Sekisui Chemical Co Ltd

TSE:4204

Q3-2025 Earnings Call

[Ikusuke Shimizu, executive]

Yes. Thank you for taking time out of your busy schedule to join us today. My name is Ikusuke Shimizu. And as of January 1, I've been appointed as the Head of Business Strategy Department.

Page 1 shows the currency trend. In Q3, the actual rate was JPY 152 against the U.S. dollar, weaker than our assumption. For Q4, the revised plan as of October assumed at JPY 140 against the dollar, but we revised the outlook to JPY 153. The FX sensitivity is illustrated by the table.

On Page 2, key results is indicated on the left. Net sales grew to JPY 326.3 billion, with operating profit up by JPY 4 billion to JPY 28.6 billion and ordinary profit at JPY 38 billion and net profit at JPY 25.6 billion. All profit lines marked a significant growth. Both net sales and operating profit modestly beat the plan. The right table shows the cumulative results from Q1 to Q3, also marking significant sales and profit growth. The blue stars indicate record high figures. Sales and all profit lines marked record highs as quarterly and 9-month results.

Next, Page 3 is the results by segment. In Q3, sales increased in all 4 segments. Despite weaker-than-expected market conditions in Japan and overseas, we were able to achieve a substantial profit growth, thanks to measures undertaken to date, including growing sales of high-performance products and securing spreads. I will cover the segment details later, but the main points in each segment are as shown on the slide. In the Other segment, preparatory work for growth is progressing newly on par with the plan including initiatives on perovskite solar cells. In this table as well, the stars indicate new record highs.

Page 4 is the outlook for market conditions. The auto production volume in Q3 was in line with the forecast, and we expect Q4 to decline year-on-year as growth will not be as strong as anticipated in the October guidance. Smartphone shipments in Q3 were close to our expectation. Q4 is expected to be slightly below the October forecast and on par with the previous year. Top right is the number of visitors for the housing business. Although traffic to the model house exhibition is still below the previous year, the total number of visitors continue to increase year-on-year, propelled by more request via media such as the web. The bar graph below is the new housing starts, which is projected to be weaker than anticipated and demand is expected to remain sluggish. Domestic naphtha price was below the October forecast and is expected to remain at the same level in Q4.

Page 5 shows the earnings forecast for the second half. As indicated at the bottom of the table, consolidated net sales are expected to go up by JPY 33.4 billion to JPY 678.6 billion with operating profit expected to grow by JPY 5 billion to JPY 58.3 billion. We expect sales and profit to grow in all 4 segments. The right side of the table shows the comparison with the October plan. Although net sales are expected to fall slightly short of the plan due to the continued sluggish market, we have revised up our group-wide OP guidance by JPY 2 billion, as a result of higher sales of high-performance products improving selling prices and the impact of foreign exchange.

Page 6 shows the breakdown by Q3 and Q4. As indicated at the bottom right, that group-wide total sales and OP are expected to grow in Q4 as well. By segment, housing companies affected by the sales and profit being brought forward to Q3 but other 3 segments are expected to continue to achieve sales and profit growth in Q4.

Page 7 is the analysis of the second half forecast. As shown by the left graph, net sales are expected to increase by JPY 33.4 billion to JPY 678.6 billion. The waterfall chart on the right is the analysis of the growth in OP. First, sales volumes and product mix impact is significant, up by JPY 9.6 billion year-on-year. However, we expect to fall short of the October plan due to the sluggish housing and nonresidential market and a decline in demand for diagnostic creations in China. Selling price, raw materials, cost reduction and spreads have been well managed, while containing fixed cost. Furthermore, with FX benefit, we revised our POP guidance by JPY 2 billion from the October plan, aiming for a year-on-year profit growth of JPY 5 billion.

Page 8 is a full year forecast by segment. As indicated by the middle column, we expect profit for the consolidated group and for all the segment to grow. In particular, we expect a significant profit growth for HPP. As the column on the far right illustrates, we revised up the forecast for HPP from the October plan. On the other hand, the guidance for Medical has been revised down from the October plan due to lower-than-expected trend in the overseas diagnostic creations business. Having said that, we still project substantial profit growth on a year-on-year basis. We are also forecasting recognized sales and OP on a consolidated basis as well as for the 3 segments marked with the stars, excluding the housing company.

