Equity Research · Japan · Chemicals

Sakai Chemical Industry Co., Ltd.

堺化学工業株式会社 · TSE Prime: 4078 · Report date 2026-08-15
BUY — Target ¥5,100 (+27%)
Current Price
¥4,010
Market Cap
¥70.5B
P/E (FY27E)
14.0x
P/B (FY26)
0.79x
Div Yield (FY27E)
4.0%
Target
¥5,100
1

Executive Summary

Portfolio transformation in progress

Sakai Chemical is a century-old Osaka specialty-chemicals group (founded 1918 on zinc) that is mid-way through a deliberate portfolio transformation: it is exiting the commodity pigment-grade TiO₂ business (~¥10B/yr revenue) while reinvesting into electronic materials (MLCC dielectric powders) and high-margin specialty inorganics. The company operates 11 reportable segments spanning electronic materials (high-purity dielectric powder, BaCO₃, spherical silica), cosmetics materials (ultra-fine ZnO), organic chemicals (pharma APIs), hygiene materials (SAP), contract processing, TiO₂/zinc products, resin additives (metal soaps, tin stabilizers), catalysts (DeNOx), inorganic materials (barium sulfate, strontium carbonate), medical (Kaigen Pharma: X-ray contrast media, cold medicine 改源) and other (phosphates, nickel acetate, road marking).

Revenue has been flat around ¥80–84bn (5-yr CAGR ≈ +0.4%), but the profit story is improving mix and quality: FY2026 operating profit hit a record ¥6,452M (7.9% margin) with ordinary profit ¥6,545M, and operating cash flow strengthened to ¥14,479M (FCF ¥9,834M). Net profit of ¥2,752M was depressed by one-off below-the-line charges (cosmetic-materials impairment ¥2,962M + restructuring ¥350M), and FY2027 guidance shows net profit recovering +59.9% to ¥4,400M (EPS ¥287.4) on flat revenue ¥81,700M as the TiO₂ exit drags OP -7% to ¥6,000M.

Core argument: At ¥4,010 with P/B 0.79x, dividend yield ~4.0% (DPS ¥160 guided, 4th consecutive increase), and electronic materials compounding at 20%+ revenue CAGR on AI-server MLCC demand, the market is pricing a "one-engine airplane" that is actually being refueled — the TiO₂ exit is a deliberate, disclosed, balance-sheet-cleaning step, not an accident. Upside scenario: ¥5,173 (P/E 18x FY27E EPS), +29%.
Electronic materials = 28% of OP, +20% CAGR Pigment TiO₂ exited FY2026 DPS ¥70→¥160 in 4 yrs Net cash, FCF ¥9.8B ROE target 8% (FY26: 3.5%)
2

Investment Thesis

Three pillars of conviction

T1. Electronic Materials — the AI-MLCC dielectric engine

STRONG
  • What it is: high-purity dielectric powders for MLCCs (BaTiO₃ via proprietary hydrothermal synthesis, BT/BTZ/ST/CT series), high-purity BaCO₃, and spherical silica (Sciqas®) for semiconductor encapsulation. Own-brand, vertically integrated from raw barium chloride to powder.
  • Numbers: revenue ¥7,857M → ¥11,377M FY2024→FY2026 (+20.3% CAGR); OP ¥616M → ¥1,816M (+71.7% CAGR); FY26 margin 16.0%; FY26 OP growth = 90% of the consolidated OP increase.
  • Momentum: Q1 FY2027 revenue +17.2% YoY, OP +22.1% YoY; capacity "quite full" with concrete expansion capex under preparation; high-profit product share passed 10% of segment revenue, mechanically lifting mix and ASP.
  • Position: #1 merchant supplier of high-end (≤50nm) dielectric powder — ~30% of externally-purchased high-end powder; global BaTiO₃ share ~16.5–28% (source-dependent). Customers: Murata, Taiyo Yuden, TDK, Samsung Electro-Mechanics.
  • Tailwind: MLCC market forecast ~8%/yr growth by company estimate; AI-server demand is a structural accelerator (some dielectric products +2x, dielectric material +3x YoY in FY2025).
Counter: MLCC cycle (FY2023 inventory-correction episode); concentrated buyers (>80% global MLCC share in top few makers); Goldman Sachs (May 2026) reports Murata qualifying Sinocera (国瓷材料) as second source for AI-grade powder — the first credible challenge to the merchant high-end monopoly.

