4409.T

Corporate Core Business & Overall Results

• Toho Chemical operates across 4 core product segments, with strengths in customized product development and diverse technical capabilities across a broad range of chemical product categories. Japan accounts for over 80% of total sales, and the company is prioritizing expansion in Asian markets led by China.
• For the first half of FY2026 (2nd quarter cumulative), total revenue was 26.003 billion yen (down 2.4% YoY), and operating profit was 890 million yen (down 0.2% YoY), flat YoY due to temporary negative factors in Q2. These temporary factors include temporary equipment shutdown at Toho Chemical (Shanghai) for pressure reaction facility expansion construction, and production/sales adjustments for partial equipment renewal of electronic information fine processing resins.
• Operating cash flow increased significantly to 2.305 billion yen (up 1.383 billion yen YoY), driven by working capital improvements. Free cash flow was positive 638 million yen, and ending cash and cash equivalents remained flat year-to-date at 5.726 billion yen.

Mid-term Management Plan Priority Initiatives

• Electronic Information Material Expansion & Core Business Conversion: Started the second phase expansion of the new electronic information material plant, scheduled for completion in November 2026. In-house waste solvent recycling for cost reduction is progressing well, and workforce development for the new production system is on track.
• Overseas Market Development (Toho Chemical Shanghai): Is expanding pressure reaction facilities, with completion scheduled for December 2025. Post-pandemic overseas development activities have resumed and are starting to deliver results.
• High-value Product Development: Progress is being made on commercialization of key projects in plastic additives and cosmetic raw materials, with strengthened development of environmentally friendly products in electronic materials and civil engineering chemicals.
• Optimal Production System & Efficiency Improvements: Production transfers to expand utilization of Shanghai and Kashima facilities, and reallocate Chiba personnel to electronic materials are progressing steadily. QR code inventory management trials have begun, and R&D is testing MI and AI utilization.
• Capital Efficiency & Governance Improvements: PBR improved from 0.71x to 0.81x after expanded shareholder benefit programs. A dedicated IR officer and department were newly established, and asset slimming initiatives including increased accounts receivables securitization capacity and partial sales of policy-held shares are underway.
• Sustainability & Human Capital: A revised personnel system targeting improved compensation for younger employees to secure talent is ready for implementation next fiscal year, with expanded training for career development. RSPO SCCS certification was obtained for three domestic sites in June 2025, and the company is working on improvements based on EcoVadis and CDP assessments.

Key Project Updates

• Electronic Material Business: AI-driven demand growth is driving semiconductor market expansion, and the business recovered strongly in FY2025 after a 2023 downturn. It is centered on high-quality KrF photoresist polymers that are well-regarded by customers. The second phase expansion adds new refining capacity to meet growing demand, paired with cost reduction via process rationalization and waste recycling, and continued development of advanced products to strengthen competitiveness.
• Shanghai Facility Expansion: A third circulating pressure reaction line is being added to remove production capacity constraints that limited overseas expansion. The facility will leverage Shanghai's cost advantages from large-scale equipment and low-cost raw materials, with strategic production transfers from domestic plants, targeting 500 million yen in operating profit from the Shanghai site under the mid-term plan.

• Full-year FY2026 guidance is maintained from initial projections, with no revisions. Management forecasts full-year revenue of 54 billion yen (vs prior year actual 53.613 billion yen), operating profit of 1.95 billion yen (vs prior year 1.815 billion yen), ordinary profit of 1.65 billion yen, and net income attributable to parent shareholders of 1.15 billion yen. The company is internally targeting over 2 billion yen in operating profit, which would be the first time exceeding this threshold in 6 years.
• First half progress was below 50% for all metrics solely due to temporary Q2 negative factors, which management expects to fully resolve in the second half, allowing the company to recover the first half shortfall and meet full-year guidance.
• The 3-year mid-term management plan targets reaching a new growth trajectory after bottoming out in FY2024, with a target of record-high profit in FY2028 (the 90th anniversary of the company's founding). The FY2028 mid-term targets are: 60 billion yen revenue, 3 billion yen operating profit, 5.0% operating margin, 32.0% equity ratio, 8.0% ROE, and 30 yen dividend per share. Segment-level targets for FY2028 are: 1.2 billion yen operating profit for Surfactant, 200 million yen for Resin, 100 million yen for Chemical Products, and 1.5 billion yen for Specialty Chemical.

1. Surfactant Segment: Revenue of 12.631 billion yen (down 4.4% YoY), accounting for 48.6% of total revenue. Revenue decreased due to lower sales of cosmetic raw materials for general cleaners and civil engineering chemicals, but segment profit increased due to improved profitability from shifted sales mix. 2. Resin Segment: Revenue of 2.173 billion yen (down 5.9% YoY), accounting for 8.4% of total revenue. Profit declined from 29 million yen to a 3 million yen loss due to lower sales of petroleum resin and resin emulsions. 3. Chemical Products Segment: Revenue of 3.182 billion yen (up 0.5% YoY), accounting for 12.2% of total revenue. Revenue grew on slightly recovering sales of rosin-based emulsion polymerization agents in China, and segment profit increased by 73 million yen YoY due to improved profit margin from sales mix changes. 4. Specialty Chemical Segment: Revenue of 7.876 billion yen (down 0.5% YoY), accounting for 30.3% of total revenue. Revenue slightly decreased due to production and sales adjustments for partial equipment renewal of fine processing resins for the electronic information industry, and segment profit declined due to increased fixed costs. Together, Surfactant and Specialty Chemical account for ~80% of total segment profit (90% of reported segment profit), and act as the dual core drivers of the company's profit.

• Continued economic slowdown in China creates a challenging operating environment for the company's Asian operations, pressuring sales growth in the region.
• Rising personnel and logistics costs increased selling, general and administrative expenses by 72 million yen in the first half, partially offsetting gross profit gains and pressuring profitability.
• The electronic information material business is exposed to semiconductor industry cyclicality, which caused a downturn in 2023, though the company expects continued long-term growth driven by AI demand.

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