Teijin Limited (3401) Earnings Call Transcript & Summary

First of all, I would like to cover 2 pages. And this is what we are aiming at and the positioning with our resin business. In the first line, we state our characteristic. We are to meet the diverse needs of customers and patients. Every time I read this sentence, I believe that any company would have the kind of relationships based on trust. So this is a common sense. But then we do have a high expertise and professional know-hows, especially in fiber areas and also with the same degree of professionalism, we have our home care services or the health care business services. And I believe that is our characteristic. And with this, we are to meet our customers' demand. So this is what we call a business model that is customer-centric. And we have to realize this model to support Teijin going forward. And as for the resin and plastic business, as you can see, now we have Suriawase (co-creation of solution) and Kumiawase (ideal combination of technologies) to understand and meet the demands of our customers. And the fact that we are able to perform Suriawase proves that we are able to utilize our high expertise area in fibers. And also, we do have medical know-how, where we truly understand the needs of our customers. So this is not only about the single material or the service, but we are able to offer many different combinations, hundreds of them. And then by creating or combining this expertise, we're able to create new businesses that our customers truly require. And now in the area of fiber or home care health care services, we do have the power in our plastic resin business. So in the next term, we are aiming at increasing our profit level even further, and that's what we are aiming at. And we do have some history in the past. On the left side, now in '24 and '25 in 2 years midterm, we have been working on divestment of underperforming businesses, especially the e-comics businesses or the North America composites business, we have divested them. And also in addition to that, we have been active in divestment in the aramid paper and logistics business and the bromine business, which we have already divested. And the reason why we have been working on this is because we have limited resources, human resources and materials and budget. So we are focusing on our expertise area. That means the fiber and healthcare and resin. And for the Fiber & Products that we have recently announced with Asahi Kasei Advance, we are to compensate each other and be integrated to expand our product areas even more. And another is an acquisition of UNITIKA'S spunbond business, although this is smaller in scale and also TOYOBO's airbag business acquisition in China. So with this, we are expanding and strengthening our fiber products businesses. And Healthcare also, we are utilizing our home healthcare platform for further acceleration. And for the Resin & plastic, we are able to thoroughly practice our Suriawase and Kumiawase. So we are going to strengthen them further. And then we should not forget Aramid, where we are facing difficulties, but we are proceeding with the cost restructuring. And then we are to realize our customer centricity. So this is what we are aiming at. And that is all for the explanation for now. And now Kitahama from our Resin Plastic business is going to explain.

My name is Kitahama. I'm General Manager of Resin Plastic Processing business unit. Thank you very much for giving me the opportunity to speak today. I'd like to provide you with the overview as well as the medium- to long-term strategy. First of all, I'd like to go over the overview and the characteristics and strengths followed by medium- to long-term strategy. I don't really have many opportunities to explain about our resin plastic business. So today, I will have to go over some basics. So here is our overview-history. As plastic resin business back in 1948, we started manufacturing fumigants and then did polycarbonate resin and flame retardants and resin sheets. And as for polycarbonate, already we have over 60 years' history. And also around year 2000, we have been supporting our customers' global expansion. So we started going into the overseas as well. And as you can see in this chart, there's a factory in Singapore, and we stopped them in 2015. And as for our business locations, the red colors indicate our factories, and blue is sales and marketing and yellow is research and development facilities. And as for R&D facilities, we support our customers' development and we have locations in Japan, China and Thailand. And as for the sales, we are global and we support our customers and also support the materials. And as for the sales breakdown by region, we are concentrated in Asia, especially in China, it accounts for over 50%. And then our China exposure, now domestic China consumption is above 50% and the remaining 50% that is processing part. And now our customers are in Europe and North America. So there we are exporting. And then we are mostly in Asia. And for Europe and North America, our direct sales volume is quite small. So we are quite ASEAN-centric. So here is about the performance trends. These bars indicate our revenues and profit. And this red line, this is our operating profit and orange color is our market polycarbonate and material BPA spread. And as you can see, since 2005, PC resins for CDs have been decreasing demand, also the costs are increasing, and it is deteriorating our PL. And this is quite volatile, as you can see. And also in 2015, we closed our Singapore plant and then we've been shifting to further cost cuts and higher value products. And then we've been able to stabilize our PL. And then in China, we added PC resin facilities expansion. Then there's been increasing competition over there. And if you look at our PC-BPA spread, this is at the lowest level ever. But still, we are able to generate profit in a stable manner and our ROIC is now over 10%. And here, our major products, we are focusing on polycarbonate resin and we also have functional resin and functional chemical materials and resin processing material. And as for the functional resin, we have the special polycarbonate. And now we use known non-BPA in materials for smartphones and lenses and that is the special polycarbonate. And also we do have the polyester resin and PPS compounds. And as for the functional chemical, we have brominated flame retardants and then polycarbonate sheets processing material as well. And polycarbonate resin accounts for about 80% of the revenues. And I think many of you might know, this