ADEKA CORPORATION Q3 FY2026 earnings call

• Company overview and core strengths

  • Founded in 1917, listed on the Tokyo Prime Exchange, with operations in 21 countries/regions, 5,453 consolidated employees, and 54.9% of revenue coming from overseas. It holds leading niche market positions: over 50% global market share for high-k materials for advanced semiconductors, 100% domestic new car adoption rate for its unique lubricant additives, and 2nd global total market share for resin additives.
  • Growth has been strong over the past decade: total sales have doubled, and operating profit has tripled.

• Mid-term management plan (ADX 2026) positioning

  • ADX 2026 (ADEKA Transformation) is a 3-year plan focused on improving profitability and efficiency, advancing sustainability, and driving corporate transformation. Core targets for the 2026 final year are: 500.0 billion yen in total sales, 53.0 billion yen in operating profit, 11% ROE, and 10.5% ROIC. Total planned capex over the 3-year period is 75.0 billion yen, with a committed dividend payout ratio of minimum 40%.

• Resin Additives segment innovation

  • Launched new high-performance clarifying agent Adeka Transpalex, which delivers industry-leading transparency to polypropylene. It can match the transparency of conventional transparent resins like polystyrene and PET, while retaining polypropylene's advantages of excellent heat/chemical resistance, low weight, easy recyclability, and lower environmental impact. It achieves equivalent transparency with half the loading of existing clarifiers, enabling customer cost reduction or higher transparency at equal loading.
  • Global sales launched in November 2024 starting in the US and Asia. The global clarifier market is estimated at 30.0 billion yen in 2024, with ADEKA holding 14% share. ADEKA targets growing the overall market to over 50.0 billion yen by 2030 and capturing over 60% share for polypropylene clarifiers. Potential applications include food containers (already certified by the US FDA), automotive components, medical devices, home appliances, and cosmetics packaging; the product is already being tested for EV lightweighting applications in automotive bumpers, with customer-developed components to be showcased at the K 2025 plastics trade show in Germany.

• Semiconductor Materials segment strategy

  • The segment is prioritized for resource allocation to capitalize on growth from generative AI adoption and advancing semiconductor miniaturization, which increases demand for higher performance/quality materials. ADEKA is investing capital and expanding R&D headcount to focus on advanced materials for next-generation memory and logic chips. It currently supplies high-k materials for advanced memory to Korean manufacturers and ALD materials for advanced logic to Taiwanese manufacturers.
  • ADEKA operates a newly operational factory for EUV resist photoacid generators, with product shipments ramping up in 2025 and accelerating from 2026. It combines its long-standing expertise in ALD metal complexes and photoacid generators to develop materials for metal oxide resists (MOR) for next-generation EUV lithography, working with resist manufacturers on commercialization. The company is also targeting the emerging hybrid bonding segment for 3D stacked semiconductors, leveraging its existing material expertise, and has launched joint research with Yokohama National University, targeting commercial contribution around 2030.

• Capital allocation and shareholder return

  • 75.0 billion yen total 3-year capex, including 15.8 billion yen for semiconductor production equipment and 10.0 billion yen for a new research building that will be completed and operational in spring 2026, accelerating R&D and commercialization of advanced semiconductors and next-generation mobility products.
  • Dividend policy maintains a minimum 40% payout ratio and commits to no dividend cuts. 2025 full-year dividend per share is targeted at 104 yen, exceeding 100 yen per share for the first time. Announced a 18.0 billion yen share repurchase program with a maximum of 10 million shares to be acquired by May 2026 and canceled in June 2026.

For full year 2024, ADEKA reported total sales of 407.1 billion yen and operating profit of 41 billion yen, with the following segment revenue and 2026 target operating profit:

1. Resin Additives: 26% of total revenue, 2026 target operating profit of 10.9 billion yen (management notes the 2024 actual result is already on track to exceed this conservative target)
2. Semiconductor Materials: 8% of total revenue, 2026 target operating profit of 12.5 billion yen (growth has been slower than expected from 2023 to 2025 due to delayed miniaturization progress and increased upfront investment)
3. Environmental Materials: 19% of total revenue, 2026 target operating profit of 13.0 billion yen
4. Food: 20% of total revenue, 2026 target operating profit of 6.2 billion yen
5. Life Science: 25% of total revenue (agrochemicals as core, with pharma/animal health products), 2026 target operating profit of 9.7 billion yen

• Maintains original ADX 2026 mid-term targets of 500.0 billion yen total sales, 53.0 billion yen total operating profit for fiscal 2026, with conservative target setting for Resin Additives (expected to be exceeded by 2024 results) and a slightly ambitious target for Semiconductor Materials driven by heavy upfront investment.
• Expects shipment volumes of advanced high-k materials for leading-edge memory to gradually increase from fiscal 2025, with revenue contribution from higher-priced new semiconductor products accelerating from 2026.
• Expects the global polypropylene clarifier market to grow to over 50.0 billion yen by 2030, with ADEKA targeting over 60% share in this segment.
• Targets commercial contribution from hybrid bonding materials for 3D semiconductors around 2030, with management working to accelerate development by 1-2 years if possible.
• Reaffirms commitment to maintaining a minimum 40% dividend payout ratio and no dividend cuts going forward.

• Semiconductor Materials segment growth has been slower than expected between 2023 and 2025 due to delayed progress in semiconductor miniaturization cycles and higher-than-planned upfront capex and R&D hiring, leading to a soft 2025 profit outlook for the segment.
• While per-wafer material consumption tends to decline as production processes mature and yield improves, total demand growth from increasing wafer volumes offsets this decline; if overall semiconductor production growth stalls, this could lead to lower-than-expected material demand.
• Hybrid bonding materials are still in the early research stage, with technical challenges to solve, so commercial contribution is not expected until around 2030 at the earliest, and there is uncertainty around development timelines and market adoption.

Q: Which business segment is the top priority for resource allocation under ADX 2026, and what is the outlook for this investment? / A: Management confirms that the Semiconductor Materials segment is the clear top priority for capital and R&D resource allocation. The new research building is being built primarily to support semiconductor R&D, and while near-term results have been softer than planned, management expects that this investment will drive strong growth from 2027 onward even if the 2026 target is not met. The company is committed to continuing this investment through the mid-term plan.

Q: What is the reasoning behind the large 18 billion yen share repurchase, and what is the future shareholder return policy? / A: Management notes that while the core priority for capital is product development and capex, investments are staged, and the company had a long period of soft share prices. The share repurchase is intended as a short-term stimulus for the share price, while the core long-term priority is building profitability to support sustainable dividends. Management reaffirms the commitment to maintain a minimum 40% payout ratio and no dividend cuts going forward, and cannot confirm if there will be a second repurchase at this time.

Q: Is the 40% minimum payout ratio and no dividend cut commitment overly ambitious, and does this reflect confidence in ADEKA's earnings outlook? / A: Management states that after many years of operating across multiple segments with varying profitability, the company has improved its internal focus on identifying operational inefficiencies and optimizing each business for profit. The company now prioritizes improving profit over chasing unprofitable revenue growth, and management believes the business is still on a trajectory of growing profitability, supporting the committed dividend policy.

Q: When can investors expect hybrid bonding materials to contribute to earnings, and what is the current development status? / A: Management confirms that hybrid bonding is still in the early research stage, with existing technical challenges, so immediate commercialization is not expected. The target timeline for contribution is around 2030, but the company is accelerating development to bring commercialization 1-2 years earlier if possible, as faster adoption would benefit both ADEKA and its semiconductor customers and support shareholder returns.