Sekisui Chemical Co.,Ltd. Q2 FY2026 earnings call

• Strategic Withdrawal: Decided to withdraw from the LB (Light Bulb/Consumer Electronics?) business after assessing poor profitability and future prospects; associated costs were largely recorded in Q1.
• Film-Type Solar Cells: Investing 9.5 billion yen in production technology innovation to improve performance and reduce costs. Aiming to establish the Sakai 100 MW line for product supply launch in H1 FY2027.
• High-Performance Plastics: Captured strong demand for high-value-added products in electronics (semiconductors) and mobility (aeronautics). Successfully passed on higher raw material costs due to Middle East tensions through agile price increases.
• Housing Business: Focused on M&A investments in growth areas. Consolidated Noble Home, Mirai Toshikaihatsu, and All Spilled to drive revenue growth. Premium products in urban areas and affordable options in regional areas are being promoted.
• Urban Infrastructure: Overcame raw material constraints by securing spreads and inventories early. Pipe systems and infrastructure renewal orders are expanding, particularly for larger diameter pipes in Japan.
• Medical Business: Completed profitability improvement measures. Facing weak conditions in domestic and Chinese diagnostic markets but secured early orders in Europe and the US.
• Shareholder Returns: Maintaining aggressive investment while increasing dividends. 17th consecutive period of dividend increase planned.

The company reports record-high financial performance across its primary operating segments for the first half of FY2026. High-Performance Plastics achieved net sales of 264.2 billion yen and an operating profit (OP) of 38.3 billion yen, driven by robust semiconductor demand and aeronautical applications. The Housing segment recorded net sales of 278.8 billion yen and OP of 16.8 billion yen, with growth in renovation and residential businesses offsetting declines in new housing. Urban Infrastructure and Environmental Products posted net sales of 123.2 billion yen and a record OP of 13.2 billion yen, maintaining an operating margin over 10%. The Medical business generated net sales of 45.2 billion yen and OP of 4.9 billion yen, despite challenges in diagnostic markets. Other segments, including the LB business which is being exited, contributed to the overall results, with the company-wide total net sales reaching 701.7 billion yen.

• Full-Year Net Sales: Revised upward to 1 trillion 491 billion yen, aiming for record full-year sales.
• Operating Profit: Revised upward by 8 billion yen from the April plan to 123 billion yen, targeting a record high.
• Ordinary Profit: Targeting 122 billion yen.
• Net Profit: Expected to rise to 76 billion yen despite extraordinary losses in Q1.
• Dividend: Interim dividend set at 41 yen per share (+1 yen vs July forecast); annual dividend planned at 82 yen per share (+2 yen vs April plan).
• Mid-Term Goal: Steady progress toward FY2028 operating profit target of 150 billion yen.

• Geopolitical Instability: Worsening situation in the Middle East continues to impact raw material procurement and prices (NAFTA), though mitigated by price pass-throughs.
• Market Volatility: Anticipated sudden reaction/pullback in demand following front-loaded purchases in H1, particularly in high-performance plastics and industrial fields.
• Real Estate Market: Weakness in the non-residential sector and ongoing slump in housing starts; rising interest rates pressuring customer budgets for detached homes.
• Automotive Production: Global auto production expected to fall below previous assumptions and last year's levels from Q3 onward, impacting mobility-related plastic films.
• Competitive Pressure: Intensifying competition in the Indian market for CPVC products.

Q: How is management addressing the anticipated demand pullback in the second half given the front-loaded demand in H1? / A: Management acknowledges a likely reaction to H1 front-loading, particularly in high-performance plastics and industrial fields. However, they expect volume and mix to still grow year-on-year, supported by robust semiconductor demand and aeronautical applications. They aim to offset potential declines through continued price adjustments for raw materials and cost controls, ensuring the revised full-year targets remain achievable despite the expected moderation from peak H1 levels.

Q: What is the strategic rationale behind the withdrawal from the LB business and how does it impact financials? / A: The decision was made after a thorough assessment of profitability and future prospects, concluding that the segment did not align with long-term value creation. The financial impact, including 5.1 billion yen in extraordinary losses for defective batteries and 2.6 billion yen for asset disposal, was largely recognized in Q1. This allows the company to reallocate resources to growth areas like housing M&A and film-type solar cells without dragging down future earnings.

Q: Can you detail the outlook for the High-Performance Plastics segment regarding semiconductor and automotive trends? / A: The electronics field is driven by rapid expansion in the semiconductor market, with significant growth expected in non-LCD high-performance semiconductors and heat dissipation materials. In mobility, while general auto production is weakening, demand for aeronautical components remains firm. Additionally, the adoption of color and design films for EVs, specifically HUD wedge-shaped films, is expected to drive growth in NHPP films starting in H2.

Q: How are M&A activities contributing to the housing business guidance revision? / A: The revised second-half plan includes approximately 55 billion yen in net sales from new M&A consolidations this fiscal year, specifically Noble Home, Mirai Toshikaihatsu, and All Spilled. These acquisitions are expected to contribute significantly to operating profit, with AusBuild alone projected to add 3.5 billion yen in H2. This strategy accelerates growth in priority areas and helps offset headwinds in traditional new home sales.

Q: What are the key risks and opportunities for the Medical business in the second half? / A: The medical business faces challenging conditions in diagnostic reagent markets in Japan and China, alongside rising costs due to Middle East tensions. However, opportunities exist in Europe and the US where early orders were secured. Management plans to secure new projects in pharmaceutical sciences through collaboration and fully realize fixed cost savings from completed profitability measures to achieve record H2 profits despite these headwinds.