is about characteristics of PC resin. And this is a comparison to other engineering plastics, especially they are excelling in transparency and impact resistance. And also there is a good balance. And also for the PC resin alone, what we call the natural for that kind of application, especially when it comes to transparency and impact resistance, this works really well and used in automobile headlights and optics. Other than natural, we do have other compound in our business. So when it comes to resin compounds, based up on the base resin, we use the PC as a base resin and we combine with other materials to control the [indiscernible] for example, therefore, that we have some complementary characteristics by combining other material. This is the compounds. So we have several different types of the characteristics. For example, because of this, that the -- well -- compatibility is different. So we do have some conflicting characteristics. That is why it is very crucial for us to decide the blending ratio of materials. This is where we have the know-how. This is a source of the value addition for us. Next is that the trends of PC resin sales. So this is blue bar that indicates natural, yellow compound applications. So as you can see from here, the natural applications has been [ trending ]. Well, because these are the general purpose areas, then we have seen some reductions. And just recently, we have been centering around compounds. So even in the case of natural, we have been centering around the more high-value-added area to stabilize sales. The PC as a whole that we account for some 5% in resin chemical compound, our share is about 10% to 15%. And therefore, our share is not so high in this market. However, we have focused on the high-value-added products. So now, so I'd like to talk about our characteristics and our strength. So one of the major characteristics we hold is at three different areas. One of them is that the quality and also stabilization and also the competence. We actually maintained a high level of quality. We have contributing to the high yield of the customers. Another one is the attention to the customers' needs. We have a very close communications with the customers in trying to resolve the challenges the customers are facing. And also the last one is a diverse product lineup. As I mentioned earlier, in addition to PC, the component chemicals, we actually provide several different products contributing to solving the customers' different problems. So these are not very specific actually that about those 3 other areas, we have deepened our knowledge in those 3 areas. So that we have already created a good confident relationship with the customers in trying to help customers to solve the problems. So as a result, we can continue to carry out existing contracts. We have received new requests as well. So this is the cycle of the long-term business. This is a source of our strength. So about quality stabilization, I'd like to give you more explanation. About the PC Resin, the natural and compounds, we have 2 segments. So first, the PC Resin, so that we try to adopt a special polymerization method to control quality variations. And compared to Chinese manufacturer, we do have advantages in quality. More specifically, that the reaction proceeds uniformly, stabilizing the properties and also that the reaction temperature is low, suppressing the thermal degradation and discolorations. And also by washing, we are -- it is possible to remove unreacted raw material, so we can actually reduce that well for the matters. And also the material can be utilized in compounds. So therefore, we have the high level, high-quality PC resin manufactured by us. By using such PC resin that -- well, that we have the natural distribution, even distribution of the additives. And therefore, the compatibility of the different materials can be highly achieved. So because of our expertise in the compounds as well as the PC resin area. And also that we established technical centers in overseas production area. So that is why we can minimize the quality difference between prototypes and mass production. Furthermore, that for a long time that we have customers who requires a high level of quality. We have held a very strong relationship with such customers. That is why we have improved the quality indicators well for a long time. That is why we can contribute to the stabilization of the production by customers and also the high yield of the customers' production. So I just touched upon technical center overseas. So PC compound, development, production, I'd like to give you more additional explanations. As I had mentioned earlier at the very beginning, that well, in Japan, China and the ASEAN, we already established technical centers and production factories. So in each area that we have a close communication with the customers, so we try to understand the different customers' needs. And we have adopted good process, repeat process of that well, listening to the customers and also evaluation by the customers. So once the [ grade ] is developed, we have -- we can establish a good production technology to continue the stable production. So in trying to realize this, we have 2 strengths, here are some examples and the descriptions. So we have the different types of lineups of PC and also compound. In other words, in relation to the specification requirement by customers, we can establish the functionality required by the customers. And also, we have to accumulate so much recipes, including that the compatibility and also additives in a speedy manner, we can contribute to the resolution of the problem by customers. So these are our strengths and also the points we have been evaluated by the customers. So we have repeated this process in a steady manner. This is actual production and also quality control we have exercised so far. As a result, in the PC, well, we have seen that the increase of the players. Our positioning is shown in this chart horizontally. Customers that -- well, ability to achieve properties required by customers, and on vertical axis quality stability, so that we try to listen to the requirement by the customers. I think we make every possible efforts to achieve the properties. We are ahead of others and also quality stability in trying to achieve the requirement of the customers, we have maintained at a very high level of stability in quality. So that the -- well, of course, each company has its own strategies. We have seen that the emergence with so many players, but we have been chosen as one of the major players to contribute