SHIKOKU KASEI HOLDINGS CORPORATION Q4 FY2022 earnings call

• Company & Strategy Overview

  • Founded in 1947, rooted in innovative carbon disulfide production, with a corporate philosophy of "Original Creativity" focused on developing breakthrough, non-commodity products.
  • The 10-year long-term management plan "Challenge 1000" targets 100 billion yen in sales, 15 billion yen in operating profit, and 10% ROE by 2029. Current group sales are near 70 billion yen, on track to hit intermediate targets.
  • Over 50% of chemical segment revenue comes from exports, and the company has captured growth from expanding overseas demand for advanced materials.

• Chemical Business Key Initiatives

  • Fine Chemicals prioritizes the most upstream raw material position in the advanced semiconductor market, investing aggressively in R&D and production capacity. Core flagship products include: (1) Tough Ace, the world's top share OSP water-soluble rust preventer for printed circuit boards, with industry-leading 2-year shelf stability and halogen-free environmental credentials; (2) GliCAP, a next-generation adhesion promoter that enables smooth copper surfaces for fine semiconductors, already seeing explosive adoption for AI server motherboards and advanced semiconductor package substrates; (3) Semiconductor process materials, with specialized ppb-level trace metal control technology and growing order volume from leading foundries.
  • Organic Chemicals is expanding beyond traditional pool sanitizer into new areas including B2C laundry tub cleaning product WASHMANIA, ballast water treatment product NeoChlor Marine, and growing OEM/ODM sanitary product contracts, having acquired Kuraray's ballast water treatment system business to expand offerings.
  • Inorganic Chemicals continues to expand insoluble sulfur capacity and market share, with the new plant delivering improved product performance to meet evolving tire customer requirements.

• Building Material Business Key Initiatives

  • Shifting resource focus from low-growth residential exteriors and wall materials to high-margin custom landscape exteriors for large-scale public and commercial projects, where the company holds >50% domestic share.
  • Launched new environmental brand MEGLIO focusing on sustainable products including solar panel-integrated carports and domestic wood benches, and is leading industry efforts to bring exteriors into compliance with building code standards to improve disaster resistance.

The company operates two main segments: Chemicals and Building Materials, with Chemicals further split into three sub-segments:

1. Fine Chemicals: Focused on high-value advanced semiconductor and electronics materials, growing rapidly driven by new products GliCAP and semiconductor process materials. 2024 sales of GliCAP grew 5x year-over-year, with current progress far exceeding initial long-term plan targets.
2. Organic Chemicals: 2024 December period sales reached 21.9 billion yen. This segment has seen steady growth, driven by strong demand in North America for pool sanitizer NeoChlor, increased market share gained through stable supply during competitor disruptions, and expansion into new high-margin product lines.
3. Inorganic Chemicals: Led by the world's 2nd-ranked insoluble sulfur for radial tires, with moderate sales growth from expanded North American market share following the opening of the Atlanta, Georgia office. A new higher thermal stability plant started operation in January 2025, with sales expected to launch around 2026 after customer qualification.
4. Building Materials: Sales are in a declining trend, pressured by prolonged sluggish housing starts in Japan and population decline. High margin large-scale custom landscape exteriors hold over 50% domestic market share, which the company is focusing on to improve profitability.

• GliCAP is tracking far ahead of the original 2030 plan target of 2 billion yen in sales, and management expects rapid continued sales growth; an updated long-term plan will be released alongside the February 2026 financial results announcement.
• The company maintains its 10-year "Challenge 1000" long-term financial targets of 100 billion yen group sales, 15 billion yen operating profit, and stable 10% ROE by 2029.
• For shareholder returns, management commits to maintaining the target of 50% total payout ratio, 30% payout ratio, and a new 3% DOE target added in 2024, with a commitment to stable dividends even during periods of temporary profit declines. The 2024 December period annual dividend was increased sharply to 50 yen per share.
• The new high-purity insoluble sulfur plant will see sales launch from around 2026 following required customer qualification.

• Building materials face sustained structural headwinds from long-term declining housing starts and population shrinkage in Japan, pressuring sales growth.
• Advanced semiconductor material demand can be volatile due to cyclical fluctuations in the global electronics industry, and customer qualification timelines for new products can extend longer than planned, delaying revenue ramp.
• The organic chemical segment is heavily dependent on North American pool sanitizer demand, which is exposed to regional economic cycles, inflation, and competitive supply dynamics.
• Exterior products face growing risk of damage from increasingly severe natural disasters linked to climate change, driven in part by historical lack of building code coverage for the product category.

Q: What are the key focus areas for Fine Chemicals R&D, and what market opportunities is the company targeting? / A: Management states that the top priority is the rapidly expanding semiconductor market, specifically focusing on the most upstream raw material segment where Japanese semiconductor supply chains still have untapped competitive strengths. The company also continues to explore new market opportunities for novel compounds developed with its proprietary organic synthesis capabilities, including potential partnerships with external parties. The company will continue aggressive investment to capture growth as the semiconductor market expands.

Q: What has driven GliCAP's faster-than-expected growth, and what is the long-term target for market share? / A: The faster-than-expected growth comes from two factors: the unforeseen explosive expansion of generative AI that increased demand for large AI server motherboards, and accelerating circuit miniaturization in semiconductors that increased requirement for GliCAP's smooth adhesion technology. Management had prepared the product ahead of demand, and collaborative co-development with customers has been highly successful. The long-term target remains to capture 50% of the addressable market by 2030.

Q: What competitive advantages does the new TAP-4 high-purity plant bring for semiconductor process materials? / A: The key advantages are three-fold: the company's proprietary organic synthesis capability to develop entirely new compounds, industry-leading ppb-level trace metal contamination control that is critical for semiconductor manufacturing, and a flexible, fast collaborative development model that works directly with customers to refine products. The combination of manufacturing technology and customer-focused rapid response is highly valued in the fast-changing semiconductor industry, and multiple original new compound proposals from Shikoku Kasei are currently under customer evaluation.