Sekisui Chemical Co., Ltd. (4204) Earnings Call Transcript & Summary

Yes, this is Shimizu. Thank you for joining us today despite your busy schedule. I will present the FY '25 first quarter results and the outlook for the first half. Page 1 shows the FX assumptions and actual results. The Q1 assumption was JPY 152 against the dollar but the actual was JPY 145, JPY 7 appreciation versus the plan. For FX assumption for the second quarter, we are assuming JPY 145 to the dollar. Page 2 shows the overview of the Q1 financial results. In the first quarter, net sales increased by JPY 6.3 billion to JPY 305.1 billion, with operating profit up by JPY 1 billion to JPY 21.2 billion. The blue stars indicate renewed record high figures. The ordinary profit was down due to the FX impact and net income decreased due to smaller gains on sales of cross shareholdings. Page 3 shows the Q1 breakdown of net sales and operating profit by segment. In Q1, sales and OP grew substantially for the Housing Company, both achieving record highs at first quarter numbers. The performance of the Housing business offset the decline in sales and profits of all other segments, enabling us to achieve a growth in sales and profits for the group as a whole. The JPY 900 million drop in operating profit for the HPP company in Q1 was caused by the one-off expense related to a raw material transaction in Europe. When adjusting for this, profit in effect grew for HPP. We have not disclosed our quarterly profit forecast but consolidated OP is trending slightly above the plan. Page 4 is our outlook for market conditions. Auto production globally in the first quarter was in line with our April forecast. We expect production in Q2 to be slightly below the outlook. Q1 smartphone shipments were slightly above the expectation, and for Q2, we expect it to be slightly below our forecast. The upper right shows the visitors for the housing business. In Q1, both showroom visits and requests for information were down year-on-year. Although not indicated in the table, campaigns and referrals led to some increase but the overall level was slightly below the previous year. As shown by the chart below, new housing starts continue to decline and the outlook for the first half is in line with the original projection. Domestic naphtha price is below our assumption, and we expect this trend to continue in Q2. Next on Page 5 is the outlook for the first half. As shown at the bottom line of the table, total net sales are expected to be JPY 639.2 billion, up by JPY 10.1 billion, with operating profit of JPY 48.9 billion, an increase of JPY 0.2 billion. Both figures are expected to be record highs. By segment, we are aiming for record high sales and OP in the HPP and UIEP segments. Details of each segment will be explained later. The right side of the table shows the latest forecast against the plan. Despite the net sales projected to fall short of the plan, OP is expected to be on track. We believe that the direct impact of the U.S. tariff in the first half will be minimal. In other segment, we are making progress as planned in strengthening our production capacity for perovskite solar cells toward achieving 100 megawatts of production by FY 2027. Page 6 illustrates the by segment outlook for the first and second quarters. As indicated at the bottom of the table, the consolidated operating profit in Q1 grew by JPY 1 billion and is projected to drop by JPY 0.8 billion in Q2. By segment, the Housing Company was significantly affected by the impact of leveling after the business fluctuation. Operating profit for HPP was down in Q1 due to the one-off expense. But in Q2, we expect profit increase owing to growth in the mobility field, including interlayer films for head-up displays and the aerospace applications, expansion of spreads and reduction of fixed costs. Page 7 highlights factors affecting the outlook for the first half. Shown on the left, we expect net sales to be up by JPY 10.1 billion year-on-year. On the right is the analysis of factors affecting OP. The impact of volume and mix will increase by JPY 5.5 billion year-on-year. However, the contribution is expected to fall short of the plan due to stagnant market conditions in some areas of HPP and Medical Business. In cost reduction, et cetera, on top of the temporary expense for HPP booked in Q1, additional costs will be incurred for repairs of specific products in UIEP in Q2. And as such, the contribution will be less than planned. Despite some negative FX impact, we expect total OP to grow by JPY 200 million year-on-year, in line with April outlook, owing to better margin and fixed cost reductions. Using Page 8, I will explain the first half guidance and dividend. As mentioned on the previous page, net sales are expected to be JPY 639.2 billion, with OP of JPY 48.9 billion, both figures achieving record highs. Ordinary profit is expected to be up by JPY 1.6 billion to JPY 49.7 billion. Net profit is projected to decrease by JPY 7.8 billion year-on-year to JPY 35.1 billion due to lower gains from the sale of cross shareholdings. We intend a dividend hike of JPY 3 to JPY 40 per share as planned as interim dividend. Starting from Page 9, I will explain more details for each segment. Starting with the first half outlook and analysis of the HPP company. The bar graph on the left shows sales of JPY 225.4 billion, an increase of JPY 4.3 billion. Due to the impact of a slowdown in certain markets, particularly in the mobility sector, sales are expected to fall short of the plan. On the right side is the analysis of OP. The volume mix contribution will fall short of the plan but will still increase by JPY 6.3 billion year-on-year. Despite the negative FX impact, we aim to achieve the first half guidance calling for OP of JPY 30.9 billion, a growth of JPY 1 billion year-on-year due to improvement in raw material prices and fixed cost reductions. Next, I would like to move on to Page 10 for 3 strategic fields for HPP. And regarding electronics, we've seen firm large-scale display and smartphone trends in the LCD fields. We've seen an impact from inventory adjustment in certain semiconductor processing materials in the non-LCD field. However, we saw continued steady growth