Teijin Limited (3401) Earnings Call Transcript & Summary

Thank you very much for participating in the session today. And let me explain the first 2 pages. The first page is about Teijin's direction going forward. On the left, for 2024 and 2025, during the 2 years, we identified the businesses where we are not the best owners. So that include e-comics and some businesses that did not make much profit for us. And we divested these businesses, including the one in North America. And the reason why we did so was because the resources are [ finite ] and there is a limit to it. And then we want to focus our efforts into the areas where we are good at. And especially here, we talk about the customer-centric business model. This means we are to solve problems of the customers together, and that is the kind of business model we wish to establish. And then of course, we have the fiber and products and health care and Battery Materials and Membrane businesses. And the way we are to go about may be different. But still, the customers do have the issues as we are to work closely with our customers and use the best of our abilities. And then also sometimes use or utilize external resources to concentrate on solving the customers' problems. And for the fibers and products, as a part of the move, we have announced about the business integration with Asahi Kasei Advanced. And health care as well in the area where it's closer to home medical care, we are accelerating our development. And today, we are to discuss about battery materials and membrane, and there has been a major growth recently. So we'd like to focus on this topic today. Now regarding Battery Materials and Membrane, this includes batteries, semiconductors, hydrogen fields and these areas are still growing and even accelerating. And there is a strong demand here. And later on, Mr. [indiscernible] will explain more about this. But in the past 5 years, we've been increasing the top lines dramatically. So today, we'd like to give you more details on this. Now at our corporate new business unit, we include membranes and battery. Starting from April next year, there will be resin and that include automotive, electronics and [indiscernible] equipment or the opticals. And we have a strength in electrical and electronics field. So we are to place battery materials membrane business in the area that is close to the electrical electronics. So that will be the structure starting in April next fiscal year. So that's all for myself. And then now I'd like to invite Mr. Sakata from the Battery Materials Membrane division for the further explanation. Mr. Sakata, please.

Yes. So I am from the Battery Materials Membrane division, and my name is Sakata. This is our business area, and we have been engaged in different areas so far. And as of today, there are 3 focus areas for us as we are making progress in the business. One of them is lithium-ion battery. This include all solid-state battery. And this is most advanced secondary battery area. And the semiconductors, well, of course, it doesn't mean we manufacture semiconductors itself. It is the material that is used at the semiconductor fabs. And then we have the hydrogen. It's not exactly limited to hydrogen. It's more about new energy that will lead to CO2 reductions and more energy-related areas. And I am sure you all are familiar with these 3 areas. Now these are promising areas when it comes to the growth potential. So there should be major growth from these areas going forward. Next page, please. And there are 4 product groups. One is the battery material, separator devices. And the second one using the polyethylene membrane. This is our filter product. And the third one, this is the carbon fiber nanofiber. That's also about the battery. And fourth one, this is what we call [indiscernible]. So this is about reducing the heat or emitting heat. So here, we have the 4 major product lines. And then separator is the biggest followed by the membrane and the PotenCia and Chillflex are still small businesses for us. So for the battery and semiconductors and hydrogen-related areas, still customers are wanting even better products. So there are different requirements from the customers, and that's different by product line. And later, I'll elaborate more on this point. Customers are not satisfied with what is available today. So in our business model, we have to offer the solutions to solve those issues that is recognized by the customers. Next page, please. So here, we have the separator or LIELSORT, that's brand name. We already since over 20 years ago, we've been working on R&D, and we sold the film business to Toyobo. This is a kind of a derivative research from the film business. In 2012, we established a factory and then we started mass production at about the same time. And the volume has been increasing and also decreasing at times. But in the past 5 years or so, we were able to manufacture really good products, and that's been accepted by our customers and increasing our businesses. And in 2022 and '23, there has been a carbon neutral demand requirement from the customers, and that's getting even stronger. This is including electricity as well, where renewable energy is now being purchased. Next page, please. And this is about the miraim membrane. So this goes back even further when it comes to development. Back in 1997, with a Dutch company, DSM, we started ultra-high molecular weight polyethylene film. And this business was not successful, so we had to resolve this joint venture. But we still kept this technology as a core and evolving the technology. So now we have come up with new application that's different from the original intent. So we have been quite persistent in the past the opportunity here. And then after 2011, we have realized that this is suitable for the semiconductor photoresist. So we're accelerating our efforts since then and expanding businesses accordingly. And now in addition to the filter, there is a life science application area also and hydrogen and energy-related membranes. So now there is even wider application areas. And also the keyword -- one of the keywords is PFAS-free. And miraim is, in fact, PFAS-free. So we are getting a lot of attention and inquiries. And there are a number of application developments going on. This chart is the mapping of our products by stage. The far right are already