Nitto Denko Corporation (6988) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you very much for your participation today despite your busy schedule despite hot weather. Analysts, institutional investors and stakeholders in financial institutions, thank you very much for your continued support. I would like to take this opportunity to express my sincere gratitude. So I would like to start Annual Investors Meeting 2024. We try to cover major areas of your interest in today's presentation, but to make sure that you have deepened your understanding of our business, we also have a 60-minute Q&A session after our presentation. So the first half of this presentation will be made by myself. These are the financial targets and trend. Revenue, operating profit, ROE, are indicated here. This is the same information as the one we presented in July. This year's forecast is JPY 982 billion revenue and 18.3% operating margin, JPY 180 billion of operating profit. On 28th of October, we are going to presenting you the second half result. When we do so, we would like to offer you more accurate numbers than this. But if you look at this graph, you will understand that 2025 target is slightly declining. Currently, we are showing you the number from midterm business plan 2025. And if we have better visibility to achieve JPY 180 billion and then we should be able to achieve the midterm business plan target earlier than we initially plan. By then, we may need to start formulating the next MTP. Again, based on our midterm business plan, we have compiled this information. You see 2025 target. And FY 2024 forecast, our target is JPY 180 billion. As I said earlier, the challenge is related to portfolio. Human life accounting for 5%. Well, we believe we should be able to achieve this JPY 180 billion. But if you look at the breakdown of portfolio, there is segment of human life, which is rather a challenge for us. But today, we would like to offer you more details of human life business and new business. Together with the financial numbers, we are disclosing future financial targets. Initially, we were calling this nonfinancial target, but now we are calling this future financial target. So we are trying hard to achieve these future financial targets, and we are going to monitor these 9 KPIs, future financial KPIs. The left ones are new product ratios, CO2 emissions, female leaders ratio. These are the KPIs that we -- that's what we've been conventionally monitoring. And 550-kiloton to -- we aim a higher target, so we made a revision for CO2 emissions to aim higher. And to the right, you see new KPIs. One is a niche stop sales ratio. And then we put ESG as a center of our activities. So Planet flux, human flux category sales ratio is another KPI. This is the indicator measuring the expansion of Planet flux and human flux product. In the area of environment, waste plastic recycling ratio, sustainable materials procurement ratio are going to be the focus. And in terms of HR engagement score is one KPI. So we strive to enhance the score. And lastly, challenge ratio, this is very unique to Nitto. Every one of the employees will take up on their personal challenge. And once they achieve their personal challenge, they can earn some point. We are supporting people who take up on new challenge. That's the culture we've been building. We would like to support people who are enjoying challenge. So not only taking up a new challenge, we want our employees to enjoy that challenge. And we want to penetrate this corporate culture not only in Japan, but also globally. Now we put ESG as a center of our business management. Two years ago, we made such declaration. With regard to Scope 1 and 2, as I mentioned earlier, we have set forth very challenging target, we were able to achieve it earlier than expected. But then in May, we decided to take up on challenge for SBT certification, and 28th of August, we we're able to receive SBT certification. But as you see, we have a very challenging target for 2030. Scope 3 covers entire supply chain. Unless we cover entire supply chain, we cannot achieve Scope 3 target. But we are going to promote this initiative as one of our business. We are promoting various ESG initiatives. And initially, we need to bear some cost. But not just taking that as a cost, we want to generate a good return on that. Recycled PET adhesive tape, biomass adhesive tape, polarizer with OCA, we would like to promote the replacement with such planet flux so that we can achieve Scope 3. So we were able to acquire certification, but we have just been able to stand in the starting line. And so we need to work to overcome the social challenges. We also need to increase our corporate value. These 2 book need to be achieved to have a sustainable business. Next slide, please. This is a slide on cash allocation. I think this is a topic that we try to explain every time we meet with all of you. Our first priority on how we use money is CapEx and stable dividend payment and then M&A. And then our fourth priority would be making sure that we return to investors. But the third and fourth, the share buyback as well as M&A. Cash allocation, and we also need to look at our financial soundness. And so these are things that we will continue to work on. As you can see on the right side, this would be our 3-year forecast from 2023 to 2025. And we have made no changes to this target. So finally, we would like to go into the introduction of each of the businesses. Starting with the industrial tape. So this is the point that I would like to especially emphasize today. Have you heard of this phrase right to repair? In April of this year, and the EU Commission, this right to repair, this is the right to repair. This was adopted. And for manufacturers, consumers need to be able to repair, it has to be repairable and components and information are obligated to be offered to repairing companies. And for this, not only the 27 countries that are members of EU, this is something that we need to comply within one year -- within 24 months. And so the right to repair. We need to create an environment where it is easy for consumers to fix. So this is a mandate that we must follow. And what I would like to show to everyone today is for these needs that comply with the right to repair, this may be some changes in the legislation, but Nitto has finally been able to enjoy this opportunity. I think from 6 to 7 years ago, I had foreseen that these technologies that we have, release technology is something that definitely is going to be an opportunity for us in the future. And when it comes to the UV releasing technology, this already had existed from 30 years ago. So from 30 years ago, this heating foam release is something that our customers has been using. And when it comes to UV release, this is used for semiconductor wafers. And for dicing processes, our UV release is used. We have quite a track record. And finally, this is a great opportunity for us. So to this point, we can explain to all of you, smartphones, the battery replacement, electric release has been adopted. So we finally come this far. We somehow wanted to prepare weapons for us to capture that opportunity with our release technology. And finally, we have been able to adopt this electric release without damaging the product itself. The battery replacement is going to be done with high speed and with safety. And so our electric release technology is finally, finally able to enjoy the needs. And the production has already started, and we also are starting to sell them. And our next target beyond that, depending on the customers, we have alcohol release here. It used to be water release. But for home appliances, alcohol is a better preference compared to water. And so these are triggers or weapons that we also have prepared. So right to repair. EU is advanced compared to other countries. But I think this ESG trend and