4040.T

Company Overview and Core Positioning

• Founded in 1906, the company is celebrating its 120th anniversary in 2026, and listed on the Tokyo Stock Exchange Standard Market in April 2023.
• The company operates under the core positioning of "Electrolysis × Sulfuric Acid × Environment", and focuses on producing essential industrial goods, with a locally focused business model that supplies products to nearby industries and public infrastructure. It leverages 120 years of accumulated technology, experience, and trust to develop new high-value-added products and expand into the environmental recycling business, with a goal of continued growth for the next 100 years.

Differentiated Competitive Strategy

• Local focused positioning: Unlike large national electrolysis manufacturers such as AGC Inc., Tosoh Corporation, and Tokuyama Corporation that compete on scale, Nankai Chemical focuses on serving local customers with smaller lot sizes. This strategy reduces logistics costs (which account for a large share of selling prices for liquid electrolysis products like caustic soda) and allows the company to compete effectively with large players. Its two main factories in Wakayama (Wakayama Factory and Seigan Factory) are located adjacent to major customers including Kao Corporation, Nippon Steel Corporation, and Air Water Inc., creating strong geographic advantages.
• Niche market leadership: The company's Tosa Plant produces two high-share niche products sold nationwide: chloropicrin (one of only two domestic manufacturers, plays a critical role in food security) and high-grade bleaching powder (holds ~60% domestic market share, the only domestic manufacturer of pharmaceutical-grade product, exported globally). These products fill critical unmet needs that large bulk chemical producers do not serve.

Technology Platform and Growth Strategy

• The company's core technology platform is built on two foundational technologies: salt electrolysis technology, and waste treatment technology for sulfur- and chlorine-containing waste. These base technologies enable multiple process capabilities including separation/purification, tableting, hazardous material removal, crystallization, and roasting, which support expansion of the environmental recycling business and optimization of existing operations.
• Short-to-medium term growth is focused on the "Nankai Big Bang Project" that expands the environmental recycling business both qualitatively and quantitatively:
  • Wastewater treatment facility upgrade: Already received quotes, planned decision-making within the current fiscal year, will improve impurity removal capacity to process waste with high heavy metal content.
  • Water treatment coagulant equipment update: Planned decision-making in H1 of FY2026, will stabilize recycled sulfuric acid output, improve production efficiency and add value to boost profitability.
  • Waste sulfur recycling expansion: Requires environmental assessment and technology validation, targeted decision-making between FY2027 and FY2028, will also explore expansion of waste sulfuric acid processing capacity.
  • Desalination business at Tosa Plant: Sales expansion has been completed, but expected demand growth has not materialized to date, so expansion decision-making will be delayed while new demand development continues.
• Long-term R&D focuses on advancing roasting/combustion technology, improving separation/purification, establishing trace analysis, and developing proprietary chlorine gas utilization, with goals to develop new derivatives from chlorine/hydrogen/sulfur, produce higher-grade recycled sulfuric acid, process sulfide electrolytes for all-solid-state batteries, and expand recycling to new elements such as phosphorus.

Mid-Term Management Plan Initiatives

• The 3-year mid-term management plan running from FY2024 to FY2026 has three core priorities: strengthen the revenue base, expand the environmental recycling business, and promote sustainable management. FY2025 (the current fiscal year) is positioned as a "preparation year" for growth.
• Key completed initiatives to strengthen the revenue base: absorbed subsidiary NC Environment Co., Ltd. in April 2025 to eliminate waste, speed up decision-making, integrate resources, and support faster growth of the environmental recycling business; will integrate the Kyoto branch into the Osaka head office in April 2026 for similar efficiency gains; implemented active cost pass-through for cost increases that cannot be absorbed internally to improve profitability; established a human resources committee of full-time executive officers and above to address personnel issues quickly.
• Sustainability initiatives focus on reducing environmental impact, building a safe and secure workplace, and preparing for early disaster recovery.

Shareholder Return

• Changed dividend policy starting in FY2024 March Term to introduce an interim dividend, and has steadily increased dividends since listing. For FY2026 March Term, a total annual dividend of 60 yen per share is planned, a 5 yen increase from the previous fiscal year. The company will continue to target stable dividends and ongoing dividend growth alongside increasing payout ratio.
• The company's first ever share buyback program was announced in February 2026, with a cap of 0.15 billion yen or 60 thousand shares, running from February 13, 2026 to May 29, 2026. The program aims to improve shareholder returns, boost capital efficiency, and provide shares for future executive and employee incentives.
• A new shareholder benefit system will launch for shareholders holding shares as of the end of March 2026. Shareholders holding 100+ shares get local specialty products from Osaka, Wakayama, and Kochi or a donation option: 3,000 yen equivalent for 1-3 years of continuous holding, and 5,000 yen equivalent for 3+ years of continuous holding. First-time participants holding 100+ shares as of March 2026 will receive 3,000 yen equivalent benefits even with less than 1 year of holding.

