4362.T

• Business Overview: Nippon Fine Chemical operates two core segments: Functional Products (split into Beauty Care, Healthcare, and Fine Chemicals sub-segments) and Environmental Hygiene Products (Hygiene segment operated by subsidiary Albos). Wool grease derivatives (lanolin, cholesterol) are produced from imported wool grease and sold across all three Functional Product sub-segments. The original mid-term plan planned to limit production/sales volume to maintain stable profit amid intensifying price competition with overseas competitors, but demand recovery and multi-year cost reduction initiatives have resulted in stronger than expected performance this quarter.
• Wool Grease Derivative Performance: Strong broad-based demand recovery across all end-use sub-segments, and cost reduction efforts have delivered material profit gains, driving overall consolidated profit growth this quarter.
• Operational Updates: The new high-purity phospholipid plant for Gilead Sciences is operating stably as planned. In H1 2025, the company repurchased 822,700 shares for 2.0 billion yen, and will cancel 1.55 million treasury shares on November 20. The company obtained "Kurumin" certification for childcare support, published the annual TCFD report, and received a Silver rating from EcoVadis (ranked top 15% of assessed companies). Capital expenditure for fiscal 2025 is projected at 5.8 billion yen, including preliminary costs for the new cosmetic functional oil plant CIP scheduled to start operation in 2029. Research and development expenditure is projected at 1.0 billion yen (2.9% of projected revenue), a record high, focused on sustainable product development and open innovation at open labs.
• Capital Return Policy: The dividend target was raised to a 4.3% Dividend on Equity target for fiscal 2025, with a planned dividend increase to 94 yen per share. The mid-term plan targets an average total payout ratio of over 50% for 2023-2026, and targets reducing policy-held share holdings to 17% or lower by 2026.

• Full-year 2025 consolidated guidance has been upward revised: Revenue is projected at 35.0 billion yen, up 2.3% from the initial forecast of 34.2 billion yen; operating profit is projected at 5.5 billion yen, up 10% from the initial 5.0 billion yen forecast; net profit attributable to parent shareholders is projected at 4.5 billion yen, up 12.5% from the initial 4.0 billion yen forecast. All profit metrics are projected to increase year-over-year despite a slight projected year-over-year decline in total revenue.
• For Functional Products overall, full-year 2025 guidance calls for 27.36 billion yen revenue (down 3.8% YoY due to the exit of the trading subsidiary) and 4.85 billion yen operating profit (up 12.4% YoY), with growth in both revenue and profit projected for the Healthcare and Fine Chemicals sub-segments.
• The 2026 fiscal year target of 38.0 billion yen revenue and 5.8 billion yen operating profit from the mid-term plan remains unchanged, as some 2025 performance includes pulled-forward activity that will not repeat in 2026.

1. Functional Products (main segment): Total net sales of 13.86 billion yen (slight year-over-year increase, offsetting large revenue decline from an exiting trading subsidiary), operating profit of 2.69 billion yen, up 27.8% YoY, with operating margin rising from 15.2% to 19.4%.
   • Beauty Care sub-segment: Achieved higher revenue but lower profit YoY. Overseas sales of cosmetic lanolin (a wool grease derivative) grew, while sales of high-margin domestic whitening active ingredients declined. Profit margin stayed at a high 26% level. Full year 2025 forecast: 9.5 billion yen revenue, 2.35 billion yen operating profit (projected full-year increase in revenue, decrease in profit).
   • Healthcare sub-segment: Large year-over-year increases in both revenue and operating profit. Growth was driven by increased overseas sales of pharmaceutical-grade wool grease derivatives (cholesterol for vitamin D3 applications), a large spot contract for pharmaceutical intermediates, strong overseas sales of high-purity pharmaceutical phospholipids, and stable operation of the new Gilead Sciences plant. Full year 2025 forecast: 7.6 billion yen revenue, 1.3 billion yen operating profit (projected full-year increase in revenue and profit).
   • Fine Chemicals sub-segment: Large year-over-year increases in both revenue and operating profit. Growth came from higher sales of industrial lanolin for lubrication and rust prevention, cost reductions from improved production efficiency for wool grease derivatives, and solid performance from fatty acid amide sales at proper pricing, partially offset by delayed overseas expansion of coating products. Full year 2025 forecast: 5.8 billion yen revenue, 1.0 billion yen operating profit (projected full-year increase in revenue and profit).
2. Environmental Hygiene Products (Hygiene segment): 3.52 billion yen revenue, up 3.1% YoY, operating profit of 0.26 billion yen (flat YoY). Revenue growth came from increased sales of hygiene products to food factories and increased commercial hand soap sales, which offset declines in hand sanitizer sales from lower post-pandemic demand. Persistently high palm oil raw material prices were offset by cost reduction and price pass-through measures. Full year 2025 forecast: 7.4 billion yen revenue, up 5.8% YoY, 0.58 billion yen operating profit, up 11.7% YoY (projected full-year increase in revenue and profit).

Overall consolidated 2nd quarter results: 17.5 billion yen total revenue, up 0.7% YoY; 2.98 billion yen operating profit, up 24.2% YoY; 2.51 billion yen net profit attributable to parent shareholders, up from 1.79 billion yen YoY.

• Intensifying price competition with overseas competitors in the wool grease derivative business, which was the original risk that led the company to plan for volume limits prior to the current demand recovery.
• Increasing competition in the healthcare sector from new entrants and industry consolidation.
• Shrinking production scale at petrochemical plants and entry of new overseas competitors in the fine chemicals sector, pressuring supply and pricing for some products.
• Continued high raw material palm oil prices in the environmental hygiene products segment, pressuring margins despite price pass-through and cost reduction measures.
• Hand sanitizer sales growth is slowing due to lower post-pandemic infection concern.
• Pharmaceutical development projects carry inherent approval risk, with no guarantee that pipeline products will reach commercialization and deliver expected revenue growth.
• Delayed new product launches and slow overseas expansion for coating products, acting as a drag on Fine Chemicals performance.

Q: Wool grease derivatives span all three functional product sub-segments. Is sales volume growing across the business, and which regions/segments are driving this growth?

A: All three sub-segments are seeing growth, though specific segment-level figures are not disclosed publicly. Lanolin sales are growing in the Beauty Care and Fine Chemicals segments, while cholesterol sales growth is concentrated in Healthcare, driven by strong vitamin D3 demand. Feed-grade cholesterol in Fine Chemicals is also seeing expanding market demand, and the company has benefited from prior work to shift to proper pricing that has delivered margin gains alongside volume growth.

Q: Is current sales growth for liposomal/LNP technology driving the increase in Healthcare segment revenue? Is large growth possible once pipeline candidates launch?

A: While usage of liposomes in pharmaceuticals is growing, the company's proprietary lipid products for LNP are not yet widely used in commercial launched drugs. Current Healthcare revenue growth comes from the company's long-established phospholipid product line, which is already used in marketed drugs. Some proprietary lipid candidates are already in clinical trials, and successful commercialization would drive large revenue growth, though pharmaceutical development takes time and no large increase in launched products is expected this year or next. The company will continue to actively pursue development of this pipeline.

Q: The company just upgraded full-year 2025 guidance, so could the 2026 mid-term plan target of 38.0 billion yen revenue and 5.8 billion yen operating profit be upgraded as well?

A: At this time, there is no plan to change the published 2026 targets. While the 2025 outlook has improved, part of this year's upside comes from pulled-forward business that will not repeat in 2026, so no material change to the mid-term targets is expected at this stage.