Using Page 9, I'd like to share our earnings forecast and dividend policy for FY '24. Net sales are projected at JPY 1,307.7 billion, up year-on-year by JPY 51.2 billion, with OP growing by JPY 12.6 billion year-on-year to JPY 107 billion, ordinary profit and net profit reaching JPY 106 billion and JPY 80 billion, respectively. Each profit line is expected to grow, achieving new record highs. As shown on the far right, sales will be slightly lower than planned, but profit at all levels have been revised up. Regarding dividends, we plan a dividend hike of JPY 3 from last year and JPY 2 versus October plan. Total dividend will be JPY 77 per share, out of which JPY 40 will be paid as year-end dividend.

Page 10 shows the consolidated performance. EBITDA at the top is forecast to reach JPY 162 billion in FY '24, renewing the previous record high. ROIC and ROE are expected to reach 8% and 10%, respectively. The next fiscal year, FY '25, will be the final year of the current midterm plan, and we will strive to deliver firm results this year in order to achieve the midterm targets. At the end of last year, we made a decision and announced a reinvestment plan in the mass production of perovskite solar cells. We are accelerating our shift to growth to achieve our long-term vision.

From here on Page 11, I will talk about the conditions by segment. First, I will explain the forecast for the second half and an analysis of the performance of the HPP Company. We are forecasting a substantial increase in both net sales and operating profit, owing to robust trends in the electronics field focusing mainly on advanced semiconductors as well as the effect of improvements in construction and consumer goods related selling prices. The bar graph on the left shows the net sales outlook of JPY 230 billion, an increase of JPY 17.4 billion. On the right is the analysis of operating profit, sales volume and product mix is expected to be up by JPY 5.8 billion, broadly in line with plan. In addition to maintaining spreads due to selling price, raw materials and cost reduction, et cetera, we also expect to see contribution from fixed cost control and FX and our forecasting operating profit of JPY 31.1 billion in the second half, which is up JPY 3.2 billion year-over-year and greater than planned. We are targeting record high results in the second half and for the full year.

Next, turning to Page 12. This page is about the 3 strategic fields. In the electronics field in Q3, there were firm trends in the smartphone market conditions and large panel demand for TVs and others in the LCD field. In addition, we were able to continue to achieve substantial growth in the non-LCD field on the back of successful efforts, capturing new semiconductor-related orders. Regarding Q4, we expect to see steady growth in the non-LCD field focused mainly on advanced semiconductors. The mobility field is in the middle of the page. In the wake of sluggish market conditions in China, and HPP struggled mainly around interlayer films for head-up displays. For Q4, products for head-up displays are expected to be broadly in line with plan as we forecast growth of 9% in the second half. As for NHPP, although there is an impact from the sluggish sales of some existing models, we expect sales to recover to 115% in Q4 due to the acquisition of new models, et cetera. As for Sekisui Aerospace Corporation, we are now on track to return to the black in the second half. In the industrial field, demand for packaging, construction and consumer goods in Japan and overseas is still weak, but we have been able to continue to increase sales on the back of improvement in selling prices which we have been working on since the first half of the year, we will continue to focus on expanding sales centered on labor saving and environmentally friendly products.

Next, please turn to Page 13, which is about the housing company. On the left, net sales are expected to reach JPY 270 billion, an increase of JPY 5.2 billion. On the right is the analysis of operating profit. In the Housing business, sales brought forward impacted the third quarter. Number of houses sold in the second half is expected to be 135 units less than planned, but we are forecasting an increase in profits of JPY 500 million due to higher unit prices, improved product mix and the effect of fixed cost reductions through measures to strengthen profitability. And the renovation business and others business, the town and community development business is contributing, and the divisional company as a whole is on track to achieve a JPY 1.7 billion increase in profits with a forecast of JPY 16.5 billion for the second half. The breakdown of operating profit for each business is as stated.