• Full-year FY2026 March Term performance guidance remains unchanged from the initial announcement in May 2025, with no upward or downward revision.
• The company targets the environmental recycling business to grow to match or exceed the size of its existing chemicals and salt businesses within 10 years, becoming a core growth driver for the company.
• The company will continue to steadily increase annual dividend amounts and improve its payout ratio after FY2026 March Term, based on steady profit growth and a foundation of stable dividends.
• The company will continue to flexibly and nimbly implement shareholder return measures including dividends, share buybacks, and shareholder benefits going forward.

Nankai Chemical operates two core business segments: 1) Chemicals Business: Accounts for approximately 80% of total revenue. It is further divided into four sub-segments: Basic Chemicals (the largest sub-segment, covering electrolysis products, sulfuric acid, and their synthetic derivatives), Functional Chemicals (including glucosamine for health foods and sodium acetate as a food shelf-life extender that reduces food waste), Agri Chemicals (chloropicrin, a chlorine-based soil fumigant that controls soil-borne pathogens that cause continuous cropping obstacles), and Environmental Recycling (produces sulfuric acid from waste sulfuric acid supplied by other manufacturers, started a new desalination business at the Tosa Plant in October 2023 that removes chlorine from cement clinker to produce recycled cement raw material). 2) Various Salt Business: Accounts for approximately 20% of total revenue. The segment processes sun-dried salt for uses including road deicing agents, food applications (for umeboshi and soy sauce), soil conditioners, ion exchange resin regenerants, boiler use, feed, and leather processing. The company uses naturally produced sun-dried salt to reduce CO2 emissions compared to the mainstream domestic energy-intensive salt production method. For the FY2026 March Term 3rd Quarter cumulative period, total net sales were 14.799 billion yen, a 1% increase year-over-year. Lower-than-average snowfall through December reduced sales in the Various Salt Business, but this decline was fully offset by growth in the Chemicals Business. Operating income was 1.036 billion yen, ordinary income was 1.072 billion yen, and net income attributable to parent shareholders was 2.386 billion yen (a sharp year-over-year increase driven by a one-off special gain from a subsidiary land sale).

• Large-scale capacity expansion of petrochemical and chemical products in China has depressed global market prices, leading to difficult profitability for large Japanese polyvinyl chloride producers, and shifted the traditional competitive landscape for large-scale global chemical players.
• Large-scale chemical capacity expansion in China has driven industry consolidation in Japan, with domestic ethylene production capacity shrinking from a peak of 7 million tons to approximately 5 million tons currently, creating ongoing structural pressure on the Japanese chemical industry.
• A Nankai Trough earthquake could cause severe damage to the company's factories in Wakayama and Kochi prefectures, which are located in high-risk zones, and could disrupt product supply.
• Unusually low snowfall reduces demand for deicing salt, which negatively impacts sales in the Various Salt Business, as seen in the first three quarters of FY2026 March Term.
• The desalination business launched in 2023 has not yet achieved the expected demand growth, creating uncertainty around the timing of capacity expansion returns.

Q: What is the impact of rising commodity prices on the company?

A: Rising prices have impacted logistics costs, personnel costs, and raw material costs. The company makes internal efforts to absorb as much cost increase as possible, and actively pursues price pass-through for costs that cannot be absorbed internally, after full explanation and agreement from customers. In the current environment of broad-based price increases across Japan and globally, customers have become more flexible toward price adjustments, which aligns with the company's active price pass-through strategy.

Q: What is the impact of a weaker yen on the company's profits?

A: The company exports water treatment coagulants and disinfectants steadily, and imports salt (the raw material for electrolysis). The foreign exchange exposure from exports and imports is broadly balanced, so the profit impact of yen depreciation is minimal. Where timing mismatches between payments and receipts create temporary exposure, the company uses forward exchange contracts to minimize any impact on profits.

Q: What are the company's plans for future overseas expansion?