commercialized. We are sold and also the filtration used at the semiconductor manufacturing process miraim. And going lower, this is also miraim also for the hydrogen production and also CO2 separation. The evaluation process is being promoted at customer site, and it is very close to commercialization. Flow PotenCia and Chillflex, they are not still substantial businesses. The customers are still evaluating for the commercial launch, but we are getting a very good evaluation. And the type of performances are being confirmed at the customer site. And I will not touch today, but we are also engaging on other materials as well. For us, how we play the game. There's nothing special. Let me walk you through on our strategy. There are 3 points. One is inside the market, the market leaders and innovators, they are leading a new market and creating new technologies. We work with them to come up with new products and solutions. So different from followers, the second or third players, the top runners have more rigorous requirements and needs. And our R&D exert their effort to produce solutions and new technologies. And second, Teijin Group has been offering many materials and products, and we take advantage of those products. So technologies, we learn from other businesses. And then we introduce it to our territory. And the third is in working on production and manufacturing, we generate many unique knowledges and patent. So on top of the core patents, we are increasing peripheral patents so that we can defend our business. And also to peers, we license our patents and we receive the licensing fee. And speaking of patents, not just acquiring earning patents, but we need to generate the earnings. That mechanism is very important. That means the peers when they utilize those patents and then we need to be able to prove that the production when they decompose or dissect the production, they know that our patents and IP is embedded. That is very important. Let me walk you through more details on each product. First, batteries. As you are using smartphones, and you want to watch many videos and battery don't last day and batteries also degrade and you need a high power output, you see those immediate demand and existing batteries are not satisfying the users. And we have a unique coating technology and adhesion technology that are utilized to meet the customers' demand. Our strength 1 to 3, let me revisit that. In the middle, we are in the middle, development and sales marketing and production. There are one team. We have a BU structure for one product, technology, production and sales marketing are forming one team. It's very compact and effective, and it's working well. And characteristic is that our customer, it is not development with the battery manufacturers. We engage with the end customer like smartphone manufacturers and also electric appliance manufacturers. We hear directly from them on what they need to realize. So from end manufacturers designate our materials and solutions. That is the type of relationship we have with the end manufacturers. That's why it is hard to replace us. The battery manufacturers want to replace the materials with the low-cost materials, but the end users, end customers do not approve it. That is the type of firm relationship we have with the end OEMs. And academia and partner companies, you see at the bottom of the page, batteries are advancing day by day. And it is led by the university research institutions. They are the frontrunners and battery manufacturers want to use proven and safe battery, but the front runners are taking risks in trying new technology, and we have a one-to-one direct face-to-face relationship. And also, we have the researchers who can directly engage with them. And we align with their direction through close communication. That is also our strength. And the light asset separators, we have a factory in Korea. There are many players, small ones included. And our factory is very small compared to them and a high specification and the most advanced products are made -- manufactured there. And when those technologies are getting obsolete, then we license those technology and product with a partner company. So outside asset is well utilized in engaging this business. This is about the product. Bottom left, base film is a polyethylene porous membrane, which we buy from outside. And on the bulk size, the first layer, aramid layer is applied. And then films heat endurance performance is enhanced and the second layer, blue dots. Second coating is applied on both side, which is called adhesion layer. The internal electrode or separator need to be bonded well. So the base film technology, which we own and aramid is our R&D business material, and that is also our technology. So various technologies are fused here. This is very characteristic new product. And right-hand side, you see acquired technologies. We are still new to a battery technology. So we acquire them. And the customers' evaluation, we need to be able to run the same evaluation, not just proving the performance. When it comes to the battery, we need to submit the data. This is the acquired technologies. This is also leveraged in forming a strong relationship with our customers. This is about the patent IP. We have many IPs. The left-hand side, blue is PAI, patent asset index, which is a third party evaluation body assessing our patents. And each year, you see our patent value is appreciating the number of patent and also quality of patent, those are the factors. And in line with that, you see a sales from 2000 with some time lag, now the sales is catching up. Right-hand side, to what extent our patents are cited, the score is called ATR. The general patents, you see on red color. This is the average citation scores. And our patents are more cited by companies, businesses and academia. So our patents are getting a lot of attention. So these are utilized to create patent network to defend our own business and also licensing. Production costs are the competitive edge of the peers and the partners, and that's who we license our technology to earn the volume. So our factory will focus on niche and top technology and the best of the best quality and other type of the materials. They are licensed to peers and then manufactured in pulp. So that's about the separator. And now I'd like to move on to the miraim. Once again, the