to the customers. So we do carry the different lineups of products, we already explained to you. So in principles, we utilize PC resin base, and we have a very unique characteristics of the lineup of the products. So as a base for the revenue, PC resin, which is followed by adaptive functional chemicals with retardants. So this is the stable source of the PC business, the profit. So well, for the last years that we have made investment into functional chemical and resin processing materials. So these 2 will be the source of the sales and also the profit. When it comes to the retardants, I'd like to explain to you. So that this flame retardant business, we have stabilized sales. So this has been contributing to the stabilization business. Our retardants, well, that we can utilize that one of the adaptive process of the production. So that the actually major products is Brominated Carbonate Oligomer, BCO flame retardants, which can be produced using parts of the PC resin production process. So this type of BCO flame retardant -- so this has a very high level of flame retards and also high flame retardancy and excellent heat stability. And also that we have a good compatibility with the PBT as applications that the automobile and also the electronic connectors. Just recently, we have application for the data service and electronic vehicles. We have a steady progress in the future. This kind of business is going to grow on a steady basis. And also regarding the BCO flame retardant market, this is not a big market, but there are not many competitors. And our supply stability is very highly assessed, and we do have a larger share. And this is going to make a further contribution to stabilize our revenues and profit. And from here, I'd like to discuss medium- to long-term strategy. Now we do have our vision to be a company that supports the society of the future. And that is what we are based upon. And we do have the mission value statement here on the same page. And as I mentioned earlier, we have our development capabilities for the high-performance material, and we have high trust and a strong customer base. And then using them, we are not already limiting ourselves to the particular application areas, we cover wide areas and leverage our capabilities to support our customers' manufacturing process and also sustainability of the society. And as for our value, there are 3 points that we value since our foundation. We constantly pursue material development capabilities and also earn trust through market-oriented and customer-oriented approaches. And there are different requirements from customers and challenges. So with enthusiasm, we are taking the challenges. So this is what we are based upon in the past decades. And this is our profit target image, and we can really quantify how much in amount. And we have PC resin and non-PC resin that is in the lighter color. And PC resin accounts for a high percentage in our profit. And then in 3 to 5 years' time, as for the PC resin, the competition is going to be even more fierce, that is for sure. And we continue to work on high-value-added products and realize circular economy to stabilize our profit. And of course, we are aiming at achieving even higher growth. But at a minimal, we are going to protect our profit level. And then there have been investments in non-PC resin areas. So sales development activities have been making some progress. And in the upcoming 3 years, we are going to materialize what we have been working on to increase the non-PC resin part. And then for the 5, 10 years' time, we are to start new businesses and work on development now. So we are to nurture them to be the next pillar. And we are now working on changing the profit structures of the entire resin business, and that's what we are working on. And this is about the understanding of the environment. And once again, we are facing some difficulties, and we recognize that. And as the first point, there has been changes in the PC resin market environment. There has been increasing capacity in China. And also there are new PC resin makers and they are now increasing their quality. And then here, you can see the supply-demand balance for the PC resin. And for the upcoming 3 years, already capacity is increasing, and that's already announced. So if they are going to materialize, then supply demand is going to deteriorate even more. And as for the customers, there's been ASEAN shift from China, and this has been accelerating in the past years. And we see this as an opportunity. And about sustainability, growing demand, there's been a demand for the materials with low environment impact, and this is the opportunity for us. And then including PFAS, there are concerns about restrictions on the use of certain materials, substances. And this could be negative, but we see this as a positive factor. And then electrification and autonomous driving and improved comfort of automobile and AI, these are all about new demand. So we have to capture them. And then also paperless operations. We do have printer manufacturers as important customers, there will be less equipment demand. So this could be negative for us. And then in this environment, here we have some priority measures. In this severe environment, we are taking on these initiatives. And without these initiatives, we will have to lose out in competition. And here, we state 4 points, and we are to comprehensively execute these plans to increase our profitability. For one thing, in growing areas, we are to develop and increase the sales of the high-value-added products. This is mostly about automobile and semiconductors, and we've been already working on this for several years by now. And in another area, there are some overlaps to the priority applications. There are different trends based on the region. So in each region, we are to capture customers' demand and that will have to be reflected in our sales activities. And in past years in China and ASEAN, we've been strengthening our sales and development organizations. And another thing is about contributing to the circular economy. And this includes circular material product development and also PFAS-free product development. And this is something other companies are working on as well. And we are working upon since start, we'll be able to secure profit through these initiatives, and we are quite active in development. And one more thing is about cost reductions. Now the first point is to promote sourcing of raw materials at competitive prices. And also, we are not at the full operation. So we are to shift the cost structure