movement is going to expand globally. And that is very much promising for our business, and we also believe that this is a great contribution to the social challenges. So I think for quite a while, we haven't had any new products under the industrial tape segment, but I think this is one of the key product and also a business that we can further nurture going forward. So we are very excited about this. And this is the one and only message that I actually wanted to deliver today. And let's move on to the next slide. The industrial tape. It's very difficult to have such a broad product or a very hit product, but HEM, high end memory that all of you know, generative AI is driving this need and the advanced semiconductor demand is coming, and we're expecting further growth in this segment as well. Under such movements, I know this slide is a busy chart. But where can we contribute. If you can take a look on the very right, we have the HEM wafer production process that we can capitalize on there's a sheet that is late on the very bottom, as I introduced earlier. This is a UV release technology that has been used conventionally, but we also have a solvent resistant and low pollution design, which is catered for this leading-edge wafer production process, the HEM wafer production process can now use our product. And so this also is a very promising business to us. The same HBM, but in the next process, there is a chip bonding process. There is layering done in this process. And in our company, we have a product called TEMISH, and it use fluorites and it's easy to release. It is heat resistant. It's low pollution and low damage design. This is a product that can also be used in the high-end memory production process. So this also is a business that has started. For the industrial tape business, this is very exciting theme. It's very high end, and we are looking very much forward to this opportunity. Next, there's a lot of demand for taste and now I would like to shift gears to automobile. We have a picture of the automobile on the left side. What I would like to introduce would be the installation paper for motors. We are moving from engine to motors and so there's quite a lot of shift going on here. And this insulation paper is probably the origin of our business, need to start it off manufacturing insulation paper and Nitto Shinko is currently manufacturing this, but this insulation paper for motors. If we go back in our history, and that was more than 20 years ago. And also in the U.S. OEMs and the other Western OEMs are using this as well. We have the latest edge Insulation paper opportunity is used to elsewhere. It's the installation paper using oil cold motor structure. So this is also a big opportunity for us. And we also have the sound absorbing material tapes. We call it silent tires. Whether it's motors or engine, there's always going to be at least 4 tires that will be installed on a vehicle. And quiet and also a conferrable tire is greatly appreciated. And the sound-absorbing form is not made by us, but on both sides, there is a double-sided tape that is used to set this sound absorbing form. And we're talking about tires. So it's a very intense environment, and we have a high-performing double-sided tape that is used for this tire section. So it's a great characteristic and performance. It requires superior durability and our performance meets this, and this has started off in Europe. Some major tire manufacturer has adopted this technology. So we -- in order -- I mean, this is an area niche stop product for us. Next is of Optronics. Optronics business is one of our main business, which is supporting our profitability. In 2020 -- 2020 results and '24 forecast are shown on this slide. Circuit material is one big driver, high-end polarizer is another -- information tapes is another driver. For the industrial tape is the major product. But here, we are talking about information tapes. So together with the polarizer, we offer this as a total solution, and this is an essential product for us. And this is going to be the important business pillar for us. So overall number is growing, but a volume of the growing portfolio has nicely increased. And I'm sure you are very much interested in this area. So we have prepared some job. I think you're interested in COE. So polarizer will not be needed in new displays such as foldable. In the foldable, we are seeing penetration of COE. So we created this charge to deepen your understanding. With LCD, there are 2 polarizer used, front polarizer and rear polarizer. So we take these 2 parts as one. Now moving on to OLED. OLED uses only one polarizer because it emits light on its own. But then OCA and process protection films are used. So number of components used here is 4. And in terms of sales compared to LCD, sales with flexible OLED is 2.5x bigger, so this is for flexible OLED. Now moving on to foldable OLED COE meaning free of polarizer. This is the trend we are looking right now. We believe COE penetration will grow into the future based on the hearings that we've conducted. So now how is Nitto performing against such shift to foldable? We do not have front polarizer anymore. However, we have anti-reflection film OCA plus additional function, then cover glass. This one is not supplied by us, but then comes OCA plus additional function again. And then color filter seeding material, OLED and process protective films. This is the standard structure that we've been talking to our customers. Now why is this happening? This is foldable, so there are 3 signs, which have displays. And now we are seeing emergence of generative AI. So AI will be embedded into the foldable, but that consumes a lot of batteries. Once foldable equips AI and then battery consumption will be big. Then we don't have polarizer anymore, so we can reallocate battery to AI. But why did we have polarizer in the past? Because this foldable is emitting light itself. We don't need polarizer, but still, we need anti-reflection function. OCA is an adhesive. So on top and bottom, customer wants anti-reflection film because when the device is exposed to UV, if it looks like a totally light and white, it is not convenient for the users so they need anti-reflection from. And polarizer is quite rigid. So it has a good shock absorbing function, but we need something else that has that instead of polarizer. So do we want to place more weight on battery, it may compromise the look and feel. Our technology was all about reproducing a Pure Black. We did not want to compromise on design. So we expect foldable will grow. And as we see this further penetration with Nitto, would like to offer a solution to the customers' needs. So we are going to have 5 parts. And the sales is expected to grow by 3.5x compared to LCD, even given the same area size. Again, this is foldable. So that when it comes to the total area, it becomes twice. So 2 multiplied by the total surface area. That's the size of the branded needs. So even without polarizer, we still believe we can grow our sales. And in doing so, adhesive technology and OCA are going to be the key for us. By then, we will no longer be just a polarizer supplier. Not PC, laptop PCs, tablet will use OLED and highly durable, large, uniquely shaped, super large display. This is quite difficult to handle, but we made investment in supporting such OLED, and we are gaining good share. Next is AR market. VR is not really penetrating into the market, but we look even beyond just AR. In order to further differentiate us, we work with TruLife optics in U.K. We've made some investment into this company. Their technology is holographic light guiding technology. And we believe this will be a necessary technology into our future business. And that's all about display-related business. So now I would like to move on to the next session, which is new businesses and human life and circuit material business.

