ENSHU Limited

Orders in the Machine Tool-Related Business are directly linked to customers' capital investment activities and are heavily influenced by private-sector capital investment trends, particularly those of the automotive industry, which is a key customer segment. Amid structural changes in the automotive industry, including reconsideration of the shift to EVs and re-evaluation of HVs and ICE vehicles, an economic downturn could amplify the impact on business performance due to a compounding decline in selling prices caused by worsening supply-demand conditions. The Company aims to improve profitability through proposal-based sales of automation and DX-related products and by accumulating track record with jointly developed machines.

In the Parts Processing-Related Business, the Company has a high degree of sales dependence on Yamaha Motor Co., Ltd. In FY2026 (ending March 2026), sales to this customer amounted to ¥8,418 million, accounting for 43.8% of total net sales. Changes in Yamaha Motor's business policy or a decrease in order volume could have a significant impact on the Group's business performance. No specific measures to reduce this dependence are explicitly stated in the securities report.

In FY2026 (ending March 2026), the ratio of overseas sales was 25.2%, and the Company is exposed to foreign exchange fluctuation risk through USD- and EUR-denominated transactions, among others. Significant yen appreciation or depreciation could directly affect sales and profits. While the Company seeks to mitigate this risk by expanding yen-denominated transactions and using forward exchange contracts, complete hedging is difficult.

In FY2026 (ending March 2026), the borrowing dependence ratio (ratio of borrowings to total assets) stood at a relatively high level of 38.3%. In a rising interest rate environment, increased financial expenses could put pressure on business performance. While the Company mitigates this risk by converting a portion of its borrowings to fixed rates through interest rate swaps, the floating-rate portion remains exposed to the impact.

Given the high degree of borrowing dependence, there is a risk that fundraising could become difficult if financial institutions change their lending stance. The syndicated loan is subject to financial covenants, and a breach of these covenants would trigger an obligation for early repayment, which could have a material impact on the Company's cash flow.

The Machine Tool-Related Business faces numerous competing manufacturers, and price competition is particularly intense in the general-purpose machine tool segment, where selling prices tend to decline. If differentiation from competing products proves difficult, this could lead to deterioration in profitability. Details of specific measures to maintain competitive advantage are not disclosed in the securities report.

In the Machine Tool-Related Business, the Company depends on specific suppliers for some raw materials and components, and there is a risk of delivery delays or cost increases due to supply-demand tightness or natural disasters. A surge in raw material prices would push up manufacturing costs and adversely affect business performance. Countermeasures such as diversification of procurement sources are not explicitly stated in the securities report.

If the profitability of inventory declines due to falling selling prices or the incurrence of additional costs for system machine tools, the Company is required to recognize valuation losses in accordance with accounting standards. In particular, build-to-order system machine tools are prone to additional costs arising from specification changes and the like, creating a risk that recognition of valuation losses will directly depress business performance.

Because system machine tools are custom-built, they require a high degree of quality control, and if specifications are not met or defects occur, substantial additional costs may be incurred. In the Parts Processing-Related Business as well, there is a risk that unexpected quality troubles could result in repair and compensation costs. The Group is addressing quality maintenance and improvement, including at its overseas sites, as a top priority.

The Group's production sites are concentrated within Shizuoka Prefecture, and if a Nankai Trough megaquake were to occur, it could cause operational disruption and substantial recovery costs, potentially having a severe impact on business performance. While preventive measures such as earthquake resistance and fire prevention measures are being progressively implemented, the risk associated with geographic concentration remains.