Astena Holdings Co.,Ltd. Q2 FY2025 earnings call

• Overall Financial Result

  • The second quarter achieved year-on-year revenue growth and a 65.2% increase in operating profit, driven by strong performance from Fine Chemical, HBC & Food, and Pharmaceutical segments, partially offset by weak results from Chemical and Social Impact segments. Some SG&A expenses were pushed to the second half, which also boosted first half profit.
  • Completed acquisition of Ikeda Bussan Group, a global cosmetic raw materials supplier, to expand product offerings, customer base, information access and overseas expansion for the HBC & Food segment, strengthening its position as a platform provider.

• Strategic and Operational Initiatives

  • Launched the world's first MicroED crystal structure analysis contract service for pharmaceutical development, supporting clients' new drug development alongside existing services.
  • Increased the Sakura factory CDMO operation rate by implementing a 2-shift system for external preparation manufacturing to meet growing demand from active global new drug development.
  • Re-branded the NAIA Noto-origin nature-science cosmetic line, launched new products using local Noto charcoal and sake lees, and gained broad media coverage centered in the Hokuriku region.
  • Implemented co-creation regional revitalization efforts in the Noto region: led the organization of the 2025 Organic Village Declaration with local farmers and government, aiming to add value to regional agricultural products through area-wide introduction of advanced technology, with Astena playing a coordinating and sales expansion role.

• Human Capital and Corporate Purpose

  • Identifies human capital as the most critical investment for sustained growth, positioning people as a core capital rather than a cost. The company has launched second-generation next-generation leadership training, expanded group-wide training programs, and implemented AI literacy training for leaders and specialized training for employee evangelists.
  • Introduced a new value-added allocation framework that separates external expenditures from newly created value, enabling a positive cycle of increased value creation → expanded human capital investment → increased stakeholder returns. The company also strengthened employee support including both monetary compensation and intangible engagement, and introduced stock-based compensation and tiered development systems to drive motivation and growth.
  • Established a new corporate purpose: "Continue creating tomorrow's 'given'", to serve as a shared axis for employee decision-making and action, strengthen governance consistency, and improve transparency and accountability.

• Capital Return

  • Maintains the dividend policy of a 1.5% DOE lower bound and 30% payout ratio target, keeping the interim dividend at 9 yen per share as planned, with a planned 9 yen per share full-year dividend.

1. Fine Chemical Business: Achieved both revenue and profit growth. It was the top contributor to consolidated operating profit growth, driven by strong development contract business, growing demand for high-quality active pharmaceutical ingredients (APIs), and new MicroED-related contract services expansion. Costs increased due to business expansion-related hiring and office relocation. 2. HBC & Food Business: Achieved both revenue and profit growth, and was a top contributor to consolidated revenue growth. While food raw material, cosmetic raw material, and life science sub-segments saw lackluster performance, the cosmetic manufacturing and sales sub-segment had strong sales of Korean cosmetic brand Torriden and in-house brand Pureal. The company completed the acquisition of Ikeda Bussan Group to expand product lines and distribution channels. 3. Pharmaceutical Business: Achieved both revenue and profit growth. Generic drugs that became selected reimbursement items and high-margin products drove sales growth, and medical institution-exclusive cosmetic series NAVISION DR and illsera performed steadily. Weakness includes continued low sales of generic drugs with adjusted prices higher than originator drugs, and ongoing production halts for some products due to raw material shortages. 4. Chemical Business: Achieved both revenue and profit decline. Overall market conditions remain weak: printed circuit board chemicals have continued sluggish sales, and semiconductor-related chemicals are low due to slowing EV demand, while electronic component chemicals performed steadily. Surface treatment equipment sales dropped sharply after a cycle of customer capital investment, but after-sales repair, maintenance and parts sales hit a record high. The company completed an upgrade of UBM plating equipment to meet demand for 12-inch power semiconductor wafers. 5. Social Impact Business: Achieved both revenue and profit decline. The healthcare sub-segment incurred increased costs from the NAIA brand refresh and related PR investment, while the regional revitalization sub-segment saw steady revenue and profit growth from growing adoption of its local settlement service Furusato NOW.