So my name is Miki, and I would like to talk and explain about the optronics human life and new businesses. So this is the flex trend. When we look at the world's data, and the chart on the very left, you can see that with the generative AI penetrating, we can see that these data volumes are increasing and the majority of this would be the hard disk and data centers. And hard disk manufacturers recently are working to increase their capacity. And for a while, we have started to finally see this HAMR new technology. This is Nitto's technology contributing to a practical application of this Heat-Assisted Magnetic Recording. And we've finally been able to commercialize this, and there's a great contribution by Nitto in this area. And we have the support in the high-density wiring electric connection function added to metal-based material. So towards the data society, we believe that the company is able to greatly contribute with our technology. Next, I would like to talk about our growth strategy on Circuit Materials business. We have the activities of Nitto. We have the CISFLEX of hard disc and the new market that I have on the top, we have the high precision circuit that we have been able to use to tap into the smartphone market, and we are applying this to other applications within smartphones. In addition to that, for new technology, as you can see here, against polyimide, we have the porous formation technology. So if we combine the new market and new technology, we are able to enter into the high-speed communication and semiconductor market. I would like to give you an example, low dielectric substrates. We want to eliminate loss in connecting data. And so basically, against copper. We obviously need to lay it on something instead of air and so it's polymer that we use. And we want to make this close to air. And so that's why we want to use our porous formation technology to minimize the resistance and achieve this micro wiring technology. The semiconductor package substrate. We don't have the information, but we are collaborating with IBM on the micro wiring technology. And this is for the interposers and advanced semiconductors and AI package. I apologize. We have not been able to add this into the material that has been passed out. But we have been asking IBM, whether we can disclose this or not. And finally, we were able to get the response yesterday and they have agreed that we can publicly orally share this information and also add this into our materials. So we are working with the leading edge semiconductor manufacturers and we are coming up with this next-generation interposers so that we can further expand our business in these areas. Next slide, please. This would be the revenue forecast and capacity ramp-up of the Circuit Materials business. On the left, we have the revenue forecast 2023 would be where the hard disk drive market has been sluggish, likewise with our performance. But from this year and onwards, we have been able to recover, and we have been able to steadily grow with existing products. And from 2026 and onwards, the great contributors that drive growth would be the new applications of the high-precision circuits, micro wiring, technology and low dialect substrates. With this in mind, we looked into the geopolitical risks as well as natural disaster risks, and we have revisited a part of our CapEx plan. Starting with the Kameyama plant in EMEA, we have built a 12 line here. And we are trying to manufacture high precision circuits here and the gas separation map will also be manufactured here. So we've started utilizing this. And we also have the fifth plant in Vietnam as originally planned. And this is to enable us to expand the CIS business, and we also have the sixth plant in Vietnam. Originally, this was to increase capacity for CIS, but we actually want to make this a plant that can manufacture both CIS as well as the highest precision circuits from December of this year. And when we see manufacturing both, our wines are made in a hybrid structure so that we can so that we can manufacture both using the same lines. So even if there is skewed demand on one of the 2, we're able to have flexibility in our production line. Moving on to the human life business. This would be the growth potential of the Oligonucleotide contract manufacturing business. So the current market is about JPY 80 billion, and the CAGR is expected to be 20%, and we're expecting this to be JPY 250 billion by 2030. A year ago, we were looking at JPY 180 billion. But in the past couple of years, the approvals by the FDA have accelerated. And so we've been able to have a higher forecast. So when it comes to clinical stage Phase II and III drugs, this would be for large population disease, oncology, hypertension, cardiac diseases and respiratory diseases. We have 98 at the moment, and we're expecting this to increase to 231 by 2030. For commercial, drugs, we have 19. When we say 19, we are counting only the active drugs. When we say active, even for commercial drugs, we have drugs that have been approved, but have been discontinued. So only the ones that are currently in the market as active drugs are 19, and we're expecting this to be 40 by 2030. So for Phase II and III and commercial drugs, we have top share for all of them at the moment. Next slide, please. So business plan going forward, as you can see on the left side, we have the polymer beads for oligo synthesis. And we also have Oligo Tx CMO Clinical and also for commercial each and different colors. What becomes more increasingly important is the commercial drugs. We want to capture opportunities here and we need to expand our business and capture the demand opportunity. And the most important thing about this is