Earnings call transcript: Sekisui Chemical’s Q1 2025 sees record sales

Sekisui Chemical Co Ltd reported record high sales and profits for the first quarter of 2025, with net sales reaching ¥305.1 billion, marking an increase of ¥6.3 billion year-over-year. The company also saw a rise in operating profit to ¥21.2 billion, up by ¥1 billion from the previous year. According to InvestingPro data, the company maintains strong financial health with a GOOD overall score of 2.83, supported by robust cash flows and moderate debt levels. Despite these gains, net income was affected by lower cross-shareholding sales and foreign exchange fluctuations. The company’s stock price saw a modest increase of 0.16%, reflecting a positive market response to its robust performance in key segments.

Key Takeaways

• Record high Q1 net sales and operating profit.
• Growth in electronics, housing, and medical segments.
• Stock price increased by 0.16% post-earnings announcement.
• Continued focus on high-value product categories.
• Dividend increase planned to ¥40 per share.

Company Performance

Sekisui Chemical demonstrated strong performance in Q1 2025, achieving record high sales and profits. The company’s electronics segment showed steady growth, particularly in functional foam tapes and heat release materials for semiconductor equipment. The housing segment benefited from increased unit prices and a focus on high-priced products, while the medical segment launched new coagulation devices.

Financial Highlights

• Net Sales: ¥305.1 billion (+¥6.3 billion YoY)
• Operating Profit: ¥21.2 billion (+¥1 billion YoY)
• Projected First Half Net Sales: ¥639.2 billion (+¥10.1 billion YoY)
• Projected First Half Operating Profit: ¥48.9 billion (+¥0.2 billion YoY)

Market Reaction

Sekisui Chemical’s stock price increased by 0.16%, with the last close value at ¥2739.5. The stock remains near its 52-week high of ¥2939.5, indicating strong investor confidence. InvestingPro analysis suggests the stock is currently undervalued, trading at a P/E ratio of 16.09x with a healthy dividend yield of 2.99%. The company has maintained dividend payments for 34 consecutive years, with a 10.81% dividend growth in the last twelve months. This modest increase in stock price reflects the market’s positive reception of the company’s record sales and strategic focus on high-value products.

Outlook & Guidance

The company expects to maintain record high net sales and operating profit for the first half of the year. Sekisui Chemical is also planning to increase its dividend by ¥3 to ¥40 per share. InvestingPro subscribers have access to 8 additional key insights about Sekisui Chemical, including detailed analysis of its financial health, growth prospects, and market position. The company’s strong current ratio of 2.03 and Altman Z-Score of 8.88 indicate solid financial stability. Looking forward, the company aims to produce 100 megawatts of perovskite solar cells by FY2027, showcasing its commitment to innovation and sustainability.

Executive Commentary

• "We expect production in Q2 to be slightly below the outlook," noted a company executive, highlighting potential challenges in meeting production forecasts.
• "Sales of interlayer films for HUD grew steadily," remarked another executive, emphasizing the strong performance in the electronics segment.
• "We’ll continue to focus on expanding sales of gross products," an executive stated, underlining the strategic focus on high-margin products.

Risks and Challenges

• Potential production shortfalls in Q2.
• Impact of foreign exchange fluctuations on ordinary profit.
• Sluggish demand in domestic and overseas construction and consumer goods markets.
• Stagnant EV market affecting the mobility segment.
• Continued decline in new housing starts.

Sekisui Chemical’s Q1 2025 earnings report highlights the company’s strong performance and strategic focus, with positive market reactions despite some challenges in the broader market environment. With a return on equity of 9% and revenue growth of 2.69% in the last twelve months, the company demonstrates resilient operational performance. For comprehensive analysis and detailed metrics, including Fair Value calculations and growth projections, investors can access the full Pro Research Report available on InvestingPro.

Full transcript - Sekisui Chemical Co Ltd (4204) Q1 2026:

Financial Presenter/Executive: Thank you for joining us today despite your busy schedule. I will present the FY ’twenty five first quarter results and the outlook for the first half. Page one shows the FX assumptions and actual results. The Q1 assumption was JPY 152 against 1 dollar but the actual was JPY 145, JPY 7 appreciation versus the plan. For FX assumption for the second quarter, we are assuming 145 yen to the dollar.

Page two shows the overview of the Q1 financial results. In the first quarter, net sales increased by JPY 6,300,000,000.0 to JPY 305,100,000,000.0, with operating profit up by JPY 1,000,000,000 to JPY 21,200,000,000.0. The blue stars indicate renewed record high figures. The ordinary profit was down due to the FX impact, and net income decreased due to smaller gains on sales of cross shareholdings. Page three shows the Q1 breakdown of net sales and operating profit by segment.

