6568.T

• Overall Financial Performance

  • Cumulative H1 total revenue: 3.37 billion yen, up 1.6% YoY (51 million yen increase), 39.2% progress against full-year guidance, slightly below the planned 3.39 billion yen.
  • Profit: Operating income was a slight deficit (down 77 million yen YoY); ordinary income was 11 million yen, down 86.9% YoY; net income was 1 million yen, down 98.1% YoY; adjusted EBITDA was 380 million yen, down 21.4% YoY, 21.4% progress against full-year guidance. The profit decline came from higher personnel costs, deteriorated product mix with fewer high-margin projects, and the loss of national project subsidy income that supported profits last year.
  • Order backlog remained stable at 6.64 billion yen at end-Q2, with a temporary lull in new orders after large project wins in Q4 2025 and Q1 FY2026, which management expects to recover in H2 as new capacity comes online.
  • Balance sheet: Total assets increased 340 million yen to 20.4 billion yen; equity ratio remained strong at 65.4%. H1 free cash flow was negative 74 million yen, a major improvement from negative 1.19 billion yen YoY, driven by a temporary pause in large capital expenditures, though full-year FCF is still expected to be negative as capex payments will concentrate in H2.

• Capacity Expansion Projects

  • The new Bio Research Center Building D was completed in September 2025; preparation for full operation is underway in Q3, with commercial production starting in Q4. Full production is targeted for early 2026, with revenue contributions concentrated in FY2027 and beyond. Depreciation for Building D will be offset by reversal of long-term unearned revenue, so there is no net impact on profit. The Izumo FP-4 Building will be completed in November 2025, with full operation starting in Q4 FY2026, and limited incremental depreciation in the current fiscal year.
  • Nearly 3 billion yen in capital expenditure is planned for H1 FY2026, which will expand production capacity significantly for FY2027 and beyond.

• Strategic and R&D Initiatives

  • Management is accelerating R&D commercialization via partnerships with academia and industry; the company signed an LP investment agreement for the DCIP Fund targeting Japanese and Taiwanese unlisted drug discovery biotech ventures, to expand solution services and create synergies. It also entered a joint research agreement with Kobe University startup Hikari On-Demand Chemical Co. to leverage low environmental impact photoreaction technology.
  • The company maintains a stable shareholder return policy: planned full-year dividend is 33 yen per share (16 yen interim, 17 yen year-end), with no change to policy. Management targets PBR above 1x and sustained ROE improvement, and notes recent bottoming out in market capitalization and PBR after a period of decline during the capacity expansion phase.
  • The company participated in the Izumo Industrial Future Expo 2025 to engage with the local community, promote regional industry development, and support STEM education outreach.

• Full-year FY2026 guidance is maintained: total revenue of 8.6 billion yen (up 5.2% YoY), ordinary income of 800 million yen (down 13.9% YoY), and EBITDA is expected to remain flat year-over-year.
  • The full-year revenue mix will remain heavily H2-biased, with nearly 60.8% of full-year revenue coming in H2, driven by delayed Bio segment projects and new capacity ramp-up. H2 alone is expected to deliver YoY revenue growth, but ordinary income is expected to decline YoY due to three temporary factors: initial startup costs for new facilities, higher depreciation, and the loss of national project subsidy income.
  • New orders are expected to increase from Q3 onward, but most revenue contribution from these new orders will be realized in future fiscal years, not FY2026.
  • Management expects ordinary profit to enter an expansion trajectory after the temporary profit compression from new facility startup, with full capacity benefits from Building D and FP-4 Building driving growth from FY2027 onward.
  • Total capital expenditure in H2 FY2026 is projected to be nearly 3 billion yen, and depreciation for FY2027 is expected to increase from ~1 billion yen in FY2026 to ~1.3 billion yen.

1. Functional Materials Segment: 1.41 billion yen in cumulative H1 revenue, down 10.1% YoY (150 million yen decrease), accounting for 41.8% of total H1 revenue. Q2 revenue was 650 million yen, impacted by temporary production constraints from next-year large project manufacturing startup and raw material supply delays. Full-year revenue guidance is 2.95 billion yen, with H2 revenue projected at 1.53 billion yen.
2. Pharmaceutical Segment: 1.41 billion yen in cumulative H1 revenue, up 28.9% YoY (310 million yen increase), accounting for 41.8% of total H1 revenue. Q2 revenue was 680 million yen, impacted by temporary operation loss from equipment malfunction that pushed back sales plans. Full-year revenue guidance is 3.7 billion yen, with H2 revenue projected at 2.28 billion yen, leading to a more balanced half-year sales structure than previous years.
3. Bio Segment: 540 million yen in cumulative H1 revenue, down 16.4% YoY (100 million yen decrease), accounting for 16.0% of total H1 revenue. Q2 revenue was 330 million yen, impacted by delivery delays that shifted revenue recognition to H2. Full-year revenue guidance is 1.95 billion yen, with H2 revenue projected at 1.4 billion yen (nearly 2.5x H1 revenue), which would be a half-year record high.

• Temporary revenue and profit volatility from the long lead time of large projects, which creates a heavy concentration of revenue and profit in H2 and Q4 annually. Delays in project delivery can shift revenue recognition between reporting periods, as seen in the Bio segment this H1.
  • Supply chain risks: raw material supply delays have already impacted Functional Materials segment production in Q2, though management expects this to be resolved in H2.
  • Operational risks: equipment malfunction caused operating losses in the Pharmaceutical segment in H1, though the issue is expected to be resolved for H2.
  • Fixed cost increases from strategic capacity and R&D investment are weighing on near-term profitability, and there is uncertainty around the timing and magnitude of revenue and profit upside from these investments.
  • The company's PBR has remained below 1x during the capacity expansion phase, as market expectations for growth have not been fully priced in, creating pressure on shareholder valuation.

Q: When will the new D Building reach full operation, and how much incremental sales and profit can be expected from it? / A: D Building is a biopharmaceutical API manufacturing facility that completed construction in September 2025. Full-scale production is targeted to start after the New Year (early 2026). No material sales increase will be realized in the current fiscal year, with full revenue contributions starting from FY2027. Management does not disclose specific incremental profit targets, but is working to ensure returns match the 27-28 billion yen total investment in D Building and FP-4 Building.

Q: Given the current PBR below 1x and strong balance sheet, should the company increase shareholder return beyond the current dividend? / A: Management recognizes investor concern about the low PBR and is committed to improving the valuation. It confirms the current planned full-year dividend of 33 yen per share is maintained, and is open to evaluating additional shareholder return policies beyond dividends, but no specific plans are ready to announce. Any new policies will be disclosed promptly once finalized.

Q: What are the plans for future capital expenditure after D Building and FP-4 Building? / A: The company will evaluate new capital expenditure to meet customer demand for new technologies and production modalities. D Building is dedicated to biopharmaceutical APIs, and FP-4 Building is a dedicated low-metal photoresist manufacturing facility for semiconductors, which will support the company's 120 billion yen mid-term sales target. No large new capex plans are finalized at this point, and any future plans will be announced once confirmed.

Q: What has driven the recent decline in profitability, and what steps are being taken to improve it? / A: Profit volatility is mostly driven by changes in the mix of high-margin and lower-margin projects, not a decline in core competitiveness. Management identifies sales capability expansion as a top priority for the mid-term plan, to reach the next growth stage as the company scales past 350 employees and 8.6 billion yen in annual sales. The fixed cost increase from current R&D and capacity investment is a deliberate strategic choice for future growth, so near-term profit decline is an acceptable temporary step toward becoming a higher-margin business in the future.