Soken Chemical & Engineering Co.,Ltd. Q2 FY2026 earnings call

• Mid-Term Management Plan "Advance2025" Progress

  • This is a 3-year plan covering 2023-2025 fiscal years, with core goals of strengthening cash generation via revenue base expansion and profitability improvement, and investing in new business areas to build a stable growth foundation. Management confirms it is on track to meet most existing targets.
  • In response to the consolidation of the global LCD industry to China, Soken Chemical expanded LCD adhesive production capacity at its Nanjing, China plant to ~3x the original level, leveraging local production advantages to strengthen customer service. The company has now captured a dominant market share for LCD adhesives in China. While full-year revenue is not expected to hit the mid-term plan's final target, operating profit is projected to significantly exceed the final year target for the 2nd consecutive year.
  • ROA and ROE already exceeded original mid-term plan targets last fiscal year, so targets were raised to 9%+ for ROA and 10%+ for ROE for this final plan year; both are on track to be achieved.
  • Completed investments for Nanjing capacity expansion and information infrastructure upgrades. However, priority response and recovery from a 2024 ransomware attack has delayed scheduled equipment upgrades and safety/environmental projects.
  • Planning for large-scale new business investments: advancing domestic reviews for a new domestic production base to support R&D strengthening and production site reorganization, and conducting preparation work for utilizing a Thailand site overseas. These high-novelty, large-scale projects will not be completed within the current mid-term plan, and are targeted for implementation in the next mid-term plan.

• Shareholder Return

  • Current policy targets a 30% payout ratio for stable dividends, and a medium-to-long term target of 3% DOE. Management will review and consider an update to this fiscal year's dividend based on performance, and will announce an updated shareholder return policy for future years in the next mid-term plan.

• Balance Sheet & Cash Flow

  • Total assets decreased by 1.0 billion yen to 53.0 billion yen, total liabilities decreased by 1.0 billion yen to 15.1 billion yen, and net assets decreased by 0.08 billion yen to 37.9 billion yen. Equity ratio rose 1.3pp to 71.5%.
  • Operating cash flow hit ~2.6 billion yen (slightly below last year), investment cash flow was negative ~0.9 billion yen, financing cash flow was negative ~1.5 billion yen. Ending cash and cash equivalents decreased by 0.2 billion yen from the prior period to 15.6 billion yen.

First Half (2026 March Fiscal Year):

1. Chemicals Segment: Revenue of 21.0 billion yen, a 2.1 billion yen decrease year-over-year. This accounts for 92.5% of total first half revenue.
2. Equipment Systems Segment: Revenue of 1.7 billion yen, a 0.5 billion yen increase year-over-year. This accounts for 7.5% of total first half revenue.

Full Year (2026 March Fiscal Year) Forecast:

1. Chemicals Segment: Forecast revenue of 44.4 billion yen, a 0.5 billion yen decrease year-over-year. This accounts for 91.5% of total full year forecast revenue.
2. Equipment Systems Segment: Forecast revenue of 4.1 billion yen, a 1.3 billion yen increase year-over-year. This accounts for 8.5% of total full year forecast revenue.

• Full year 2026 March fiscal year guidance is maintained at the originally planned level: total revenue is forecast to increase 0.8 billion yen year-over-year to 48.5 billion yen, and operating profit is forecast to decrease 0.3 billion yen year-over-year to 6.0 billion yen. The full year operating profit projection remains on track to significantly exceed the "Advance2025" mid-term plan's final year target for the second consecutive year.
• While LCD-related demand in China is recovering from a Q2 downturn, the recovery pace is gradual and remains below initial expectations, so LCD adhesive sales volume is projected to come in below initial first half planning.
• Fine powder and specialty functional material electronic material sales are projected to exceed initial expectations; combined with expected higher yen depreciation than initial planning (which increases the yen-converted profit of overseas subsidiaries), the impact of lower LCD demand is offset, leaving full year results on track to hit initial targets.
• Capital expenditure is revised downward 0.4 billion yen from initial plans to 3.55 billion yen, due to delayed equipment upgrades and safety/environmental projects. Depreciation expense is also revised downward 0.32 billion yen to 2.34 billion yen, due to delayed completion of invested projects.
• A new 3-year mid-term plan starting from 2026 fiscal year is currently in development, and will be announced once finalized.

• Q1 2026 Chemicals segment demand growth was driven by front-loading ahead of expected US tariff policy changes, which created a demand pullback in Q2 that offset the earlier increase.
• Equipment Systems segment project completion has been delayed against initial plans, leading to lower-than-planned revenue and lower profitability from rising construction costs.
• Significant yen appreciation against the prior year period reduced the yen-converted revenue and profit of Chinese subsidiaries, driving the year-over-year first half decline in top and bottom line results.
• LCD display inventory adjustment is extended, with demand recovery progressing slower than expected, keeping LCD adhesive sales below initial forecasts.
• The 2024 ransomware attack required significant priority resource allocation for response and recovery, leading to delays to scheduled capital projects including equipment updates, safety improvements, and environmental projects.
• Large-scale high-novelty investments for new business creation are taking longer than planned, and will not be completed within the current mid-term plan period.
• Equipment Systems segment profitability is worsening due to extended project timelines and rising construction costs.

The provided transcript does not include a question and answer section.