HKS CO., LTD.

The Group, as a comprehensive aftermarket parts manufacturer, competes with rival companies in each product field. In recent years, automobile manufacturers have also actively entered the aftermarket parts market, and competition may intensify further. Intensified competition carries the risk of declining sales and market share, or reduced profit margins due to intense price competition. The Company aims to maintain and enhance its brand strength by providing appealing products in a timely manner that capture customer needs.

Since the Group's main products are parts for vehicles sold by automobile manufacturers, changes in automobile manufacturers' product categories directly affect the user base, sales models, and price ranges. In the past, sales declined due to a decrease in sports cars and an increase in eco-friendly vehicles, and there is a risk that a rapid and large-scale shift in product strategy could adversely affect business performance and financial condition. Currently, the enhanced sports car lineup is a tailwind, but the risk of future strategic shifts continues to exist.

The Company's production facilities are concentrated in Fujinomiya City, Shizuoka Prefecture, and if a large-scale natural disaster such as a Tokai earthquake were to occur, facility damage and restoration costs could arise, and business activities could be hindered or delayed due to the suspension of production activities. If a large-scale or prolonged disruption or delay occurs, there is a risk of a material adverse effect on business performance and financial condition. The geographic concentration of production facilities is a structural factor that heightens this risk.

If a new infectious disease spreads globally, it is difficult to predict the impact on business performance, as the scale of spread and timing of containment are hard to foresee. If the impact of an infectious disease continues and orders for the Contract Manufacturing & Development Business decrease, there is a risk of an adverse effect on business performance and financial condition. No specific countermeasures by the Group are described, and this is recognized as a risk with a high degree of dependence on the external environment.

Since the Group produces most of its products for overseas sales domestically in Japan and exports them, a rapid and significant appreciation of the yen could result in a loss of price competitiveness overseas. A stronger yen leads to higher local prices for exported products, which could adversely affect business performance and financial condition through declines in sales volume, sales, and profit margins. Because the business model is export-dependent, sensitivity to exchange rate fluctuations is relatively high.

The Group is subject to environmental regulations concerning safety, noise, exhaust emissions, and other laws and regulations in each country where it operates. There is a risk that changes in laws could significantly increase the Group's cost burden. Tightened regulations may force changes to product design and manufacturing processes, and increased compliance costs could affect profitability.

In addition to sales through its own sales offices, the Group supplies parts and technology to mass retailers and automobile manufacturers, and sales to these major customers may be affected by external factors beyond the Group's control. There is a risk that changes in the policies or business conditions of specific automobile manufacturers or major mass retailers could directly impact the Group's sales. This customer concentration risk is a factor affecting the stability of business performance.

The Group exports aftermarket parts to various regions around the world, including Europe, the United States, and China, primarily via ocean freight, and fluctuations in tariff rates in each country and rising logistics costs such as ocean freight rates may affect business performance. Increases in tariff rates reduce the cost competitiveness of exported products, and rising logistics costs put pressure on profit margins. This structure means that geopolitical risks and changes in international trade policy directly lead to increased costs.

There is a risk of unforeseen disruptions to IT systems due to external cyberattacks, equipment malfunctions, internal misconduct, human error, and other causes. Due to the high degree of dependence on IT systems, there is a risk of disruption or delay in business activities, leakage of confidential information, and damage to or loss of important information, which could lead not only to a decline in business performance but also to a decline in brand value and public trust. The Group implements measures such as regular system updates and security updates by a dedicated department, as well as employee training.