DAIICHI KIGENSO KAGAKU-KOGYO CO.,LTD Q2 FY2026 earnings call

• Corporate Finance & Capital Strategy
  • Sold part of policy-held shares, will record securities sale gains as special income; proceeds will fund employee incentive programs using restricted stock.
  • Continues portfolio optimization of existing assets to improve capital efficiency, and maintains a target capital adequacy ratio of 40% to 60%.
• Vietnam Operations Update
  • Full commercial operations launched in July 2025, with production systems established as planned. Capacity utilization increases have driven faster-than-planned energy efficiency improvements and variable cost reduction, expected to contribute to profit growth from H2 onward.
  • The project is a core part of supply chain resilience building amid tightening critical mineral regulations, and forms a long-term sustainable growth foundation for the firm.
• Research & Development
  • The newly opened R&D center is fully operational, accelerating both market-in (custom response) and product-out (firm-initiated innovation) development. The firm has delivered consistent R&D成果, with new product launches advancing per plan.
• New Business Development
  • Three core new initiatives are under the CEO's direct oversight with accelerated short-cycle development: (1) Refining technology expansion to other elements for green energy projects, targeting 1 billion to 2 billion yen in revenue by 2032, currently in early mass production engineering design; (2) High-purity/high value-added product development leveraging separation/purification technology, targeting 2 billion to 5 billion yen in revenue by 2029, with sample distribution starting shortly; (3) Asset-light service business commercializing intangible know-how (plant construction/operation), targeting 500 million to 1 billion yen in revenue by 2027, already holding tens of millions of yen in orders.
• Balance Sheet & Cash Flow
  • Total assets stood at 62.6 billion yen, down 2.1 billion yen from the prior fiscal year end driven by depreciation and foreign exchange translation impacts. Net assets were 36.6 billion yen, down 1.9 billion yen, for an equity ratio of 57.6%.
  • Operating cash flow increased 1 billion yen YoY, with a 2.2 billion yen YoY improvement in net cash flow. Investment cash flow decreased 1.2 billion yen, with the negative impact narrowing YoY, as spending focused on Vietnam facility upgrades.

1. Strategic Segment (Aggregate): 12% year-over-year (YoY) revenue decrease in H1; full-year guidance revised down 500 million yen to 5.4 billion yen. Sub-segments: (1) Semiconductor & Electronics: 13% YoY H1 revenue decrease driven by SiC abrasive material demand decline from supply chain structural changes; (2) Energy: H1 revenue of 700 million yen, 15% YoY decrease, with 37% quarter-over-quarter (QoQ) growth in automotive battery-related sales and 80% QoQ growth in SOFC-related sales; (3) Healthcare: H1 revenue of 1.08 billion yen, ~9% YoY decrease, with a QoQ recovery and bottoming out in biomaterial demand. 2. Automotive Exhaust Gas Purification Catalyst Segment: H1 sales outperformed plan on stronger-than-expected auto demand and customer preference for geographically diversified supply chains; full-year guidance revised up 2 billion yen to 21.3 billion yen. 3. Base Segment: H1 revenue 8% YoY increase driven by price hikes for brake applications and growing demand in the brazing segment; full-year guidance revised down 1.5 billion yen to 7.3 billion yen. Total full-year revenue guidance remains unchanged at 34 billion yen.

• Overall profit guidance was sharply upward revised in late October: operating profit raised from 1 billion yen to 2.4 billion yen (2.4x the prior forecast), ordinary profit raised from 200 million yen to 1.2 billion yen, and net profit raised from 100 million yen to 1 billion yen. Full-year revenue guidance is maintained at 34 billion yen.
• The upward revision is driven by two factors: faster-than-planned variable cost reduction from rising capacity utilization at the Vietnam facility, and stronger-than-planned H1 sales volume especially in the automotive catalyst segment.
• For H2, operating profit is forecast at 1.3 billion yen, a 200 million yen increase from H1. Key positive contributors are: 400 million yen from Vietnam cost improvements, 340 million yen from accounting inventory adjustments at overseas sales subsidiaries, and 250 million yen from price optimization focused on Vietnam-sourced products.
• Offsetting the gains are 530 million yen in headwinds from lower sales volume driving lower revenue and higher unit costs, plus increased R&D spending (classified as growth investment that will lift medium-term profitability).
• All forecasts are based on an assumed exchange rate of 145 JPY/USD; if current exchange rates hold, full-year profit could come in higher than the current forecast.

• Foreign exchange risk: USD-denominated intercompany loans between the parent and Vietnam subsidiary create material foreign exchange gain/loss volatility. In Q2, the parent recorded a 230 million yen exchange loss from JPY/USD movements, while the Vietnam subsidiary recorded a 400 million yen loss from VND/USD movements. Current trends have mixed positive/negative impacts, with no clear net direction yet. Few immediate mitigation options exist; the long-term solution is to reduce loan balances as the Vietnam business stabilizes. A 1 JPY move toward JPY appreciation reduces full-year operating profit by 30 million to 40 million yen, and reduces ordinary profit by 100 million yen.
• Short-term profit pressure from Vietnam business startup: Even with faster-than-planned cost reduction, startup and fixed costs for the Vietnam business still depress current profit levels, so the 2.4 billion yen full-year operating profit forecast is not considered a high level. The firm is working to eliminate this cost drag as quickly as possible.
• Demand headwinds in strategic segments: SiC abrasive demand is depressed by supply chain structural changes, automotive battery demand is weaker than planned due to slowing EV adoption, and healthcare demand has seen extended slowdown at key customers.
• Downside volume risk for automotive catalysts: The firm expects a H2 volume softening as a correction to the strong H1 demand increase.

No question and answer section is included in the provided transcript.