T2. Portfolio Transformation — swapping a ¥10B commodity for a ¥11B specialty

STRONG
  • The exit: pigment-grade TiO₂ (low capex efficiency, high environmental burden) was pre-announced in FY2024 and executed "as planned, trouble-free" by end-FY2026; cumulative FY2025→FY2027 segment revenue swing ~¥10.4B, leaving a zinc-oxide/functional-TiO₂ residual (~¥2–3B/yr).
  • The reinvestment: proceeds fund electronics-materials capacity expansion, R&D (Smart Material® — 5 launches by 2030), and capital returns; 無機材料 (23.5% margin) and 触媒 (+630M OP in FY26) are already offsetting the drag.
  • FY2027 guidance: revenue flat +0.3% to ¥81.7B (organic chemicals and その他 grow into the TiO₂ hole); OP -7.0% to ¥6.0B — the exit cost is transparent and one-time; net profit +59.9% to ¥4.4B (incl. ~¥1.0B disposal-site gain to Daiei Kankyo booked in Q1).
  • Quality: the FY2026 record OP is "clean" — impairments sit below the line (extraordinary losses), so margin quality has structurally improved from the FY2022–23 cost-shock era.
Counter: transformation is a two-year event — FY2027 carries the full revenue/OP step-down in the TiO₂ segment (Q1 already -30.6% rev / -65.1% OP); group OP is guided down in FY2027, so the AI tailwind is not yet large enough to fully offset the exit.

T3. Capital Returns — 4 consecutive dividend hikes + buybacks at 0.79x book

MEDIUM
  • Dividend: DPS ¥70 → ¥75 → ¥70 → ¥135 → ¥145 → ¥160(FY27E) — a 4-year up-cycle, now above pre-impairment levels; FY27E yield ~4.0%.
  • Buyback: ¥2.5B + 1M-share cancellation in FY2026; ¥7.0B / 1.52M-share buyback launched in FY2027 explicitly to offset CB-conversion dilution (4th convertible bond → 1.519M new shares); 3-yr cumulative shareholder return ¥9.4B vs ¥8.0B plan (DOE >3%).
  • Valuation support: P/B 0.79x vs BPS ¥5,073; P/E 14.0x FY27E EPS ¥287.4; 3-yr OP CAGR +13.5% (Monex) vs. flat multiple — re-rating optionality on ROE recovery toward the 8% target.
  • Governance: business alliance with activist fund IA Partners terminated (constructively — transformation delivered); asset-compression program (CCC 216→178 days, working-capital release ¥8.9B over 2 years); policy holdings trimmed (Tayca, Miyoshi Yushi sold).
Counter: FY2026 ROE only 3.5% (below 8% target) due to extraordinary losses; standalone payout ratio hit 283.5% — the dividend is increasingly funded by consolidated earnings quality rather than single-entity profitability.
3

Financial Trajectory

Consolidated P&L FY2022–FY2027E
Consolidated income statement, ¥ million (EPS/DPS in ¥); FY2027E = company guidance
ItemFY2022FY2023FY2024FY2025FY2026FY2027E
Net Sales80,13583,86182,10584,40981,44781,700
YoY %-5.6%+4.6%-2.1%+2.8%-3.5%+0.3%
Gross Profit21,04518,47916,85720,28220,704—
Gross Margin %26.3%22.0%20.5%24.0%25.4%—
Operating Profit7,4944,4072,9426,0936,4526,000
Operating Margin %9.4%5.3%3.6%7.2%7.9%7.3%
Ordinary Profit8,8404,8543,0666,2796,5456,100
Net Profit (parent)6,7472,344-7,0925,0132,7524,400
Net Margin %8.4%2.8%-8.6%5.9%3.4%5.4%
EPS (¥)407.06144.85-437.65309.21176.42287.37
DPS (¥)707570135145160
Operating CF6,5677736,86612,00514,479—
Free Cash Flow4,913-1,8472,9036,2919,834—
Revenue (¥B, bars) & Operating Margin (%, line) 020406080 80.1 83.9 82.1 84.4 81.4 81.7 FY22FY23FY24FY25FY26FY27E 9.4% 5.3% 3.6% 7.2% 7.9% 7.3%E
Revenue (¥B)Operating margin (%)FY24 net loss -¥7.1B from ¥6.66B impairment (below OP)
4