the differentiation point, and this is about cost and quality. How can we reduce costs as much as possible. I would like to introduce one initiative that we have ongoing. So we are purifying in a single cell, but then -- for Tuna, we only want the belly tuna. But as a matter of fact, as in the impurities, we also have the high purity essence included. So we want to try to eliminate waste as much as possible. And so we are implementing this in-line examination. And also continuous purification. By doing both, we are able to extract the impurities in the first process. And then in the second process, we're able to extract that purified extract as well. And we are able to have in-line examination online, so that we can get rid of all of the impurities. And so this enables us to reduce production costs by 20%. So this is a target that we've set, so that we have cost advantage to be able to capture the demand opportunity. Growth strategy for illegal business. In other words, this is our growth investment strategy. In Sendai, Miyagi, we have polymer beads that are being produced, and we processed the beads in San Diego. And we call this the processing materials. And then from here and onwards, we have the legal drug substance contract manufacturing. And we have the timing of when the plants will be ramping up. We are expecting fourfold by each site, in capacity so that we can capture the increase in demand and capture all opportunity possible. On the next page, this would be what we installed in the Miyagi plant the other day, this would be the first hydrogen conversion system and boiler equipment for the Nitto group. Right now, we have solar power operation, and we also are procuring green energy, but we are doubling the solar power operation, including the weekend, we are beginning to have a 24/7 operation from second half, and we're trying to convert to hydrogen, so that we can establish the CO2 zero emission plant. So Miyagi plant will start its operation from the second half of this year as a CO2 zero emission plant. Next, is about bio-solvents. Last year, we made a minority investment into the biomaterials development startup, which is a Crysalis They use industrial corn and produce bioethanol. This is their main business. Nitto's objective of this minority investment is to produce Bioacetonitrile. In July, this year, we have introduced pilot equipment for development. The business plan is to start the mass production of bioethanol this year, and that's been already happening. And the Bioacetonitrile is used in big quantity in raw material as a raw material in oligo CMO. Bio -- side byproduct of this will go through unstable price into the market. So in order for us to secure a stable supply of the bioacetonitrile. And in order for us to continuously procured this bioacetonitrile at the constant same price, we've made a minority investment. We bought a German company, Mondi, who is doing the personal care material. And there are 3 major strategies behind. One is the biodegradable non-woven fabric technology. This is used by baby diaper and other baby products. And also for about use -- we are looking into the anisotropic contraction film technology. And also, we want to make best out of liquid absorbing non-woven fabric technology of Mondi. And the portfolio transformation is another thing we are looking into not only in human life, but also manufacturing DX is another perspective. We are looking in to make better use of their multilayer lamination films and high extensibility technology. So smartphone application is the first application, which we believe will make a contribution to the sales. Finally, new business. CO2 separation membrane business. Last year, in May, we've talked about this just briefly. In 2016, we started researching to CO2 separation membrane. In 2020, we've set up the project. NEF means negative emission factory. By the way, last year, we've introduced 300 tonnes recovery demonstration line in Shiga plant. And at the end of last -- next year, we are going to start the mass production, and we are targeting at JPY 10 billion sales by 2030. Nitto does CO2 recovery, but then after that, we need to transport and then we need to either convert or store or use such transported CO2. When -- in the area of CO2 conversion, there is one technology I want to draw your attention to. So we have our own conversion technology using formic acid. Formic acid is used as additives in the feed for the cattles. And when road is frozen, formic acid is also used to the frozen road. So body waste of cattle will contain some biogas that is containing ethane and CO2. So we collect such CO2 and then use formic acid and then use it in animal feed preserving agent and so on. And we are going to offer this conversion technology as license to chemicals producers or pharmaceutical companies. Next is recovery of factory solvent waste. Taiwanese semiconductor major player, and we been collaborating. From the semiconductor production process, isopropyl alcohol is produced and ethanol is contained at 1% to 10%. Purifying this alcohol is very costly. So this alcohol is incinerated or combusted. But by using a net filter, we can increase the percentage of condense from 10% to 50%. And then we purify that and then we can reuse isopropyl alcohol once again. and not only in semiconductor application, but LCD OLED display manufacturing process uses IPA as well. So maybe we can offer this technology to that as well. This is a picture of NITTO Avecia plant. RO membrane is cleansed with IPA. So first, we would like to implement a demonstration project to gain customers by in. With this, I would like to conclude my presentation. Thank you very much. Now I would like to move on to Q&A session.

