TOAGOSEI CO.,LTD. Q4 FY2024 earnings call

2024 Overall Financial Results

• Total sales reached 167.594 billion yen (slight year-over-year increase), operating profit 14.233 billion yen (over 10% YoY increase), ordinary profit 15.993 billion yen (over 10% YoY increase). Profit attributable to parent shareholders was 11.877 billion yen, flat YoY due to impairment of Toagosei Singapore.
• Operating profit growth came from higher sales volume of inorganic chemicals, polymer/oligomer, mobility adhesives, and semiconductor inorganic products, plus favorable price adjustments, offsetting higher fixed costs from labor and depreciation.

Growth Strategy Progress & Plans

• R&D acceleration: New products launched include "Aron Alpha Hikari" instant adhesive and "Aroncure Dental" hemostatic material; new Kawasaki Frontierence R&D center opened. Future development will focus on CNF, medical, next-generation battery materials, with new topic exploration in Kawasaki and Nagoya. R&D spending is budgeted at 6.4 billion yen for 2025, with patent filings growing 1.8x since 2013, focused on high-growth priority areas.
• Overseas expansion: Toagosei Vietnam established in 2024; overseas sales grew from 26.6 billion yen (2023) to 28.9 billion yen (2024), still below target. Toagosei India will be established in March 2025; expansion of flocculant and adhesive sales in Southeast Asia is ongoing; Toagosei Thailand will focus on high-performance product development.
• Growth investment monetization: 2024 semiconductor-related sales were 98% of 2022 levels, impacted by industry downturn; combined 2024 sales of LiB binders and automotive battery adhesives reached 162% of 2022 levels, driven by more vehicle models and growing EV sales. Future plans: expand supply and advance high-purity purification as the semiconductor market recovers; pursue new customer development for LiB polymers and adoption expansion for next-generation vehicles for adhesives.
• Key growth drivers: Mobility: Full product lineup covering FCV, HV, EV, gasoline, and diesel vehicles (buffers against EV market slowdown); priority on automotive battery adhesives and LiB binders, with a new LiB material plant scheduled for 2026 completion receiving 1.8 billion yen in government subsidies. Semiconductor: High-purity liquefied hydrogen chloride holds global No.1 market share, serving all semiconductor wafer/memory/logic segments; growing demand for high-purity potassium hydroxide and CMP polymers, with early supply chain buildup to capture future demand growth.
• Capital expenditure: Total 3-year planned capex of 67.7 billion yen, on track with mid-term plan, balanced between growth areas and rationalization investment for stable cash-generating basic chemical businesses.

Financial Strategy

• Shareholder returns: 2024: 7 billion yen in share buybacks, 60 yen per share dividend (7 yen increase), total payout ratio of 116.1%. 2025: 7 billion yen in planned share buybacks (on track for 20 billion yen total over 3 years), 65 yen per share dividend (5 yen increase), total payout ratio of 108.2%, which will exceed the mid-term plan target of 100% total payout ratio.
• Policy holding share reduction: Steady annual sales of policy holdings to improve capital efficiency; targeting less than 10% of net assets by end of 2025.

Non-financial Strategy

• Employee engagement: Over 6% wage increases in 2024 and 2025; ESOP introduced in 2023 to improve motivation and productivity; new transfer delay system and expanded transfer allowances introduced in 2025; diversity targets for female hiring and management have been achieved.

PBR >1 Improvement Initiatives

• Current status: PBR has remained below 1x, driven by low ROE from imbalance between operating profit and equity, as high-performance product capex takes time to generate returns. 2024 results missed mid-term plan targets due to slow growth of mobility/semiconductor drivers and higher fixed costs from wage increases. 2025 forecast operating profit of 15 billion yen is 5 billion yen below the original mid-term plan target of 20 billion yen.
• Targets: 2027 target operating profit of 24 billion yen, ROE target of over 8%. Focus on three pillars: growth strategy, financial strategy, non-financial strategy, with priority on profit expansion initiatives to hit ROE and PBR targets.

2024 Actual Results: 1. Basic Chemicals: Increased sales volume overall, driven in part by one-time support shipments to peers, leading to year-over-year profit growth. 2. Polymer & Oligomer: Strong shipments for automotive display-related oligomers, delivering year-over-year profit growth. 3. High-performance Materials: Operating profit decreased by 272 million yen, driven by higher depreciation costs and delayed development of medical products. 4. Resin-processed Products: Increased profit due to price adjustments and higher sales volume. 5. Other/Adjustment: Operating profit decreased by 658 million yen, due to R&D expense recognition for the new Kawasaki Frontierence R&D Center. Overall, total company operating profit grew year-over-year to 14.233 billion yen. 2025 Forecast: 1. Basic Chemicals: Expected to decrease revenue and profit, due to the end of 2024 one-time shipments and a focus on profitable sales only. 2. Polymer & Oligomer: Expected to increase revenue and profit, with strong demand from automotive, cosmetics, and electronic materials segments. 3. High-performance Materials: Expected to increase revenue and profit, driven by recovery in the semiconductor market. 4. Resin-processed Products: Expected to achieve large profit growth, from expanded sales of infrastructure aging countermeasure products, profit margin correction, and cost reduction. All segments except Basic Chemicals are expected to achieve year-over-year revenue and profit growth.