that aligns to operation and then use automation process and the AI and DX to increase productivity. So we are to execute these 4 pillars of plans to get the tangible impact. And as for the focus areas, now the growing areas may change depending on time. So for these changes, we are to pursue functions that are required. And currently, it's about automobiles and semiconductors and medical. These are our priority areas now. And that's focus in our sales activities and also in development. And in addition to stable quality, we are able to secure the material that meet these new demands. And for these application areas, there are certain areas that are expected to grow. For the automotive, we are enhancing in-vehicle comfort and also more charging stands and daytime running light spreading. And these are the requirements. And then for that, we do have these actions to develop the products for the appropriate growth. And then semiconductors that's still expanding and it is China's policy to promote domestic production and also faster and larger-capacity communication requirement is on the offering and we have to find IC tray manufacturers in China among other initiatives. And medical also, there has been aging society in China, and we are working on new developments for the new aging population. And as for the circular economy, we are now behind requirements, ELV rules in Europe, where there has been a rapid increase in demand. So our sales volume also has doubled in past years. And now you can see this is the expected cost versus quality on horizontal axis. And our customers are requiring diverse circular economy materials. And now it's about material recycling and biomass, that's what we sell. And for these application areas, we are preparing the suitable grades. And then in addition to that, we work on cost-effective solvent-based recycling technologies we are now developing. Coming to Solvent-based Recycle -- well, for example, we try to remove the polymer by the existing [indiscernible] technology. However, it is not always possible. That is why by using the solvent, we can achieve the quality, the same as equivalent to that of the virgin materials. That is why this is the -- we can actually contribute to the CO2 reductions and also that the recycle of the [ energy ] resources. So that for the mass production in 2026, this is the commercialization date and that we are working for this moment. So the foreign matters can be removed. So that is why in the current material cycle, we have some limitation of applications, but we can actually expand the applications. And also that the material sources can be expanded, that we can utilize a more broad range of the recycled materials. And also, we would utilize existing resin processes. Therefore, we don't have to have the large-scale investment. We can achieve the mass production in early stage. So towards mass production, we have been working for this. Next, well, special polycarbonate. Smartphone lenses, for example, that you know that these are the combination of the different layers of the materials. In this particular area for the last few years or so, the other companies have been ahead of us, at this smartphone and also that the other application to the automobiles, perhaps we can utilize our technology base to such applications, so that this area, that this specific topic has been chosen as one of the focus area. And also refraction is the vertical range that is if the refraction is high, we can manufacture the thin lens and also the materials. So in the case of the volume zone that the -- some of the companies are ahead of us. In our case that the high refraction materials will be our focus. We can actually that well -- we can attend to the high-quality needs. So we would like to differentiate ourselves from others. And also that the -- well, AR/VR is going to rise in demand; by using right characteristics, we have already started the development. And for the future markets, in the case of smartphones, well, but we still foresee the slow growth, we have some -- we still have that requirement of our customers. And in the case of the VR device, which is going to grow that sharply, so by taking advantage of the technology, we'd like to catch up more -- pick up more the demand. For the last 3 years, we have seen that the effectiveness of development. However, those achievement is not the one that we'd like to be proud of. So therefore, well, for the 3 years, we'd like to still make an effort. We'd like to expand the market other than smartphone applications. Lastly, about the PPS compounds and the Processed products, I'd like to give you some additional explanations. So in this area that by using our characteristics, we'd like to enlarge the market. About PC sheets, well, profitability of general applications has been [ draining ]. We are facing the severe [indiscernible] . However, we do have the [indiscernible] characteristics, for example, that appearance that resin modification capabilities. Last year we started to manufacture the new sheet line, for example, that the hardness and also thing smooth the film. So that -- for example, this kind of the film can be utilized in [indiscernible] and also that the decorations in the automobiles. We'd like to take such demand. And we have seen that the customer base increase. And also PPS compounds that we have a partner company in South Korea. For some time that -- well, we have seen delays in stabilizing the polymer plant operations. But now it has been stabilized. That is why we already started further user work, but we are still left behind. And therefore, we cannot actually compete against others only by the existing [indiscernible] method. But we do have a special methodology so that our product has very different types of the characteristics. That is why for the 3 years that our product has been highly appreciated by the customers. And also PPS can be applied into the data servers and also the automobiles. We can still have a very good forecast for the high demand. So we'll be able to increase our profit in this field as well. Lastly, we already touched upon our long-term strategy business objectives. PC resin, we are going to maintain the profitability by high value-added products and circular economy. And also non-PC resin that well, we'd like to create new profit pillars by expanding profits in functional resin and processed products. So that these are the areas which actually sustain the profit of Teijin and also we have bright future perspective by using those. This concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]