I am Nakayama from Goldman Sachs. I have a couple of questions. Number one, first question is related to foldable. From FY 2026, you're expecting the growth? What is the probability of such growth scenario? And also how confident are you in achieving components used and your positioning. When we switched from LCD to OLED, we thought that your market share will drop. But your assumption when we move to COE, do you assume that you're getting all these businesses?

First of all, when we look at the market expandability, OLED, flexible OLED is going to increase. And so these are figures based on information that we have received from our customers. So we would like to respect the customers' information. As I mentioned earlier, when we embed AI, which is going to be the mainstream going forward, the battery volume, battery is going to advance as well. But how do we allocate the battery energy. I think there's quite a lot that's going to be taken. And so we want that battery volume that is used up in the polarizing films to be converted. However, as I mentioned earlier, we're folding it and so there's going to be 3 screens and the outer layer is definitely going to have solar being reflected. And so when it comes to the reflection and how the screen is going to show up and also the damage that it's going to incur. With the current polarizing film, we are able to protect the device it's really a trade-off. And so I think the advantage that we have is within this OCE, we can add functionality, and that's the strength that Nitto has because we have our adhesive technology that we can further advance. And as you can see here, there is no polarizing film here. So everybody is going to ask what manufacturers Nitto. The people have the image that we are a polarizing film manufacturer, but we also have other offers. So this is the total solution adhesive technology was our lifeline, but we also have holistic offers when people actually use this and if it looks difficult to see the screen, then maybe the priority would change from battery or maybe not. It depends on how the consumers respond and react to these offers. And so how this is going to unfold is really dependent on how they react. And so we believe that our technology is able to accommodate both scenarios. So this technology innovation is going to further enhance. We are trying to overcome the durability aspect. We're also trying to overcome the screen inflection. And so it's not just one offer, we have many offers and features that we can package. So you believe that when this product is out, you would be able to get dominant share, yes. So OCA, and we also have the process protective films on the very bottom. In addition to polarizing films, we have these various offers, and that really worked for us at that time. But for customers, for a couple of years ago, people never assumed that polarizing film is not going to be used. So that's why our message today is that we are not only a polarizing film manufacturer, Nitto has various other technologies. But when these offers start to come out, I think we literally are not just a polarizing film manufacturer. And we have tablets, and we also have polarizing films, but for high-end offerings, these are the new propositions that we have that we can suggest to the market. So to your other question, what -- how the share is going to be, we can't say because the share for the polarizing film is different depending on what we're talking about. We don't manufacture TVs anymore. And what share are we talking about when we say polarizing films? I think the media also has this question. When we see polarizing film, they oftentimes talk about what the share is. They compare Nitto against other companies. But -- is it revenue share that we're talking about? What share definition are you talking about? When we get to this level, that's the discussion that we are going to open up too because the polarizing film share is not really going to be meaningful information anymore. As a total solution, we have company A, B that we deliver our products to. And I think maybe we'll be talking about total revenue share or maybe profit share. I think that's the direction of the discussion that we hope would happen. And it would be very exciting for us. If we move the discussion towards that if we are able to have discussion towards that direction, it would be great.