Business Deep Dive

Seven dimensions on the three core segments
① Product Portfolio & Segment Anatomy
Dimension 1 — what each business actually is, who runs it, and the business model
Selected product families across the three core segments (company product pages, IR)
SegmentKey products / brandsTechnologyFY26 Rev (¥M)FY26 Margin
電子材料BaTiO₃ dielectric powders (BT/BTZ/ST/CT, SZ/CZ)Hydrothermal synthesis (world-first mass production)11,37716.0%
High-purity barium carbonate (高純度BaCO₃)High-purity refining
Spherical silica Sciqas® / Sciqas®-LTSpheroidization (JPCA Encouragement Award 2024)
無機材料Precipitated barium sulfate (沈降性硫酸バリウム, blanc-fixe type)Particle-size/shape control, nano dispersion (<100nm grades)5,10023.5%
Strontium carbonate (炭酸ストロンチウム)High-purity for glass/ferrite/electronics
酸化チタン・亜鉛Pigment-grade rutile TiO₂ (EXITED FY2026)Sulfate/chloride pigment process10,24411.9%
Zinc oxide (LPZINC® thermal filler, FighZinc® antibacterial, sunscreen grades)>100 yrs particle control, <50nm nano
Functional TiO₂ (heat-dissipation / cosmetics grades)Surface treatment

Subsidiary map: 堺商事 (Sakai Shoji, wholly-owned 2023 — trading/sales, ¥10.0B sales), Kaigen Pharma (medical, ¥8.4B sales), Osaki Industry (その他: road marking LINEPHALT®, organo-P, nickel acetate), Resin Color / Nippon Color (contract processing), Kyodo Yakuhin (resin additives), Sakai Chemical Vietnam / SIAM Stabilizers (resin additives), PT S&S Hygiene (hygiene), plus overseas sales cos. (New York, Shanghai, Taiwan, Thailand, Australia).

② Market Position & Competitive Advantage
Dimension 2 — moats, market shares, barriers

電子材料

#1 merchant high-end dielectric powder

~30% of externally-purchased high-end (≤50nm) powder; global BaTiO₃ share ~16.5–28% (secondary, directional). Barrier: 2–3 yr qualification cycle, rarely switched once qualified; hydrothermal know-how; barium-chloride multi-sourcing via Sakai Shoji.

無機材料

Global top-3 barium/strontium

~15.4% superfine precipitated barium sulfate (behind Venator 26.5%, Solvay 21.7%); ~12% strontium carbonate; Asia-Pacific leader (~22%). Moat = purity/particle control for demanding electronics/glass — NOT cost (Chinese capacity holds commodity pricing).

酸化チタン・亜鉛

ZnO specialty leader, TiO₂ commodity exiter

~15% global sunscreen-grade ultrafine ZnO (company estimate, IR 2025); 100+ yrs particle control. Pigment TiO₂ was a scale-losing commodity (exited); domestic rivals Ishihara Sangyo (ISK), Tayca.

