NIPPON KAYAKU CO.,LTD. Q4 FY2025 earnings call

• Overall Financial & Sustainability Performance

  • FY2025 total company revenue hit 222.6 billion yen (+20.8 billion yen YoY), operating profit hit 20.4 billion yen (+13.1 billion yen YoY), and parent net profit hit 17.5 billion yen (+13.4 billion yen YoY), with net profit reaching a new all-time high
  • Weak yen boosted results: ~8 yen depreciation added over 5 billion yen to revenue and ~2.4 billion yen to operating profit
  • Achieved top ESG recognitions: CDP Climate Change A-list, first inclusion in FTSE Blossom Japan Index, and second consecutive year of MSCI ESG Rating AA
  • The outgoing president noted that sales growth met mid-term plan targets, but profit and ROE 8% target fell short, with delayed implementation of capital policy as a key unfulfilled goal

• Strategic Portfolio Transformation

  • Ongoing portfolio repositioning: Ending low-margin projector polarizer products in Polatechno, shifting resources to prioritize high-growth head-up display (HUD) light shielding plates
  • For Life Science Pharmaceutical: Three clear pillars: 1) Unmet need oncology drugs (priority), 2) Generic anti-cancer drugs (base business), 3) In-house domestic production of antibody and biologic drugs (new future growth)
  • Focus on high-competitiveness high-growth products across segments: inflators (Safety Systems), HUD polarizers (Polatechno), high-purity semiconductor epoxy resins (Functional Materials), aqueous pigment inkjet inks (Pigment Materials)

• Growth Targets & Capacity Investment for Key Products

  • Safety Systems inflators: 310 billion yen addressable market, 9% CAGR 2024-2027, 10-12% target share by 2030; capacity expansion ongoing in China and Malaysia for new cylinder-type inflators
  • HUD light shielding plates: ~20 billion yen current market, 13% CAGR 2024-2027, Nippon Kayaku holds 80-90% share of the current polarizer-requiring sub-market
  • Semiconductor process resins: 110 billion yen addressable market by 2030, 6% CAGR 2024-2027, 20% target share by 2030
  • Industrial aqueous inkjet inks: 130 billion yen addressable market by 2030, 13% CAGR 2024-2027, 10% target share by 2030; new smart factory for this product line will start operation in FY2026

• Pharmaceutical Pipeline Progress

  • Taletrectinib: Approved for priority review for ROS1-positive non-small cell lung cancer, targeting launch in FY2026, with Phase II subgroup data presented at ASCO 2025
  • Buparlisib: Phase III patient enrollment complete, top-line data expected H1 FY2026, being developed for second-line head and neck cancer
  • Portrazza and Alaglio already launched: Portrazza is in Phase II testing for expanded indication in EGFR-amplified esophageal cancer, Alaglio is being tested for expanded cancer type indications

• Capital Policy & Shareholder Return

  • Maintains progressive dividend policy targeting 40%+ payout ratio; FY2026 planned dividend is 60 yen per share, matching FY2025
  • 320 billion yen total share repurchase program over two years starting April 2025: 170 billion yen repurchase in FY2026, 150 billion yen in FY2027, with proceeds from policy holdings share sales funding repurchases
  • Targets 100%+ total shareholder return payout until ROE 8% is achieved, and promptly cancels repurchased shares exceeding 0.5% of outstanding stock

FY2025 (April 2024 - March 2025) actual results: 1. Mobility & Imaging: Revenue of 91.4 billion yen (10.2 billion yen increase year-over-year), segment operating profit of 13.3 billion yen (5.3 billion yen increase YoY), accounting for 41% of total company revenue. Within this segment: Safety Systems grew revenue by 7.6 billion yen (with China operations contributing 4.7 billion yen of the increase), and Polatechno grew revenue by 2.5 billion yen. 2. Fine Chemicals: Revenue of 66.2 billion yen (9.1 billion yen increase YoY), segment operating profit of 9.9 billion yen (4.7 billion yen increase YoY), accounting for 30% of total company revenue. Within this segment: Functional Materials grew revenue by 4.5 billion yen, and Pigment Materials grew revenue by 3.9 billion yen. 3. Life Science: Revenue of 65.0 billion yen (1.5 billion yen increase YoY), segment operating profit of 6.4 billion yen (3.9 billion yen increase YoY), accounting for 29% of total company revenue. Within this segment: Pharmaceutical grew revenue by 0.7 billion yen (domestic formulation contributed 1.6 billion yen growth offsetting drug price revision impacts), and Agro grew revenue by 0.8 billion yen. Total company FY2025 revenue was 222.6 billion yen, with all three segments achieving year-over-year revenue and profit growth.