And another question for the circuits. You have this pink color that goes up suddenly. What applications are going to increase the circuit material demand? Is it smartphones? Or maybe is it related to the demand coming from the folding type devices.

I apologize, we can't give you too much detail, but this is a slide that is based on customers' intelligence. It's not a wishful direction that we're presenting here. To the extent that we can provide information, the other applications within smartphones is one. And we also have the -- so smartphone application and also low dielectric substrates. That's the order of adoption that we're expecting.

Sorry. And if that's the case, including the foldable, I think your dependency on specific customers are going to become bigger? Is that a correct understanding? Or from a risk management perspective, what are your strategies?

That's a frequently asked question. We're not thinking about a specific customer. For customers that want high-end technology, we offer our technology to them. And as a result of such efforts, we end up being adopted by the customers that you have just mentioned. But if the industry landscape changes, then the our customer mix will also change. We face various difficulties, including the delivery timing and also technology. But then we continue to strive for that high-end offer to enjoy that high share. And when it comes to low-end offers, then we are trying to create a base where we can get royalties. So it's not that we -- it's customer first, we really wanted to go after that high-end technology, whether it's display or not. It's a result of such efforts. So -- the AI is one opportunity that would help evolve the device and that is a new trend that would help you capture new opportunities. And for the other markets, you assume that the market has matured. But then when it matures furthermore, that's an opportunity for you. There's a lot of technology. We have a display film technology. He also talked about the circuit materials. There are different technologies. But as a result, by coincidence, we are able to adopt our technologies, our latest technologies in smartphones, and we've been able to secure that position where we are indispensable for smartphones. And as a result of the efforts that I mentioned, we end up being indispensable in various industries.

Okay. Well understood.

And just to add to that, we're not satisfied with the current situation. We also are feeling a sense of urgency because the risk would elevate if our dependency on a specific customer is high. And so that's why we are thinking of dispersing options on Circuit Materials business as well. We already are taking actions behind that. Thank you very much for your question.

So B1, I would like to appoint the person sitting at B1.

Thank you very much for the explanation. My name is Miyamoto. My first question is about the industrial tape. If you can turn to Page 10, you talked about a new promising product and the smartphone battery replacement revenue from right to repair. What is the timing of when this is going to be reflected into your revenue? And what is the size that you're expecting? And also from a profitability perspective, compared to the conventional industrial tape profitability, is it going to be higher? And also in relation to that, the big picture question is, in the industrial tape, you have not been able to achieve a double-digit margin. But recently, you have been able to exceed 10%. And for this fiscal year, your plan is to achieve close to 14%. So what has changed compared to the past? From your view as the President and CEO, what are your thoughts?