Competitive landscape — dielectric powders (primary focus)
PlayerPositionThreat / relation to Sakai
Sakai Chemical#1 merchant high-end (hydrothermal duopoly)—
Nippon Chemical Industrial (NCI)Top-5 global BaTiO₃Direct competitor, solid-state route
Fuji TitaniumMurata-affiliated JVCaptive supplier — source of Murata's own powder
Kyoritsu Material (Noritake group)Hydrothermal duopolyDirect hydrothermal rival
Sinocera (国瓷材料)Rising Chinese mid/high-endKey risk: GS (May 2026) reports Murata qualifying it as 2nd source for AI-grade
KCM (KR), Ferro/Prince, Kyocera (in-house)Regional / captiveSecondary competition
③ Profit-Driver Decomposition — Volume / Price / Cost / Mix
Dimension 3 — the single most important dimension; explains margin sustainability
What moved segment OP in FY2026 (YoY, ¥M)
SegmentΔOP FY26VolumePriceCostMixReading
電子材料+323High (capacity full)Price revisionsStableDominant — high-profit share >10% of revPricing power + mix, not pure cycle
無機材料+374Moderate recovery価格改定 (+20–100¥/kg)Impairment base (−¥1.86B asset) lowers D&AImproving (shedding unprofitable)Base-effect + price — watch repeatability
酸化チタン・亜鉛-257Pigment wind-downLegacy gains doneUnit fixed-cost up (underutilization)ZnO/func only post-exitExit-driven step-down, Q1 FY27 -65.1% OP
FY2026 segment-OP change bridge (¥M, FY25→FY26 subtotal +483) +630 +374 +327 +323 +185 +30 -24 -49 -257 -325 -730 触媒無機その他電子受託衛生医療有機TiO₂亜鉛樹脂化粧

Green = gain, amber = loss, red = largest negative. 電子材料 alone accounted for 90% of the consolidated OP increase (+¥359M).

④ Demand Structure & Downstream
Dimension 4 — end markets, cyclicality, fragility
End-market structure (company disclosures + market research)
SegmentEnd markets / applicationsCycle profileKey dependency
電子材料MLCC: AI servers (hot spot), smartphones/tablets, automotive (EV/ADAS), 5G; plus semiconductor encapsulation (silica), battery materialsCyclical (MLCC), with AI structural accelerator; market ~+8%/yrSingle-cycle fragility: FY2023–24 China MLCC inventory correction hit sales
無機材料Coatings/paints (extender, partial TiO₂ replacement), plastics & rubber, inks, glass/ferrite (SrCO₃), electronics gradesCyclical + China-sensitiveChina construction/coatings downturn directly flagged as drag
酸化チタン・亜鉛Legacy TiO₂: paints/plastics/paper (removed); ZnO: tyres/rubber, cosmetics/sunscreen, thermal-management, antimicrobialModerately defensive (auto-linked)Sunscreen shift from inorganic (ZnO/TiO₂) to organic UV absorbers — explicit headwind
⑤ Strategic Transition — capacity, capex & mid-term plan
Dimension 5 — 「変革・BEYOND2030」 and the visible roadmap
  • Mid-term plan 「変革・BEYOND2030」 (FY2025/3–FY2027/3): 3 growth fields — 環境・エネルギー, エレクトロニクス, ライフサイエンス・ヘルスケア; goal "Smart Material で社会に貢献するエクセレントカンパニー"; 3 priorities: portfolio shift to high-value-added, ROE > capital cost / PBR improvement, materiality-driven management.
  • 電子材料 capacity: effectively sold out ("quite full"); management states capacity-expansion capex is being concretely considered (具体的に検討中). Secondary source (robo.datayes, unconfirmed) claims ~1,500t BaTiO₃ expansion 2026–27 — flagged, not company-confirmed.
  • TiO₂/ZnO roadmap (2025.3 mid-year briefing): price revisions → eliminate losses (done FY2025); pigment-TiO₂ exit (done FY2026); fixed-cost-ratio improvement; part of zinc → stable business. Board approved Iwaki disposal-site sale to Daiei Kankyo (2026/3/23, ~¥1.0B gain in FY2027 Q1).
  • 無機材料/触媒: classified as "efficiency-review businesses (上振れ)" — plan-beating in FY2026; target = convert to stable businesses by plan end.
  • Capital deployment: proceeds of asset sales + ¥7.0B buyback fund electronics expansion, R&D (Smart Material® — 5 launches by 2030), and the ¥160 DPS.
⑥ Competition & Risk
Dimension 6 — the soft spots, company-quantified where possible
Risk severity across the core segments (company disclosures + research)
RiskSeveritySensitivity / note
Customer concentration (電子材料)HIGHCompany-quantified: top few MLCC makers >80% world share → "significant pressure of purchasing power"; second-source threat from Sinocera (GS report)
MLCC cycle downturnMEDFY2023–24 episode cut segment sales sharply; AI demand currently accelerating but "slowing but steady"
China dependence (無機材料)MEDBarite imported from China (environmental/energy cost inflation); China construction/coatings demand softness
Zinc metal / raw-material price & FXMEDZnO = price-taker to LME zinc; imported ilmenite/barium chloride; weak yen = cost headwind (no company-quantified tier found)
Cosmetics trend shiftMEDInorganic→organic UV-filter shift eroded the ¥2.96B-impaired cosmetics business
TiO₂ exit tailLOW-MEDStranded fixed costs, decommissioning/environmental obligations, ¥350M early-retirement program (FY2026)
⑦ Governance & Capital-Return Signals
Dimension 7 — shareholders, management, dividends, ROE trajectory
  • Dividend policy: DPS ¥70→¥75→¥70→¥135→¥145→¥160(FY27E); FY2027E yield ~4.0%; 3-yr total shareholder return ¥9.4B vs ¥8.0B plan (DOE >3%).
  • Buybacks: ¥2.5B + 1M-share cancellation (FY2026); ¥7.0B / 1.52M-share program (FY2027) explicitly to offset 4th-CB conversion dilution; policy holdings trimmed (Tayca, Miyoshi Yushi sold).
  • ROE trajectory: 8.7% (FY22) → 2.9% (FY23) → -9.2% (FY24) → 6.6% (FY25) → 3.5% (FY26, extraordinary losses) → 8% target (FY27); equity ratio 66.3%, net cash with ¥10.5B undrawn committed credit.
  • Governance: IA Partners (activist) business alliance terminated — transformation delivered constructively; board committed to "no efficiency-review businesses remaining by FY2027"; CCC improved 216→178 days (target <180, releasing ¥8.9B op-CF over 2 yrs).
5

