4885.T

• Company Overview

  • Founded in 1917, re-established in 1947, listed on the Tokyo Stock Exchange Standard Market, headquartered in Omuta, Fukuoka, with 203 employees and 4 additional locations across Japan
  • Operates three business segments focused on the corporate purpose of addressing social issues in the "health" and "environment" sectors to drive both economic and social value: Pharmaceutical (health focus), Health Food (health focus, exiting at end of current fiscal year), and Chemicals (environment focus)
  • Prior period end revenue contribution breakdown: 48% Pharmaceutical, 16% Health Food, 36% Chemicals

• Overall Financial Results

  • Cumulative Q2 revenue reached 3.681 billion yen, up 24.2% year-over-year, marking an all-time high for the half-year period that exceeded initial management expectations
  • Operating profit reached 349 million yen, up 126.2% year-over-year; net income reached 244 million yen, up 102.2% year-over-year
  • Gross profit grew significantly due to a slight improvement in overall cost ratio, while selling, general and administrative (SG&A) expenses increased only 6.1% year-over-year and came in below planned levels
  • 195 million yen of the year-over-year operating profit growth came from across-the-board sales increases across all segments, plus improved cost ratio from higher factory utilization and shifts in product mix; SG&A increased moderately due to exit-related costs for the Health Food segment and investments in development and sales expansion for the other two segments

• PFAS Removal Initiative Update

  • New PFAS regulation for tap water is expected to take effect in April 2026 in Japan, requiring mandatory testing and removal measures for water utilities, with growing demand for PFAS emission control from local governments and industrial sites as well
  • Muromachi Chemical is participating in two ongoing pilot demonstration projects led by Okumura Corporation: an Ministry of the Environment commissioned project in Kumamoto Prefecture focused on PFOS concentration reduction, and a water purification demonstration project in Sagamihara City, Kanagawa Prefecture
  • The company provides PFAS removal ion exchange resin, related equipment, and on-site maintenance support for the demonstrations; these projects will generate critical data on installation conditions, maintenance requirements, and replacement cycles that will serve as key reference materials for future commercial deployment
  • This initiative is currently the company's top priority, with the company aiming to contribute to solving this major social issue through collaboration with external partners that hold complementary strengths

• Pharmaceutical Business Operational Updates

  • Capital investment for vasoconstrictor API manufacturing equipment is complete, and performance qualification (PQ) for commercial production has been successfully finished
  • The product uses a proprietary technology co-developed with the Chemicals segment's R&D team that uses ion exchange resin for purification, salt substitution, and synthesis, enabling continuous processing without reaction kettles; this reduces production steps significantly, bringing major benefits in energy efficiency, cost, and environmental impact
  • The company will advance toward full commercial production of this product and explore application of the proprietary technology to other in-house manufactured products
  • For the new investigational anti-thrombotic drug first announced in 2023, which is currently in Phase 1 clinical trials, bulk production of API for the trial has been completed; full production of API for Phase 2 is scheduled for 2027. The domestic anticoagulant market that this drug targets exceeds 100 billion yen in size

• Health Food Business Exit Progress

  • Order volumes have exceeded initial expectations since the exit announcement, creating minor schedule adjustments for production and sales end, but the final exit completion date remains unchanged at the end of May 2026
  • The company will continue to steadily complete manufacturing and delivery of all already ordered products and推进 production transfer as planned

• Mid-Term Management Plan 2028 Progress

  • The plan focuses on 5 core basic policies centered on restructuring the business and building a foundation for future growth, which the company is currently executing against
  • Detailed plans for utilization of the site vacated after full exit from the Health Food business are under preparation, and an overview will be shared at the next earnings briefing