Industrial tape has lots of fans. Now normally, Optronics stands out, but historically, we've been running a tape business for long time and there are big fund base amongst our investors. Today, I made this presentation on a major new product. But this is as much as what I can tell you for now. Sorry, I have some restriction as to what I can tell you. This is a good opportunity to talk about this new product. I wanted to talk more about the potential application, but this is all I can tell you for now in EU direct relation will come into EU countries within 24 countries. This is probably ease. This is a social change. But when this regulation kicks in, and then we need to prepare capturing the needs in relation to that regulation. We started delivery just this year. And -- but if this is penetrated into EU market, what is the expected volume, we don't know that yet. But this year, next year, 24, 25, we may see some slow start, but this regulation will be legally binding. So how much potential demand growth can we see? We are doing some simulation, and we are preparing our capacity. Sorry, I cannot be specific to answer to your question, but there is a big potential for us to see good demand growth. And not only in EU, but also other region or countries, we may see the similar trend. And the right to repair is not limited to a smartphone. So it's not limited to smartphone once again, so it can be applied to other categories of the businesses and the products and not what we are expecting. So we need to be fully ready to capture some emerging demand. And substrate, I talked about new product for the first time in a while. And we disclosed business performance by different category. But industrial tape category business is growing up to like 14% or so. And that's because we are withdrawing or transferring or minimizing the unprofitable business segment. At the same time tape business is taking actions to improve the profitability, and then if you can move on to the next page advanced semiconductor components, raw materials. These are high-margin products. The product mix, we need to -- we improved the product mix and try to improve the percentage of the high-margin products. And that's the the reason why we expect this to happen. Moving on to Page 16, COE. Well, COE technology is already available in the market. But as of today, we are not seeing the situation where 5 parts are adopted. If that is the case, when like can we expect that 5 parts are to be used in a foldable OLED. And in terms of the technological challenge, well, the COE end is that we can increase the brightness, we can increase the energy saving capability and so on. But if 5 parts are going to be used and then we need miniaturization and benefit of COE may be compromised. So I would like to understand how you try to address this technical issue. This is not the final status or goal. The polarizer has unique functions, and we are getting rid of polarizer. So we need something else that can offer the similar function concession provided by polarizer. So what is the alternative? And the question is, how do we allocate the battery capacity? That up to manufacturers' decision, and I'm sure they are having a serious discussion on that design. But what I wanted to tell you today is that we can offer total solution and that's well understood by our customers. And that's why we've started a project with a manufacturer. So the question is do other manufacturers also go for COE or do they want to stick to polarizer. That's something we need to carefully monitor and watch out. The sample shipment was already made, yes. When would be the timing of commercial production? Well, technology does exist production capacity does exist. So when is the timing of the smartphone taking those 5 parts to be introducing to the market next year or early 2026, depends on the model launch timing. But we are expecting a growing need for this.

Next, gentlemen in a seat of C1.

My name is Watabe from Morgan Stanley. Since we were talking about foldable, I would like to continue talking about it. This is very expensive. So for the time being, I think LCDs and OLED still will be used. But including PC, tablet were depending on the polarizer share is changing, you said, but specific OLED smartphone polarizer market share as PC tablet move on or shift to OLED, what is your positioning in the market right now?

When it comes to the polarizer market share, we don't really pay attention to it anymore. Unfortunately, when we switched to OLED people were guessing maybe Nitto has dropped its share in a shift from LCD to OLED. But in some specific to some specific customers, we are making our own property. So OCA information tape are something we are promoting to improve the margin while offering a better value. What is the market share for foldable laptop PC, tablet. Instead of sticking to that, we are more focusing on this. Well for both laptop and tablet, they will be using OLED more and more. So against such change. The question is how much information tape sales we can make for the emerging application. So we are shifting our focus. You have rival in OCA area should we consider them as a strong competitor? OCA is an adhesive tape it's not -- our competitor is not the polarizing manufacturer. It will be a global adhesive suppliers.

My second question is about nucleic acid drug. Before the COVID-19 vaccine, I think there was some excitement and then it kind of went down and then now I think it's becoming active again. But I would like to know if there are any changes to the competitive landscape and also for drug development, if there's anything that you can disclose today because you didn't mention that in your presentation.

When it comes to competitors on our nucleic acid drug, one is if we compare them on the [indiscernible] chart, we are similar to each other, but their strategy is to go after the large population diseases, and the Chinese manufacturer, they're going after the cost strategy. So there are about 20% in lower price and plus they are targeting the second position in the commercial drug. They want to go after the second rank. So they're not exactly direct competitor. Cost advantage in that sense will become very important. So we need to be able to win from a cost perspective, and we also need to win with our synthetic technology as well. And to your other question about drug development, at the moment BMS license out is now pending for now. So we want to convert that right and relicense it. But at the moment, we also have Phase I and the activity is slightly weakening. Our key strength is in DDS, the drug delivery system, this is where we would like to set our focus to further expand going forward. So we've actually switched gears.

Thank you very much for your question. So next question from G2, please.