Next, Page 14. First at the top left are new housing orders. Although the housing market as a whole is still sluggish, our view is that a gradual recovery trend, particularly in urban areas is underway. Orders are increasing for high-end products, beginning with apartment buildings and custom-built detached houses contributing to the increase in order value. In Q3, as you can see in the bar graph, the number of new housing orders were 100% of the previous year and value of housing orders were up 6%, as shown in the line graph. In Q4, we are forecasting that a number of new housing orders will be 101% in line with planned and order value to grow by 5%. So for the second half of the year, we expect that the number and the value of orders received will both be in line with plan. As for the types of construction in the middle, as I explained a little earlier, you can see that both the number of orders received for housing and rebuilding within detached houses and apartment buildings are progressing steadily. The balance of orders right below at the end of the period is expected to reach JPY 160 billion, which will be a significant improvement year-over-year as we progress into the next fiscal year. Relation orders at the top right is steadily increasing, mainly due to orders for large-scale renovations and thermal insulation renovations. As a result of the periodic diagnosis programs we have been working on. The real estate business at the bottom left is also progressing steadily. Also, after a review of our business portfolio, we have announced that we have decided to transfer our elderly business. Turning to the bottom right. With regard to measures aimed at strengthening profitability, the effects of the fixed cost reductions we have been working on since last fiscal year are now starting to contribute in a large way. Going forward, we'll focus on strengthening sales promotions to increase marginal profit, including the promotion of product strategies by region.

Page 15 is about the UIEP company. Although housing and nonresidential markets in Japan are sluggish, due to the effects of improved selling prices and the expansion of sales of prioritized products as the left-hand side bar graph shows, net sales is expected to reach JPY 130.6 billion, an increase of JPY 5.4 billion. The right-hand side is an analysis of operating profit. Sales volumes and product mix is forecasted to be below plan, but is JPY 500 million higher year-over-year, maintaining spreads and controlling fixed costs will contribute to second half operating profit as we expect to reach record highs of JPY 15.9 billion, in line with plan, up by JPY 1.8 billion year-over-year. With this, the operating profit margins for the second half is expected to be 12.2%, although it's not stated on the page. And the OP margin for the year is expected to be 10%.

Next, Page 16 is about the 3 strategic fields. First is Pipe Systems. Although market conditions for piping materials are below expectations, sales are firm due to improved selling prices and the new prices taking hold. As for CPVC, coronated polyvinyl chloride resin due to a prolonged slump in market conditions in India, a major demand center. Sales are slightly lower than expected, but we are focusing on increasing our market share by launching new products and sales are steadily increasing. The top right is about building and infrastructure's composite materials. With regard to fire resisted and nonflammable materials, we're making progress in expanding sales of new products. These products have passed performance tests overseas, and we will also focus on developing new applications. FFU sleepers mainly in Europe, and prefabricated fabs mainly for nursing care applications and renovations are respectively progressing steadily. The bottom left shows infrastructure renovation. Regarding pipeline renewals, public works orders in Japan are decreasing. So we're working to acquire new projects overseas to make up for this. Sales of water storage panel tanks continue to show firm trends. The bottom right shows key performance indicators. Prioritized products, mainly fire-resistant materials and polyethylene pipes are forecasted to grow in the second half of the year as well. As for overseas, we expect growth in Asia and Europe although this will be slightly lower than expected due to market conditions.

Page 17. The final part is about the medical business. Infectious disease testing reagents and new pharmaceutical ingredients in Japan continue to perform firmly. The bar graph on the left shows the net sales outlook of JPY 53.6 billion, an increase of JPY 47 billion year-over-year. On the right is the analysis of operating profit. As stated, we have lowered our forecast for overseas diagnostics due to a decrease in demand and delays in sales expansion, particularly in China, Europe and North America. Overall, we are forecasting operating profit of JPY 6.6 billion in the second half, an increase of JPY 800 million from the previous year. For the full year, we are aiming to achieve record high sales and operating profit of over JPY 100 billion and JPY 12.6 billion, respectively.

Page 18 shows the overview by business. Regarding diagnostics in Japan at the top left, we will steadily capture robust demand for infectious disease testing, et cetera. For overseas diagnostics at the top right, although sales were lower than expected due to a drop in diagnostics demand in China and a delay in expanding sales of infectious disease testing kits in the U.S., were able to secure an increase in net sales. At the bottom left, in Pharmaceutical Sciences business, sales of mainstay pharmaceutical ingredients and drug development solutions are both progressing steadily. The bottom right graph is about trends in net sales of infectious disease testing kits. At the bottom right, although there has been a slight delay in expanding sales of combo test kits in the U.S., sales of influenza and COVID test kits are progressing steadily. In the fourth quarter, we will continue to work on expanding sales of combo test kits in the U.S., while also ensuring that we capture demand for flu testing.

That is all for me. Thank you for your attention.