• Full-year 2026 May fiscal year earnings guidance remains unchanged from the announcement made on December 12, 2025, with no upward or downward revisions at this time
• For the second half of the current fiscal year, management expects production and sales to decline due to the exit from the Health Food business, but forecasts strong sales growth from the Pharmaceutical segment to offset this decline
• For the herpes API that has driven recent pharmaceutical sales growth, management expects current elevated order levels to be maintained through the second half of the fiscal year
• PFAS removal solution development is prioritized for commercial expansion, with ongoing demonstration projects to support broader market adoption across water utilities, local governments, and industrial sites

1. Pharmaceutical Segment: Net sales of 1.766 billion yen, operating profit of 285 million yen, achieved year-over-year revenue and profit growth, reaching 45.3% progress against the full-year sales forecast. This accounts for 47.98% of total cumulative Q2 revenue. 2. Health Food Segment: Net sales of 659 million yen, operating profit of 5 million yen, reaching 59.9% progress against the full-year sales forecast. This accounts for 17.9% of total cumulative Q2 revenue. Revenue increased year-over-year despite the planned exit from the business due to higher-than-expected order volumes. 3. Chemicals Segment: Net sales of 1.255 billion yen, operating profit of 58 million yen, reaching 50.2% progress against the full-year sales forecast. This accounts for 34.11% of total cumulative Q2 revenue. Revenue increased year-over-year, with an improved cost ratio compared to the prior year period.

No explicit discussion of material operational risks or failures was included in the available transcript content.

Q: Can you provide more specific detail on which factors drove the revenue and profit growth across each of the three segments?

A: The largest driver is significant growth of existing imported API products in the Pharmaceutical segment, specifically strong demand growth for herpes treatment API, which management expects to maintain its elevated sales level through the second half of the fiscal year. The second key factor is strong sales of high value-added ion exchange resin products in the Chemicals segment. Third, in the Health Food segment, many customers placed larger-than-expected orders to build inventory ahead of the business exit, leading to higher production and sales than initially projected. These three factors contributed to growth in that order of magnitude.

Q: What are Muromachi Chemical's strengths in the PFAS removal space?

A: The company has accumulated significant technical knowledge and experience from early investment in testing and development of ion exchange resin solutions for PFAS removal, which gives it a first-mover advantage. Additionally, Muromachi Chemical can offer more than just ion exchange resin: it also handles separation membranes and can source activated carbon for customers, allowing it to flexibly combine these three technologies to match the specific target component, required treatment cost, and other customer needs, including supporting custom demonstration projects.

Q: What is the background behind the increase in orders for herpes API, and is this growth structural?

A: The growth is driven by a shift in market environment that has concentrated orders with Muromachi Chemical's direct customers. The company has a long track record and consistent stable supply of this product, which led to the increased order flow.

Q: What is the purpose of participating in PFAS resin demonstration projects, when will commercial market launch happen, and do you plan to expand beyond water utility customers?

A: The core purpose of the demonstration projects is to build market trust and credibility by generating real-world data. Key objectives include confirming removal stability in actual environmental conditions, identifying operational challenges, establishing analysis methods, developing basic technology for resin regeneration, and serving as a pilot for broader nationwide deployment. The company's mission is to build out a full solution across monitoring, removal, and sustainability to offer customized solutions for individual water utilities. PFAS removal resin has already been launched commercially, and the company already has multiple completed commercial projects that are progressing well. That said, water conditions and properties vary by region, so flexible, customized solutions for resin and equipment are required. For this reason, the company will continue to participate actively in demonstration projects, and will publish project results to build further market trust, while also expanding into non-utility segments including local government and industrial sites.

Q: Can you share more detail on what is driving the strong performance of high value-added ion exchange resin products?

A: High value-added ion exchange resin products are not limited to a single end market. Muromachi Chemical holds a portfolio of unique ion exchange resin variants that are not widely available from larger competitors. These resins are used across many industries, with particularly strong growth in demand from the semiconductor and power sectors, which has also helped improve the segment's overall profit margin. PFAS removal resin is another example of this high value-added product category, which the company is expanding across multiple sectors. Going forward, the company plans to continue growing Chemicals segment revenue centered on ion exchange resin, and further improve profit margins through expansion of these specialty products.