system, the steering wheel may not necessarily be mounted on the right front of a car, and therefore, the system's potential for considerably changing the way automobiles are, including the design and functions, has attracted much attention.
Although several issues still exist, KYB is further brushing up the system as its unique EPS technology.
 
1-5 Characteristics and strengths
◎ Large shares in various product markets
KYB has earned a large market share of multifarious products, with the domestic share of OEM shock absorbers for automobiles being 43% and its global share being 15%, the global share of hydraulic cylinders for construction machinery being 27%, the domestic share of concrete mixer trucks being 83%, and the domestic share of earthquake dampers and the seismic isolation system being 38%.
 
◎ Superior core technology
Such large market shares are attributed to the great trust in its products from clients as indicated by the fact that KYB has about 60% share on a global basis in Toyota Motor which vies with Volkswagen and GM for the position of the world's largest automobile manufacturer. The basis of the clients' trust is nothing else but the superior "hydraulic" technology that KYB has cultivated and enhanced for the past 100 years since its foundation.

KYB's two core technologies, the "vibration control technology" represented by its shock absorbers and hydraulic earthquake dampers and the "power control technology" typified by its control valves for shovels and electric power steering, have gained high reputation from clients and thus are used in diverse circumstances.
 
1-6 Shareholder return
KYB has reviewed its policy on dividend distribution.
Before the review, it set the annual DOE (Dividend on Equity ratio) at 2% or higher on a consolidation basis; however, while aiming for a consolidated payout ratio of 30% or higher, it decided that dividends shall be distributed basically at the conventional annual DOE of 2% or higher from the interim dividend allocation in this term. This means that dividends will be paid stably at DOE of 2% when the business performance is sluggish, whereas shareholder return will be made depending on profit when the business performance is healthy.
 
1-7 ROE analysis
 
KYB' target ROE for the term ending Mar. 2020 is 10%.
Given that, for the term ending Mar. 2018, the total asset turnover and leverage are unchanged and the forecasted net income margin is 2.61%, ROE for this term will be 5.9%, which means there is still ample room for improvement.
We should keep an eye on KYB's efforts at increasing profitability, such as profit improvement at overseas bases and acceleration of innovative manufacturing.
 
 
Second Quarter Fiscal Year March 2018 Earnings Results
 
 
HC business showed favorable performance, resulting in increase in sales and profit. Significantly exceeded the initial estimates.
Sales rose 9.2% year on year to 188.9 billion yen. Sales in both the AC and HC businesses grew, especially sales in the HC business saw a double-digit increase thanks to the strong Chinese construction equipment market.
Segment income rose 29.2% year on year to 10.1 billion yen, and operating income rose 60.8% year on year to 11 billion yen. Structural reforms that the company has been working on since the second preceding term contributed to improve the income margin.
Both sales and profits exceeded their respective initial estimates and revised estimates as the HC business was strong and depreciation of the yen also contributed
 
 
 
 
For the AC business, during the first half of the fiscal year 2017, the company is strengthening the activities to improve future profitability.
It is also aiming at gaining more market shares along with the market size expansion in developed and newly emerging countries, trying to raise the global share from 14% in FY 2017 to 16% by FY 2020. It will also further expand its share by gaining orders of new types of vehicles after FY 2020.

The activities in each field are as follows:

(Development: Strengthening its development structure)
In anticipation of orders from 3 premium German companies (i.e. Mercedes, BMW, Audi), the company is preparing for establishing the Europe Development Center in Germany. The Center will be launched in April 2018.

(Products: Sales of high-value added products)
Full-scale manufacturing of light-weight shock absorbers (SA) for new Toyota Camry, which has the largest sales volume in the North America market, began in June 2017.

(Production: Improving profitability by reducing cost of existing products)
In November 2017, the company will launch the "F0 line," an innovative manufacturing line, along with the mass-production of new models. In the future, the company will incorporate it in the overseas manufacturing lines.
The company is working on integration of global specification of SA for mass-market.

(Sales: Strengthening new business transactions)
In October 2017, operation of Turkey office, which handles aftermarket SA, began in an effort to increase the market share.
A business transaction with a major aftermarket dealership began in the North American market.
The company began to supply front forks and rear cushion units to Taiwan's Gogoro, which is an electric scooter manufacturer and provides shared battery services.
 
 
(Market environment)
The global demand for over-6t construction machinery in the fiscal year 2017 is expected to increase by 19% from the beginning of the term as a result of a rapid recovery of the Chinese market. Chinese construction market will continue to be strong until the next fiscal year. The sales of small construction machinery are also expected to be healthy mainly in the North American and European markets.