In Q1, sales and OP grew substantially for the housing company, both achieving record highs as first quarter numbers. The performance of the housing business offset the decline in sales and profits of all other segments, enabling us to achieve a growth in sales and profits for the group as a whole. The JPY 900,000,000 drop in operating profit for the HPP company in Q1 was caused by the one off expense related to a raw material transaction in Europe. But adjusting for this, profit in effect grew for HPP. We have not disclosed our quarterly profit forecast, but consolidated OP is trending slightly above the plan.

Page four is our outlook for market conditions. Order production globally in the first quarter was in line with our April forecast. We expect production in Q2 to be slightly below the outlook. Q1 smartphone shipments were slightly above the expectation. And for Q2, we expect it to be slightly below our forecast.

The upper right shows the visitors for the housing business. In Q1, both showroom visits and requests for information were down year on year. Although not indicated in the table, campaigns and referrals led to some increase, but the overall level was slightly below the previous year. As shown by the chart below, new housing starts continue to decline, and the outlook for the first half is in line with the original projection. Domestic naphtha price is below our assumption, and we expect this trend to continue in Q2.

Next, on Page five, is the outlook for the first half. As shown at the bottom line of the table, total net sales are expected to be JPY 6 and 39,200,000,000.0, up by JPY 10,100,000,000.0, with operating profit of JPY 48,900,000,000.0, an increase of JPY 200,000,000.0. Both figures are expected to be record highs. By segment, we are aiming for record high sales and OP in the HPP and UIEP segments. Details of each segment will be explained later.

The right side of the table shows the latest forecast against the plan. Despite the net sales projected to fall short of the plan, OP is expected to be on track. We believe that the direct impact of The U. S. Tariff in the first half will be minimal.

In other segment, we are making progress as planned in strengthening our production capacity for perovskite solar cells toward achieving 100 megawatt of production by FY twenty twenty seven. Page six illustrates the by segment outlook for the first and second quarters. As indicated at the bottom of the table, the consolidated operating profit in Q1 grew by 1,000,000,000 and is projected to drop by JPY 800,000,000.0 in Q2. By segment, the housing company was significantly affected by the impact of leveling out of the business fluctuation. Operating profit for HPP was down in Q1 due to the one off expense.

But in Q2, we expect profit increase owing to growth in the mobility field, including interlayer films for head up displays in the aerospace applications, expansion of spreads and reduction of fixed costs. Page seven highlights factors affecting the outlook for the first half. Shown on the left, we expect net sales to be up by JPY 10,100,000,000.0 year on year. On the right is the analysis of factors affecting OP. The impact of volume and mix will increase by JPY 5,500,000,000.0 year on year.

However, the contribution is expected to fall short of the plan due to stagnant market conditions in some areas of HPP and Medical business. In cost reduction, etcetera, on top of the temporary expense for HPP booked in Q1, additional costs will be incurred for repairs of specific products in UIEP in Q2. And as such, the contribution will be less than planned. Despite some negative FX impact, we expect total OP to grow by 200,000,000 yen year on year, in line with April outlook, owing to better margin and fixed cost reductions. Using Page eight, I will explain the first half guidance and dividend.

As mentioned on the previous page, net sales are expected to be JPY 6 and 39,200,000,000.0 with OP of JPY 48,900,000,000.0, both figures achieving record highs. Bornary profit is expected to be up by 1,600,000,000.0 yen to 49,700,000,000.0 yen Net profit is projected to decrease by 7,800,000,000.0 yen year on year to 35,100,000,000.0 yen due to lower gains from the sale of cross shareholdings. We intend a dividend hike of 3 yen to 40 yen per share as planned as interim dividend. Starting from Page nine, I will explain more details for each segment. Starting with our first half outlook and analysis of the HPP company.

The bar graph on the left shows sales of JPY 225,400,000,000.0, an increase of JPY 4,300,000,000.0. Due to the impact of a slowdown in certain markets, particularly in the mobility sector, sales are expected to fall short of the plan. On the right side is the analysis of OP. The volume and mix contribution will fall short of the plan, but will still increase by JPY 6,300,000,000.0 year on year. Despite the negative FX impact, we aim to achieve the first half guidance calling for OP of 30,900,000,000.0 yen a growth of 1,000,000,000 yen year on year due to improvements in raw material prices and fixed cost reductions.

Segment Business Leader: Next, we’d like to move on to Page 10 for three strategic fields for HPP. And regarding electronics, we’ve seen firm large scale display and smartphone trends in the LCD fields. We’ve seen an impact from inventory adjustment in certain semiconductor processing materials in the non LCD field. However, we saw continued steady growth in other products such as functional foam tapes and heat release materials for semiconductor inspection equipment. In The Middle East Mobility, this segment has been affected by the stagnant EV market.