• Full-year 2025 November fiscal year guidance was upward revised from prior expectations. The new forecast is 64 billion yen in total revenue (≈10% year-on-year growth), 3.1 billion yen in operating profit, and 7.0% ROE, all above previous guidance levels. The upward revision is driven by stronger-than-expected high-value contract manufacturing and in-house production in Fine Chemical, and expanding imported cosmetic sales in HBC & Food.
• The 3-year rolling mid-term management plan ending in 2027 maintains its targets of 70 billion yen in revenue, 3.5 billion yen in operating profit, and 8.8% ROE. Management notes the likelihood of hitting these targets increased following the 2025 upward full-year revision and the Ikeda Bussan acquisition, reflecting steady structural reform progress across segments after the holding structure transition.
• Management classifies its business into three strategic growth layers to balance growth and stability: 1) Stable revenue base layer: build out pharmaceutical and food raw material platforms, secure stable earnings from niche high-specialty fields such as external preparations and surface treatment chemicals as the core foundation for group operations; 2) Value creation layer: push downstream expansion from raw material trading to in-house brand development in healthcare and beauty, build customer touchpoints through a diverse brand portfolio, and pursue both profitability and social value through regional resource-based product development; 3) High-profit growth layer: focus on the CDMO business as a core growth driver, continue to invest in R&D and capital equipment to improve ROE.
• The 3.1 billion yen full-year operating profit forecast is viewed by management as a floor rather than a ceiling, with core high-performing segments not expected to see a break in their positive growth trends through the second half.

• The Chemical segment is highly exposed to cyclical market fluctuations: printed circuit board chemicals remain under weak demand, and semiconductor-related chemicals are pressured by slowing EV demand, requiring the company to build resilience to avoid deep downturns during market troughs.
• Pharmaceutical segment growth is expected to remain stagnant for the foreseeable future due to the difficult generic drug market environment.
• Social Impact (Social Contribution) business is currently unprofitable due to ongoing upfront investment in brand building and regional initiatives, with no clear timeline for returning to profit shared in the call.
• The Fine Chemical segment's CDMO business at the Sakura factory has not yet established a track record of consistent profit generation from contracted projects, requiring further operational execution to deliver expected returns.

Q: Management forecasts that the second half will see large revenue growth both quarter-over-quarter and year-on-year, but operating profit will drop sharply from the first half. Is there a fundamental shift in business trend in the second half? / A: The profit decline forecast is primarily because planned first half expenses have been pushed back to the second half. Management also must take a cautious view of Chemical segment market conditions, so it forecasts a moderated second half performance. The 31 billion yen full-year operating profit target is viewed as a floor, and the core strong trends in Fine Chemical and HBC & Food are not expected to break. Pharmaceutical segment growth is not seen as peaking, and only the Chemical segment's printed circuit board line is expected to remain weak, requiring other product lines to offset this weakness.

Q: After a series of M&A transactions, the company has improved overall profitability and is on track to hit its mid-term targets. What improvements have been achieved, and what remaining issues limit further growth? / A: The biggest permanent improvement is that Fine Chemical has greatly improved profitability through its focus on high value-added business, and HBC & Food has lifted its overall operating margin through strong growth in high-margin Korean cosmetics and in-house brands, building a much more solid earnings base than before. Remaining growth constraints: Fine Chemical's Sakura CDMO factory still needs to deliver consistent profitable project results; the generic drug market environment will keep Pharmaceutical growth stagnant; Chemical needs further reform to reduce downside volatility during market downturns and capture larger gains during upcycles.

Q: What are the specific drivers behind the strong performance of Fine Chemical and Pharmaceutical, and how sustainable are these trends? / A: For Fine Chemical, traditional high-profit products continue to perform well, and the newly launched MicroED contract service has received very strong market demand. Synergies between the group's manufacturing and contract development subsidiaries are also driving growth, with new drug development projects from Spiral Pharma flowing to Spiral Nexus for manufacturing and delivering strong results. For Pharmaceutical, the key driver is the high-margin product luliconazole, along with recent price adjustments for underpriced generic external preparations that have lifted profitability for multiple products, with some of the company's generics now carrying higher prices than the originator drugs, directly boosting profit margins.