• FY2026 (April 2025 - March 2026) overall guidance: Total revenue of 234.6 billion yen (+12.0 billion yen YoY), operating profit of 20.0 billion yen (-0.4 billion yen YoY), parent net profit of 17.4 billion yen (-0.1 billion yen YoY)
• All segments are projected to achieve revenue growth: Mobility & Imaging +1.2 billion yen to 92.6 billion yen, Fine Chemicals +4.8 billion yen to 71.0 billion yen, Life Science +6.0 billion yen to 71.0 billion yen
  • Mobility & Imaging segment operating profit projected to decline 1.9 billion yen to 11.4 billion yen, driven by end of low-margin projector product sales, ongoing raw material/metal price increases, and cost of capacity expansion in China and Malaysia
  • Fine Chemicals segment operating profit projected to increase 0.7 billion yen to 10.6 billion yen, with all sub-segments (Functional Materials +1.1 billion yen, Pigment Materials +1.2 billion yen, Catalysts +2.5 billion yen) growing revenue
  • Life Science segment operating profit projected to increase 1.6 billion yen to 7.9 billion yen, driven entirely by pharmaceutical revenue growth, including launch of lenalidomide capsules and continued growth of biosimilars Bevacizumab and Adalimumab
• Excluding the negative impact of 8 yen yen appreciation assumed in the guidance (forecast average rate 144 yen vs 152.62 yen in FY2025), the company expects to achieve both revenue and profit growth
• Full commercial launch of dichroic pigment for dimmable glass is planned in FY2026, with long-term sales target of several billion yen by 2030
• The company's mid-term KV25 plan's original 26.5 billion yen operating profit target is not expected to be met, and the new leadership team will finalize a new long-term vision for 2035 by fall 2025, followed by a new mid-term plan launching in 2026

• U.S. tariff impacts on automotive demand are not included in the current guidance, as direct tariff exposure for the company is very limited, but potential future downstream impacts from reduced U.S.-bound vehicle production and broader economic slowdown are unquantified at this stage
• Mobility & Imaging segment faces ongoing cost pressure from extended Russia-Ukraine war, which has driven sustained high prices for gunpowder and gold (used in automotive component plating), with full price pass-through to automotive customers expected to take time
• Chinese local competitors have low current production capacity for inflators, and new entry into the market is difficult due to the required expertise in safe gunpowder handling, but new competitive entry remains a long-term risk
• The ROE 8% target from the current mid-term plan will not be achieved as scheduled, due to higher-than-expected raw material cost inflation and slower-than-planned profit growth
• Imitation of dichroic pigment production technology by competitors is a potential risk, which the company is mitigating by building a broad patent portfolio around core compound and process technology

Q: Why is the Chinese subsidiary of the Mobility & Imaging segment seeing sharply slower sales growth in FY2026, from 17.9 billion yen to just 18.1 billion yen? Is the slowdown driven by local competition taking share? / A: In FY2025, Chinese local EV makers like BYD and Geely performed very strongly, and the company beat its original sales target, pushing the Chinese facility to full production capacity. The limited capacity expansion this year is the only reason for the slow growth. Current local competitors are small, and need significant time to scale capacity, so competitive threat is not expected in the near term. The inflator market is stable with high barriers to new entry due to required gunpowder expertise, so the company is expanding local production capacity to capture future growth, with larger gains expected after 2026.

Q: What is the sales outlook for the company's oncology drug pipeline, and what are the peak sales targets for key candidates? / A: Taletrectinib (expected launch 2025) and buparlisib (data expected 2025H1) combined are projected to reach ~10 billion yen in peak sales. Portrazza, currently on market, is in testing for expanded esophageal cancer indication and could reach peak sales of several tens of billions of yen if successful. Alaglio (bladder cancer indication) and the BecaIndex bladder cancer urine test are each expected to reach mid-single-digit to tens of billions of yen in peak sales respectively. The company will focus on the oncology field to thicken its pipeline and increase the proportion of revenue from new drugs, which is the core priority for the next mid-term plan.

Q: What is the scale and timeline for the new dichroic pigment production capacity at Fukuyama, and what is the long-term sales outlook? / A: The current investment is expanding the post-processing step of production, to meet expected near-term demand while retaining room for future expansion. Construction is scheduled to finish by end-2025, with volume ramping up over the coming months after commercial launch. Small-volume sales have already started, with the most promising near-term application being automotive dimmable glass. Long-term, the company expects the product to reach several tens of billions of yen in sales by around 2030.

Q: The mid-range 6% CAGR for semiconductor materials is lower than growth expectations for the overall semiconductor market — is this a conservative forecast? / A: The 6% figure reflects the mix of the company's semiconductor material portfolio. While the company does serve high-growth areas like advanced AI server packaging, it also produces a meaningful amount of legacy semiconductor material products that are more exposed to market cycles. The 6% CAGR reflects the total portfolio growth, and is not an intentionally conservative underestimate of the company's high-growth product lines.