Segment Structure

All 11 segments — revenue, profit, margin
FY2026 segment P&L, ¥M (sorted by FY26 OP; restated 11-segment basis)
SegmentFY26 RevFY26 OPMarginRev CAGR 24→26FY26 ΔOP
電子材料11,3771,81616.0%+20.3%+323
その他 (phosphates, Ni-acetate, road marking)10,4271,49814.4%+7.9%+327
酸化チタン・亜鉛製品10,2441,22211.9%-14.2%-257
無機材料5,1001,20023.5%+1.3%+374
樹脂添加剤11,5071,0689.3%-7.1%-325
受託加工6,67780512.1%+3.8%+185
有機化学品7,18572110.0%-4.0%-49
触媒3,46264818.7%+4.7%+630
衛生材料5,3534578.5%+0.1%+30
医療事業8,391-48n.m.+2.1%-24
化粧品材料1,720-437n.m.-17.0%-730
Segment subtotal81,4438,95011.0%—+483
Unallocated HQ costs—-2,500——-124
Consolidated81,4476,4527.9%—+359
FY2026 operating profit by segment (¥M) — 電子材料 #1, 化粧品 #11 0 500 1000 1500 2000 電子材料 1,816 その他 1,498 酸化チタン・亜鉛 1,222 無機材料 1,200 樹脂添加剤 1,068 受託加工 805 有機化学品 721 触媒 648 衛生材料 457 医療 -48 化粧品材料 -437

Consolidated OP ¥6,452M = segment subtotal ¥8,950M − ¥2,500M unallocated HQ costs. Two negative-margin segments (医療, 化粧品) offset the growth engine.

6

Anomaly Analysis

What broke the trend — and what it means

1. FY2024 net loss of ¥7,092M — ¥6,661M impairmentHIGH

Net profit ¥+2,344M → -¥7,092M (~-400% deviation); extraordinary losses ¥466M → ¥6,843M. Impairment split: 酸化チタン・亜鉛 ¥3,790M + 無機材料 ¥1,856M + 医療 ¥464M + others.

Cause: FY2024 report pre-announced pigment-TiO₂ exit (FY2026); charges structurally linked to portfolio restructuring (business-plan revision / recoverable-amount shortfalls). Management rationale paragraph not directly recoverable via ima RAG — flagged.

Risk assessment: One-off, below-OP, and consistent with the disclosed exit — cleans the balance sheet for the specialty pivot; ROE -9.2% that year is not representative of earning power.