My name is Nishiyama from Citigroup Securities. A general question. As a financial target, you are setting JPY 170 billion of OP in your midterm and I think the foreign exchange rate was JPY 130. And I think with the current exchange rate, it's going to be about JPY 200 billion, give or take. So as you work to achieve this target, are there any businesses or products that you are hoping will drive the growth to this target? Or if there's any concerns, I would like to hear that as well. And also, if you can comment about the probability of being able to achieve this target.

In regards to the foreign exchange rate, for the past month or 2, there's been quite a lot of ups and downs, and we also have the presidential election coming up. We also have the interest rates, whether it will go up or down, we have no idea. We actually would like to ask the question to all of you who are in the financial sector. I think in October -- on October 28, towards our -- the announcement. What is the foreign exchange rate that we should set? That's a question that I would like you to actually teach us. But as a business, whether we are able to grow from prior year or not, putting aside the foreign exchange rate impact is the key question. So as a business, are we able to grow? Are we actually growing our business or not is the key question that we ask ourselves internally. But having said that, for the shareholders, we obviously need to make announcements. So on October 28, we want to give you information what the assumptions are, what the outlook is going to be. Those are information that we want to deliver as a message. I think the sensitivity, the foreign exchange sensitivity, you are well aware of, so if you can calculate based on that, please. Today, we announced for 4 key businesses, the electric release and COE and human life business and there was another one, but we want to make sure that we really accelerate the growth of these businesses and then try to prepare ourselves beyond that. So on October 28, I hope that you can look forward to the announcement that we will be making. So when we talk about the overall situation, whether the midterm management plan achievement is going to be 1 year pushed forward -- pushed forward by 1 year, we will be making further announcements when we believe it is necessary.

I think that in your presentation, there were a lot of information that seems very promising going forward in the mid- to long-term perspective. But I think that a lot of the contribution is expected to happen in 2026 or 2027. So when we talk about next year, are there any volume contributions that we can expect from a specific product, especially when it comes to electric circuit for cell phones.

The smartphone production volume is flat at the moment. to a specific customer, it is adopted at max. So for the high precision circuits, I think we can maintain the momentum. And the key ramp-up is going to be 2026 and onwards. For 2025, we want to make sure that the steady growth is maintained and then try to prepare ourselves towards that jump in 2026. I think it's really about really focusing on efficiency.

Okay. And my second question is Page 11. About the semiconductor latter manufacturing process, you talked about 22% of growth rates, and you mentioned that your growth is going to be 40% against 22% of the market growth. There's a lot of high expectation around here, but is there any specific products that you believe will drive the growth? And what is the current adoption rate? And also, you're saying that you can grow by 40%. Within the industrial tape is this the revenue in the process material business or not, if you can tell me what -- where this is going to be booked, please?

This product this is what we're talking about here. This is the product. So against this CAGR, these 2 products are subject to this. So the latter process -- once we are able to tap into their process, it's very sticky. So whether we are adopted in the first phase or not, it is very key because the line is completed by then, so it's difficult to enter into that line afterwards. We have experience around this. So we know it's very important that we are in the line first. I can't disclose the customer's name today. But when it comes to the HBM manufacturers, wafer manufacturers and also the leading edge semiconductor manufacturers would be our customers. And because of that adoption rate, we believe our CAGR is 40%. And is -- so this is already contributing to this year's results. We're still in this phase. And so from here and onwards, we can further grow. That's where we're at, at the moment. But we -- it's already spec-ed in.

Thank you very much for the question. Next, D1, please.

Thank you very much for the explanation. My name is Yamada from Mizuho Securities. My first question, in relation to what was discussed, you talked about the JPY 170 billion target. And Takasaki-san you talked about a delay in human life business, the explanation that you had made today. And you also talked about the utilization of the intellectual property of the drug delivery system. Are you already in a situation where you can achieve this target? Or depending on the macro environment, is there some delay and therefore, for the human life strategy, is there any opportunity for you to revisit the plan? If that is the case, what is the timeline? Are there any products where the profit contribution is going to be in the latter phase or not?

Let me answer to your question. the IRA in the U.S. due to the government's policy, the development plan is quite pushed back for the venture companies in Japan -- in U.S., especially for FY '23 for nucleic acid drug, we were not able to turn surplus. But we are expecting this level of growth. And at 2024, FY, we are going into [ black ] with the oligonucleotide business. So profit, we are expecting to generate in 2 years' time will be like JPY 10 billion or so. In doing so, we need to enhance the pipeline and capacity, we need to be more cost competitive. And through the expansion of pipeline, we would like to make that happen.