A: The company already exports its niche high-value products, and will continue to focus on growing export sales of these products. One core product is high-grade bleaching powder, which is used as a pool disinfectant and growing in demand across Southeast Asia, the Middle East, and global resort destinations. High-reputation facilities such as five-star hotels select Nankai Chemical's product because its stable chlorine concentration delivers reliable, effective sterilization that cheaper Chinese and Indian products cannot match, so the company will continue to market its quality advantage to grow sales. The second core export product is chloropicrin, for which demand is growing across Asia, India, and other regions with population growth that increases agricultural demand and continuous cropping obstacles. The company is leveraging the weaker yen to push export growth and target this expanding market.

Q: What measures does the company have to improve employee motivation?

A: The company has implemented a program that allows employees to acquire company stock based on individual performance, which both improves motivation and increases employee awareness of the company's share price performance.

Q: Can you provide more details on the company's shareholder return policy?

A: The company considers dividends to be the core of shareholder return. Before listing in April 2023, the company paid a fixed annual dividend of 15 yen per share, and has increased dividends steadily after listing, with a planned annual dividend of 60 yen per share (a 5 yen increase year-over-year) for FY2026 March Term. From FY2027 March Term onward, the company will continue to target stable dividends, increase dividend amounts, and improve payout ratio based on steady profit growth. The company also introduced a shareholder benefit system starting in FY2026 March Term to thank shareholders for their support and encourage medium- to long-term shareholding, and is implementing its first ever share buyback to improve shareholder returns and capital efficiency. The company will continue to implement these return measures flexibly going forward.

Q: What is the company's growth outlook 10 years from now?

A: In 10 years, the company expects the current growth strategy focused on environmental recycling to fully mature. While existing chemicals and salt businesses will remain important, the company expects the environmental recycling business to grow to match or even exceed the size of existing businesses, becoming a core growth pillar for the company.

Q: What preparations does the company have to maintain product supply in the event of a disaster like a Nankai Trough earthquake?

A: A Nankai Trough earthquake would likely cause severe damage to the company's factory locations in Wakayama and Kochi prefectures, and full prevention of damage is not possible. The company recognizes its responsibility to maintain product supply, and the speed of power restoration is the most critical factor for resuming production. Recently, the company completed work to relocate electrical equipment at both factories from 3-meter elevation to 5-meter elevation, which improves the ability to restore power quickly after a disaster. The company is working to build a system that allows for the fastest possible recovery and resumption of supply to customers.

Q: Which companies are Nankai Chemical's main competitors?

A: Competitors are primarily other electrolysis companies that are members of the Japan Soda Industry Association. The electrolysis industry is split into two categories: large manufacturers with massive electrolysis facilities that produce large volumes of polyvinyl chloride, and locally focused manufacturers like Nankai Chemical. Large manufacturers historically had a strong competitive position based on scale and cost, but shifting market conditions have changed this dynamic. Large-scale capacity expansion of chemicals in China over the past 5 years (with more planned over the next 10 years) has depressed global prices for polyvinyl chloride and other bulk petrochemical products, leading to industry consolidation in Japan. For liquid products like caustic soda and hydrochloric acid, high logistics costs and safety requirements mean imports are not economically viable, so Nankai Chemical's local-focused, multi-product portfolio positions it well to compete with large electrolysis manufacturers.

Q: Has the recent cold wave increased demand for salt in Q4?

A: The consecutive cold waves in Q4 did increase overall demand for salt (which is used for road deicing). However, extremely heavy snowfall can lead to road closures that eliminate the need for deicing salt, so the dramatic demand increase reported in news has not translated to a similarly large increase for the company. Moderate, repeated snowfall cycles are the most favorable for demand, which has not occurred this season.

Q: Can you share your background and how you came to join Nankai Chemical?

A: I am originally from Fukuoka, and stayed in Fukuoka for college. I originally planned to work at a local Fukuoka company, but applied to other companies during job search out of caution, and received an offer from a general trading company during the bubble economy era. I ultimately decided to move to Tokyo to see more of the world. After joining the trading company, I had the opportunity to travel to many countries including Middle Eastern nations, Mexico, and Germany, and gained broad experience across multiple industries including manufacturing. Approximately 20 years ago, I worked on domestic chlor-alkali trading with Nankai Chemical, and my former colleague (who was the previous president) reached out 20 years later to encourage me to join the company. I was convinced by the invitation, and decided to join Nankai Chemical as a new challenge, which has been an exciting experience aligned with my personal belief that "no challenge means no change, no change means no growth".