2. FY2026 cosmetic-materials segment reversalHIGH

+¥293M → -¥437M OP; revenue -35.7% to ¥1,720M; ¥2,962M impairment (≈all of the ¥2,982M total).

Cause: regulatory pressure on ultra-fine (nano) ZnO in cosmetics (regulatory-compliance ZnO development referenced in FY2026 report) + sunscreen market shift to organic UV absorbers; multi-plant impairment booked Q3 FY2026.

Risk assessment: Structural, not cyclical — the segment has shrunk to ¥1.7B revenue; impairment clears capacity but the trend headwind remains.

3. Pigment-grade TiO₂ business exitMED

Fixed-asset gain ¥1,490M in FY2026 特別利益; 酸化チタン・亜鉛 revenue ¥13,118M → ¥10,244M (-21.9%); exit completed 2026/4/15; Iwaki disposal-site (~¥1.0B gain) booked FY2027 Q1.

Cause: low capex efficiency + high environmental burden; declared in FY2024, executed "trouble-free" in FY2026 — directly confirmed by ima RAG.

Risk assessment: Known, disclosed, transformative — the ¥10.4B cumulative segment revenue swing is masked at group level by FY2027 flat guidance; watch whether electronics fills the hole.

4. FY2026 net profit -45.1% despite record OPMED

OP record ¥6,452M (+5.9%) yet net profit ¥2,752M (-45.1%, -¥2,261M); EPS ¥309.21 → ¥176.42.

Cause: below-the-line drag — cosmetic-materials impairment ¥2,962M + ¥350M early-retirement costs, partially offset by ¥1,490M TiO₂ asset gain and lower taxes.

Risk assessment: OP is "clean", NP already absorbed the hits; FY2027 net profit guided +59.9% to ¥4,400M — the noise is behind.

5. FY2022→FY2023 gross-margin breakMED

Gross margin 26.3% → 22.0% (-4.3pp); OP -41.2% to ¥4,407M despite +4.6% revenue growth.

Cause: raw-material/fuel cost inflation + intensified competition (company's own risk-factor language); FY2023 report itself frames "sales up, operating profit down".

Risk assessment: Cost-shock era now passed — margins recovered to 25.4% (FY2026) on price revisions and mix; the margin break marked the trough of the old commodity model.

6. Dividend jump ¥70 → ¥135 → ¥145LOW

DPS +92.9% in FY2025; consolidated-EPS payout 22% (FY22) → 43.7% (FY25) → 82.2% (FY26); standalone payout 283.5% (FY26).

Cause: deliberate capital-return policy shift under the transformation; ¥70/share was maintained even in the FY2024 loss year.

Risk assessment: Signaled intent (¥160 guided FY2027, ¥9.4B 3-yr return vs ¥8.0B plan) — sustainability depends on consolidated earnings quality; watch FY2027 delivery.

7. FY2026 revenue -3.5% on record profitLOW

Revenue ¥84,409M → ¥81,447M (-3.5%) while OP +5.9% — growth came from mix, not volume.

Cause: portfolio mix — TiO₂/zinc (-21.9%) and resin additives (-11.9%) shrinking while electronics (+13.6%) and その他 (+2.5%) grew.

Risk assessment: Structurally intended — the revenue base is being deliberately recomposed toward higher-margin specialties.

7

Valuation

Scenarios, peers, and the price-to-book argument
Conservative (×12 PE)
¥3,444
-14%
PE 12x × EPS 287.4; P/B 0.68x — prices the TiO₂ drag and one-engine risk fully
Base (×16 PE)
¥4,598
+15%
PE 16x (≈Nikkei) × EPS 287.4; P/B 0.91x
Target (×18 PE)
¥5,173
+29%
PE 18x × EPS 287.4; P/B 1.02x — re-rating on ROE recovery & electronics delivery
Target-price scenarios (¥) vs current ¥4,010 0100020003000400050006000 保守 3,444 (-14%) 現価 4,010 基準 4,598 (+15%) 目標 5,173 (+29%)
Valuation metrics (2026-08-14 close ¥4,010)
MetricValueComment
P/E (FY2026 actual EPS ¥176.42)22.7xDepressed by extraordinary losses
P/E (FY2027E EPS ¥287.37)14.0xGuided NP +59.9%
P/B (BPS ¥5,073)0.79xBelow 1.0 — re-rating optionality
Dividend yield (DPS ¥160)4.0%4th consecutive increase
ROE (FY2026 / FY2027 target)3.5% / 8.0%Target ≈ cost of equity
EV / EBITDA (est.)~7xNet cash; FCF ¥9.8B FY26
8