Robust demand will continue to last during the second half of this fiscal year. In order to meet the customers' demand, the company will continue to take measures to secure the production volume.
For parts supply, it will try to increase capacity of the business partners and joint orders.
As for increasing manufacturing capacity, it will explore the possibility of moving up the schedule of investment to increase and strengthen manufacturing lines, in addition to shift change and outsourcing manufacturing. It will raise the products volume and increase profits.

(Actions)
The company began to establish an optimal manufacturing system to strengthen its manufacturing capacity.
Various functions of manufacturing and assembly are currently scatted across Sagami factory, Kumagaya factory, Aikawa factory, and its subsidiary, KYB-YS. For the "valves for middle- and large-sized machinery," it will consolidate the functions of development, molding, processing and assembly to KYB-YS and will begin mass production in October 2018.
For "pistons, pumps and motors," the company will consolidate the functions of development, processing and assembly to Sagami factory.

Among the construction machinery, skid steer loaders (SSL) and compact track loaders (CTL) are highly adaptable and can be used for construction, road construction, and agriculture/forestry/landscape architecture. Their demand is increasing in proportion to the number of housing construction. But the company is not quite able to compete in the North American market, which is the market size of about 36 billion yen and occupies 80% of the global market share.
To overcome this situation, the company will try to expand its sales targeting the Japanese manufactures, expand the business in anticipation of the next model change in the North American market, and target the compact wheel loaders whose specifications are similar. This way, the company will try to gain the market share of 10%.

As for the HC business, the company will try to convert its corporate structure so that it will not be swayed by fluctuation of demand by "establishing an optimal production system" and "promoting sales in growing markets."

(Strengthening brand image)
The company is working on various activities to strengthen its brand image, aiming to preferentially receive orders from the customers, by improving the product appeal and brand value globally.

During this term, in addition to digital advertising and paper advertising, it undertook media strategies such as inviting motor journalists to a test-driving event. It also participated in the Tokyo Motor Show and hosted events.
In addition, as for motorsports, as was mentioned in the previous report, it established the motorsports club as of April 1, 2017, in an effort to enhance recognition of the KYB brand as well as strengthen technical capacity and develop human resources in the ultimate world of motorsports. Furthermore, it concluded a sponsorship agreement with "Team EKS," which participated in the World Rallycross Championship and supplied EPS to the team. It also concluded a sponsorship agreement with "TECH3" which participated in the Moto 2 class of the Grand Prix Motorcycle Racing and supplied suspension.
 
 
In the United States, the sales of four-wheeled vehicles were sluggish. In Southeast Asia, performance was healthy for two-wheeled vehicles.
Overseas sales ratio rose from 53.7% to 55.1%
 
 
Current assets grew by 15 billion yen from the end of the previous term due to the increase in cash, etc. and trade receivables. Noncurrent assets rose 7.3 billion yen due to the growth of other financial assets, etc. and total assets increased 22.3 billion yen to 403.7 billion yen.
Current liabilities augmented 12.4 billion yen due to the increase in trade payables, etc. Noncurrent liabilities decreased by 1.5 billion yen due to a decrease in debts. Total liabilities were 222.4 billion yen, up 10.9 billion yen from the end of the previous term.
Total assets grew 11.4 billion yen due mainly to the increase in retained earnings.
Consequently, the ratio of the equity that belongs to the owners of the parent company increased 0.4 points from 43.1% at the end of the previous term to 43.5%.
 
 
Operating CF was almost unchanged from the same period last year. There was a decline in purchase of property, plant and equipment, and a reduction in the deficit of investing CF. The surplus of free CF increased. Financing CF turned negative due to a decrease in net increase in short-term debts. The cash position improved
 
 
Fiscal Year March 2018 Earnings Estimates
 
 
Sales and profits estimated to increase after two upward revisions
Upward revisions were made in July and October because, in addition to the strong performance of the HC business, the depreciation of the yen contributed.
Sales are estimated to be 388 billion yen, up 9.2% year on year. Segment income is projected to be 23.2 billion yen, up 24.7% year on year, and operating income is forecasted to be 23.0 billion yen, up 19.5% year on year. The HC business will contribute even to the full-year results.
The assumed exchange rates for this fiscal year are 1 US dollar = 111 yen (100 yen at the beginning of the term), and 1 euro = 126 yen (110 yen at the beginning of the term). The actual rates in the previous year were 1 US dollar = 108.38 yen, and 1 euro = 118.79 yen. Taking into account the reverse split, the annual dividend is to be 135 yen/share, up 15 yen/share year on year. The payment ratio is estimated to be 22.0%.
 