semiconductor factories and the fabs, these filters are utilized. And there's 3 [indiscernible]. And every year, there's been a higher concentration and the circuits are becoming even thinner. And then when printing these circuits, you need to use the photoresist. And if there is any foreign material inside, then photoresist will [indiscernible]. So it is necessary to remove these really small foreign matters and this demand is increasing year-over-year. And here is the membrane to remove any kind of small material. So at the level of 1.2 nano, only Teijin is capable of providing such membrane. So this is almost -- so we do have a monopoly here almost. And then this is very much used in the semiconductor areas and there is high growth expectations. And in fact, our business has grown so far in the recent years. And then there is an ion exchanging membrane also. And whenever there is a hydrogen production membranes being used, so now our membranes are used for this purpose. The major product now is PFAS PT3, fluorine-based membrane. And so there's an argument, it's not really good for the environment. But this is really soft material and pretty vulnerable and the life is not so long. So that means it is a higher cost for the customers. So that is why as a replacement for the PT3, they have high expectations on our miraim. So we've been talking to our customers as we develop the product. Next page, please. And we can say the same thing about miraim is here, we have a team working on this activity. And our customers are looking for the best class in the world and also our relationships with academia, this is similar to the separator business. And we have a factory in Matsuyama and we have a minimal production volume and replacing product all the time. So every year, we are switching to new products. So the products that we have developed in the past, we are working our partner companies to manufacture so we are getting license fees as a result. And next page, please. And this is about the characteristics of the miraim. There are some pictures in the middle of the page. And it may be hard to see. The left slide here, we have the final image. And for the miraim, we can really create the size -- of different size for us. And then there is a chart that shows the variation in the size of the pore. But for our miraim, this is really small, but it is longer on a vertical direction. So when it comes to constantly creating the pore of this size, we are better than anybody else. And then there are some comparison to the competitive products. So here, they are making the ones with longer width and shorter vertical length. So that is one major difference in our product. And just like the separators, we have been utilizing our experience in the film technologies and design and surface treatment to come up with this. Next page, please. So similarly, we are to ensure that we get the IP for this. And this is talking about polyethylene membranes. So of course, we have to ensure we do get a patent for this. And also, there are some process to follow to increase functionality and performance. And we are also putting a lot of our development resources there. So we do have a number of related patents. And just like the chart on the right side or the separator, the value of patent is increasing almost every year. And then our business is also growing in line with the patent value increases. So that's been about miraim, and let's go to the next page. So there are 2 more things. These are the products still under development. One of them is the potential. This is a function of fine carbon fiber, 300 nano diameter, and this is quite special and not existing in the world yet. And we marked potential in the blue color here in the chart. And there's carbon fiber that's in the upper right of the carbon nanotube, and potential is somewhere in the middle. But using other methodology, it's not quite possible to produce product that falls into displays. So this is really easier for our customers to utilize. And application areas lithium-ion, especially also solid-state batteries. In a few years from now, I'm sure that will be installed in our cars everywhere. And our carbon fiber does have certain lengths, and it is quite effective to the solid-state batteries. So electric companies and the OEMs are evaluating potential. And it is expected by 2030, the all solid-state battery cars will be available. So we are making plans accordingly. And then going to the bottom right. Here, we have more simplified chart. There is material to conduct electricity, and there is a carbon fiber-based product here. And this also include liquid. And when electrode becomes thicker, this fine carbon fiber powder does not connect easily. And then with our product that is marked in the red color, and this is about 12 to 15 micron and it's quite long carbon fiber. And it does quite easily conduct electricity for the cars. So this is to be quite effective. And it's still under development. But in a few years' time, we believe there will be a major growth. Next page, please. And finally, we have Chillflex, and this is about heat dispersion sheet. And as the density increases, the heat is going to go up. And that may cause some malfunctions or failures and lifespan may become shorter. So how to dissipate heat is going to be the key factor here. And we are using our special aramid resin. So we can realize high-density resin to achieve heat management. And there's a chart at the lower right corner. And there is a major impact of heat dissipation effect. And I think it's going to take a few more years for us to complete, but we are very much looking forward to it. Next page, please. And this is the product road map. And in a few years' time, if we can go to the next page. So some products are still under evaluation, and we are pretty certain that there will be commercialization going forward. And separator, it's already big enough and then, miraim, it's still small, but this is expected to be much bigger. And the height of this cycle, this should represent in the sales. Next page. Once again, our products have these 3 major characteristics, and we are very much conscious about these 3 approaches, especially about [indiscernible] with our customers and also [indiscernible] with other business units, and this is our winning pattern. And that's all from myself, and thank you very much.