Sales of design interlayer film were particularly sluggish. However, sales of interlayer films for HUD grew steadily and are expected to exceed 130% on sales volume basis in the first half. Aerospace hit the breakeven in the second half of the previous fiscal year and is contributing to earnings this fiscal year exceeding the plan. In the industrial, on the right, domestic and overseas demand for construction and consumer goods is still sluggish, but we’ll continue to focus on expanding sales of gross products by firmly maintaining the spread of sales price improvement that we have been working on since last year. Page 11 shows overview of the first half of FY twenty twenty five forecast for housing company.

First quarter had seen increase in the number of new houses sold and unit prices in the housing business as well as increased order in the renovation business. On the left, net sales are projected to grow by 5,900,000,000.0 yen to 259,600,000,000.0 yen As shown in the analysis OP on the right, the number of houses sold will decrease by two ten in the second quarter, but the total OP in the first half is expected to increase by JPY 1,400,000,000.0 as planned, achieving the forecast of JPY 16,000,000,000. Next, Page 12. Left top shows the status of new housing orders. Although the market is still sluggish, the value of orders is growing steadily, thanks to expanded sales of high priced products such as apartment buildings.

As shown in the bottom bar graph, the number of orders received in the first quarter was 95% year on year, but the value of orders received in the upper line represents 100% of the previous year’s level. For the second quarter, we expect 96% in terms of volume and 101% for the value. And the total order amount for the first half is expected to be in line with the plan. Regarding the order by type of construction, apartment buildings, in particular, are growing steadily. The order backlog at the end of the fiscal year is expected to be JPY 160,000,000,000, the same level as at the March.

The red line on the upper right shows the increase in unit price per building. The unit price has been rising due to, not only an increase in the installation rate of solar and storage batteries but also due to an increase in the ratio of apartment buildings or higher value added housing. Below lift is the renovation orders. Steady progress in strengthening the sales training has ensured that maintenance demand from periodic inspections has been captured and growing. Sales in the real estate business in the middle of the bottom also grew steadily.

The Town and Community Development business in the lower right also performed well with new sales of projects starting as planned. Page 13 shows overview of the first half twenty twenty five forecast for UIEP Company. Despite continued weak domestic housing and nonresidential market conditions, by entrenching new prices, we project the net sales to increase by JPY 1,500,000,000.0 to JPY 114,900,000,000.0 and operating income to slightly increase to JPY 8,500,000,000.0, expecting to make a record high number in the first half. Page 14 shows three strategic fields for UIEP company. Pipe Systems in the upper left.

In the Piping Materials market remains sluggish, but we project growth in the second quarter on the back of an increase in prioritized product sales. CPBC, chlorinated polyvinyl chloride, despite the prolonged weak market conditions in India, a major demand center, we work to expand market share through new products. Upper right, Building and Infrastructure Composite Materials. For fire resistant and nonflammable materials, we are continuing to acquire new customers. For FFU Railway Sleeper, we work to expand applications mainly in Europe.

For prefabricated bus, we’ll focus on capturing nursing care and renovation demand. Bottom left is infrastructure renovation. For the pipeline renewal, surveys of aging sewer pipes are progressing, and we’ll work to acquire new orders, although the contribution will not be seen until the second half. In the ecosystem, we continue to focus on large scale plant equipment and facilities as well as water storage panel tank orders. Right bottom are indices for priority initiatives.

As for the prioritized product sales, we expect growth mainly in polyethylene pipes and fire resistant pipes. For overseas, although we are affected by the sluggish Indian market, we expect growth in Europe, mainly in FFU. Page 15 is Medical business. In the Medical business, sales of mainstay pharmaceutical ingredients grew, but the diagnostic sales are projected to drop by 2,100,000,000.0 yen to 45,800,000,000.0 yen due to sluggish demand for infectious diseases testing kit in Japan and overseas and deteriorating market conditions in China. Right side shows the analysis of OP, which is affected by a decrease in demand and shipments of infectious disease testing kits in The U.

S. And the worsening of Chinese market due to measures to curb medical expenses. Despite efforts to control fixed cost, we’ve made downward revision of OP plan. We forecast 5,300,000,000.0 yen down by 700,000,000.0 yen Y o Y. Page 16 is overview by sub business segment for Medical business.

Top left is domestic Diagnostics business. We launched new coagulation devices in Q1. We work to expand sales of reagents. Top right is Overseas Diagnostics business, whose results were lower than expected in U. S.

And China. As a response to preferential measures for Made in China products, we plan to launch new coagulation devices manufactured in China in the second half. To that end, we’ll make steady preparations in the second quarter. In the Pharmaceutical Sciences business, we are observing firm trends in mainstay pharmaceutical ingredient and drug development solution orders. Bottom right shows the sales of infectious disease testing kits, which are usually sluggish in the first quarter.

We expect the sales to fall slightly short of the plan in this first half as well. We’ll continue to focus on sales expansion, and that’s all from myself. Thank you very much.

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