• 2025 full year consolidated guidance: 165 billion yen revenue (decrease from 2024), 15 billion yen operating profit (800 million yen increase YoY), 13 billion yen profit attributable to parent shareholders (1.122 billion yen increase YoY, due to no 1.5 billion yen impairment charge from 2024 and no forecasted foreign exchange gains).
• Dividend guidance: 5 yen increase to 65 yen per share full year dividend.
• Mid-term target retention: Original 200 billion yen 2025 operating profit target is not officially revised, with 15 billion yen listed as the current forecast. 2027 target operating profit of 24 billion yen and ROE over 8% are maintained.
• All segments except Basic Chemicals are guided for year-over-year revenue and profit growth in 2025.
• Toagosei Singapore is expected to be YoY higher profit due to 2024 impairment impact, but will remain in a challenging market environment; Toagosei America is restructuring its sales network, with a final restructuring decision expected in 2025; Aronkasei Thailand is expected to achieve full year profitability in 2025.

• Ongoing lack of recovery in the Chinese economy, with continued inflow of low-cost Chinese general chemicals into Southeast Asia, depressing market prices for basic chemicals and pressuring profitability at Toagosei Singapore.
• Uncertainty over the impact of the US Trump administration's tariff hike policies on the global economy and EV demand, which could hurt sales of mobility-related products.
• Recovery of the global semiconductor market has been slower than expected, delaying revenue growth for semiconductor-related high-performance materials.
• Development of medical products such as DDS carries inherent execution risk, with clinical development taking longer than planned and no guarantee of successful commercialization.
• Slow growth of key growth drivers (mobility, semiconductors) and higher fixed costs from wage increases have led to repeated misses of mid-term plan profit targets, delaying improvement of ROE and PBR.

Q: Why is the total sales volume growth effect only 100 million yen for 2025, despite growth from semiconductor and other driver products? / A: All sales decline in 2025 is concentrated in the Basic Chemicals segment. The segment is seeing discontinued sales from customers’ portfolio adjustments and intentionally reducing low-margin sales volume, which drags down the overall total volume growth figure. All other segments, including growth drivers, have solid growth built into the forecast that matches plan. Unprofitable portfolio adjustments are still early, with the polyvinyl chloride business exit only completing at end-2025, so benefits have not yet appeared in the forecast.

Q: Is the forecast 10% year-over-year growth for LiB-related products still the latest outlook, despite the current slowdown in the global EV market? / A: This is the latest forecast from end-2024 budget setting. High-end EV products are still selling solidly, so we maintain a 10% YoY growth forecast. We are monitoring potential negative impacts from new US tariff policies and changes to EV subsidy rules, and will update forecasts with input from customers. Long-term, EV growth is still expected, so we are not slowing our planned investment for capacity expansion. The biggest risk is higher auto costs from tariffs reducing overall vehicle demand, not the impact of tariffs on our products directly.

Q: What amount of special profit and cash flow from policy holding share sales is included in the 2025 forecast, to hit the <10% of net assets target? / A: We have included approximately 8.5 billion yen in sales proceeds (cash flow) and approximately 5 billion yen in special profit from policy holding share sales in the 2025 forecast. We will proceed with sales as planned to reduce policy holdings, fund shareholder returns, and improve ROE.

Q: How does the company plan to hit the 2027 5 billion yen operating profit target for High-performance Materials, from 2024 actual of 1.3 billion yen and 2025 forecast of 1.5 billion yen? What is the timeline for semiconductor and medical DDS product commercialization? / A: Commercialization of new semiconductor development projects will still take some time, though the company is collaborating with leading downstream firms and projects have strong potential if approved. For DDS (drug delivery system) medical projects, development stalled before clinical trials in 2023, but multiple new projects and partnerships are progressing. Medical development has high failure rates, so the company is pursuing a broad pipeline of partnered projects, with a large share of current patents focused on medical. Large sales from DDS are not expected until after the current mid-term plan, though management expects meaningful clinical-stage revenue in the next mid-term plan that will boost the company’s PER and future valuation.