 
(3) Capital investment plan
KYB plans to continue to make investments, aiming for innovative manufacturing and establishment of an optimal production system.
Capital investment in the first half was 8,719 million yen, amounting to 44.5% of the full-year plan. Depreciation in the first half was 8,183 million yen, amounting to 51.1% of the full-year plan.
 
 
 
Conclusions
 
In the previous report, we stated "In order to make the share price get out of this range and get on an upward trend, the key is the recovery speed of the HC business." At the beginning of the term, the HC business was expected to have an increase in sales and a decrease in profit, however after two upward revisions, profit is expected to increase significantly, and the share price has nearly returned to the 2011 high of 7,450 yen.
However, it is unknown exactly how much the stock price is influenced by the favorable conditions of the construction machinery market in China. Also, as is the company's thinking, a characteristic of the HC business is that it is largely dependent on demand fluctuation, which may be considered to be the cause of low PER and PBR.
We would like to pay attention to the progress of efforts to strengthen the organization by "establishing an optimal production system" and "promoting sales in growing markets."
 
 
 
<Reference 1: 2017 Midterm Management Plan>
 
KYB has formulated a 3-year mid-term management plan with the year 2017 (the term ending Mar. 2018) being the first fiscal year and the year 2019 (the term ending Mar. 2020) being the final fiscal year and the plan is ongoing.
 
(1) Numerical goals
Under the slogan of "A GLOBAL KYB - CHALLENGE & INNOVATION -," KYB is striving to "complete drastic structural reform" in FY2017 and will make efforts to realize "sustainable growth," "stabilization of the earning base," and "solving managerial issues" in FY2018 and 2019 with the aim of "achieving sales of 398 billion yen in fiscal 2019." The company will aim to achieve sales of 500 billion yen in the group companies as a whole and earn the rating "A" as soon as possible after fiscal 2020.
 
 
 
KYB aims to increase the number of shock absorbers sold to 88 million (OEM products and commercially-available products account for 68% and 32%, respectively) for fiscal 2020 from 72 million (OEM products and commercially-available products account for 70% and 30%, respectively) in the previous term.
 
 
 
 
 
(3) Topics
◎ Establishment of the motorsports department
KYB established the motorsports department on April 1, 2017 with the aim not only of making a presence of the KYB brand stronger through motorsports but also of expanding technical capacities and developing human resources in the extreme world of motorsports.

In the LMP class, which is the top category of the world endurance championships for automobiles, KYB's EPS was mounted on 26 vehicles out of the 31 participating vehicles in the previous term. The company, this term, aims to supply its EPS to all of the participating vehicles and provide technical support. At the same time, it will strive to realize the first installation of its shock absorbers in the class. Meanwhile, KYB supplied its suspensions to the Moto2 class in the previous term. The company will continuously accumulate results in this term and the subsequent terms in order to provide its suspensions to vehicles participating in the MotoGP class, which is the premier motorsports championship, in fiscal 2019.
 
 
<Reference 2: Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
Last update date: Jul. 26, 2017
<Basic approach>
In order to respond to the expectations of the stakeholders through realization of sustainable growth and corporate value improvement as well as fulfill the corporate social responsibility of contributing to society, it is our basic approach to pursue the development of a rapid and efficient management structure centered on the Board of Directors and establishment of fair and transparent management supervision functions and work on strengthening and enhancing corporate governance based on the following management philosophy and basic policies.
(Management philosophy)
"KYB group contributes to the society, by serving technologies and products that make people's life safe and comfortable."
 
1. We shall build a corporate culture that holds high goals and full of vitality.
2. We shall maintain kindness and sincerity, cherish nature and care for the environment.
3. We shall constantly pursue creativity and contribute to the prosperity of customers, shareholders, business partners and society.
 
(Basic policies)
1. We shall respect the rights of shareholders and ensure their equality.
2. We shall take the benefits of stakeholders including our shareholders into consideration and endeavor to appropriately collaborate with those stakeholders.
3. We shall disclose not only the information in compliance with the relevant laws and regulations, but also actively provide the important and/or useful information to the stakeholders for their well-informed decision making.
4. The Board of Directors shall be aware of its fiduciary responsibility and accountability to the shareholders and shall appropriately fulfill its roles and responsibilities in order to promote sustainable and stable corporate growth and increase corporate value, profitability and capital efficiency.
We shall engage in constructive dialogue with the shareholders and make efforts to obtain their support regarding the company's business policies and also reflect their opinions in the improvement of management.
 
 
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2017 Investment Bridge Co., Ltd. All Rights Reserved.
 
 
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