in other products such as functional foam tapes and heat release materials for semiconductor inspection equipment. In the middle is the mobility. This segment has been affected by the stagnant EV market. Sales of design interlayer film were particularly sluggish. However, sales of interlayer films for HUDs grew steadily and are expected to exceed 130% on sales volume basis in the first half. Aerospace hit the breakeven in the second half of the previous fiscal year and is contributing to earnings this fiscal year exceeding the plan. In the industrial on the right, domestic and overseas demand for construction and consumer goods is still sluggish but we'll continue to focus on expanding sales of gross products by firmly maintaining the spread of sales price improvement that we have been working on since last year. Page 11 shows overview of the first half of FY 2025 forecast for Housing Company. First quarter had seen increase in the number of new houses sold and unit prices in the housing business as well as increased order in the renovation business. On the left, net sales are projected to grow by JPY 5.9 billion to JPY 259.6 billion. As shown in the analysis OP on the right, the number of houses sold will decrease by 210 in the second quarter but the total OP in the first half is expected to increase by JPY 1.4 billion as planned, achieving the forecast of JPY 16 billion. Next, Page 12. Left top shows the status of new housing orders. Although the market is still sluggish, the value of orders is growing steadily, thanks to expanded sales of high-priced products such as apartment buildings. As shown in the bottom bar graph, the number of orders received in the first quarter was 95% year-on-year but the value of orders received in the upper line represents 100% of the previous year's level. For the second quarter, we expect 96% in terms of volume and 101% for the value. And the total order amount for the first half is expected to be in line with the plan. Regarding the order by type of construction, apartment buildings, in particular, are growing steadily. The order backlog at the end of the fiscal year is expected to be JPY 160 billion, the same level as at the end of March. The red line on the upper right shows the increase in unit price per building. The unit price has been rising due to not only an increase in the installation rate of solar and storage batteries but also due to an increase in the ratio of apartment buildings or higher value-added housing. Below left is the renovation orders. Steady progress in strengthening the sales training has ensured that maintenance demand from periodic inspections has been captured and growing. Sales in the real estate business in the middle of the bottom also grew steadily. The town and community development business in the lower right also performed well with new sales of projects starting as planned. Page 13 shows overview of the first half 2025 forecast for UIEP Company. Despite continued weak domestic housing and nonresidential market conditions, by entrenching new prices, we project the net sales to increase by JPY 1.5 billion to JPY 114.9 billion and operating income to slightly increase to JPY 8.5 billion, expecting to make a record high number in the first half. Page 14 shows 3 strategic fields for UIEP company. Pipe Systems in the upper left. In the piping materials, market remains sluggish but we project the growth in the second quarter on the back of an increase in prioritized product sales. CPVC, chlorinated polyvinyl chloride, despite the prolonged weak market conditions in India, a major demand center, we work to expand market share through new products. Upper right, building and infrastructure composite materials. For fire-resistant and nonflammable materials, we are continuing to acquire new customers. For FFU railway sleeper, we work to expand applications mainly in Europe. For prefabricated baths, we will focus on capturing nursing care and renovation demand. Bottom left is infrastructure renovation. For the pipeline renewal, surveys of aging sewer pipes are progressing, and we'll work to acquire new orders, although the contribution will not be seen until the second half. In the Aqua System, we continue to focus on large-scale plant equipment and facilities as well as water storage panel tank orders. Right bottom are indices for priority initiatives. As for the prioritized product sales, we expect growth mainly in polyethylene pipes and fire-resistant pipes. For overseas, although we are affected by the sluggish Indian market, we expect growth in Europe, mainly in FFU. Page 15 is Medical Business. In the Medical Business, sales of mainstay pharmaceutical ingredients grew but the diagnostic sales are projected to drop by JPY 2.1 billion to JPY 45.8 billion due to sluggish demand for infectious diseases testing kit in Japan and overseas and deteriorating market conditions in China. Right slide shows the analysis of OP, which is affected by a decrease in demand and shipments of infectious disease testing kits in the U.S. and the worsening of Chinese market due to measures to curb medical expenses. Despite efforts to control fixed costs, we've made downward revision of OP plan. We forecast JPY 5.3 billion, down by JPY 0.7 billion Y-o-Y. Page 16 is overview by business segment for Medical business. Top left is domestic diagnostic business. We launched the new coagulation devices in Q1. We work to expand sales of reagents. Top right is overseas diagnostics business, whose results were lower than expected in U.S. and China. As a response to preferential measures for made in China products, we plan to launch new coagulation devices manufactured in China in the second half. To that end, we'll make steady preparations in the second quarter. In the Pharmaceutical Sciences business, we are observing firm trends in mainstay pharmaceutical ingredient and drug development solution orders. Bottom right shows the sales of infectious disease testing kits, which are usually sluggish in the first quarter. We expect the sales to fall slightly short of the plan in this first half as well. We'll continue to focus on sales expansion, and that's all from myself. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]