Catalysts

Next 12 months
WhenCatalystPotential impact
Already in Q1 FY27Q1 results: OP +22.1% in electronic materials; net profit ¥2.0B incl. ~¥1.0B disposal-site gainConfirms electronics trajectory; TiO₂ exit drag visible (-30.6% seg. rev)
Nov 2026 (Q2 FY27)Interim results — first read on FY2027 guidance delivery & any revisionFY2027 OP ¥6.0B guidance has upside potential if electronics beats
H2 FY27 / FY28Electronic-materials capacity-expansion decision (capex "concretely under consideration")Single biggest re-rating trigger — capacity relief = volume + share gains
Ongoing¥7.0B buyback execution (CB-conversion dilution offset)Per-share value support; signals capital-return discipline
FY2027Mid-term plan 「変革・BEYOND2030」final year — efficiency-review businesses converted to stable businessesProof-point of the transformation narrative
FY2028Smart Material® R&D pipeline (5 launches by 2030) & 環境・エネルギー / ライフサイエンス field winsExtends growth beyond MLCC dielectric
9

Risks

What could break the thesis
Risk register (rated)
#RiskSeverityDetail / sensitivity
1Single-engine concentrationHIGH電子材料 = 28% of OP and growing; MLCC cycle downturn (FY2023 episode) hits both revenue and the re-rating story
2Merchant-powder competitionHIGHSinocera second-source qualification (GS report) could erode the ~30% merchant high-end share and ASPs
3Customer bargaining powerMEDTop MLCC makers >80% world share — price pressure structurally high (company-quantified)
4TiO₂ exit residual costsMEDDecommissioning/environmental obligations, stranded costs, FY2027 OP step-down (Q1 -65.1% seg. OP)
5China demand & FX/raw materialsMEDBarium sulfate/strontium tied to China construction; barite & zinc imports + weak yen = cost headwinds
6Cosmetics structural declineLOW-MEDInorganic→organic UV-filter shift persists; segment small (¥1.7B) but still dilutes group margin
10

Profit Quality

Is the earnings improvement real?
Quality metrics, FY2022–FY2026 (+ FY2027E)
MetricFY2022FY2023FY2024FY2025FY2026FY2027E
Gross margin %26.3%22.0%20.5%24.0%25.4%—
Operating margin %9.4%5.3%3.6%7.2%7.9%7.3%
Ordinary/Operating ratio1.181.101.041.031.011.02
Operating CF (¥M)6,5677736,86612,00514,479—
Free CF (¥M)4,913-1,8472,9036,2919,834—
ROE %8.7%2.9%-9.2%6.6%3.5%8.0% (target)
Payout % (consol. EPS)17.2%51.8%n.m.43.7%82.2%55.7%
Equity ratio %63.6%62.9%59.3%63.5%66.3%—
Net cash / total debt (¥M)Net cash position; interest-bearing debt ¥13.0B (FY26) with ¥10.5B undrawn committed lines; cash ¥15.4B—
Verdict — improving, with two caveats. (1) OP quality is genuinely better: gross margin recovered to 25.4%, operating CF nearly doubled to ¥14.5B, FCF ¥9.8B, and the FY2026 record OP is "clean" (impairments sit below the line). (2) Caveats: net profit quality is still depressed by one-offs (FY26 ROE 3.5%), the 82.2% payout on consolidated EPS is aggressive (supported by asset-sale proceeds), and 無機材料's 23.5% margin is base-effect-driven. FY2027 net-profit guidance (+59.9%) is the first clean-year evidence of the new earnings mix.
11

Conclusion

Verdict, timeframe, conviction
BUY — Target ¥5,100 (+27%)

Time horizon: 12 months · Conviction: Medium-High

4.5
Growth
3.5
Profitability
4.5
Financial Strength
4.0
Valuation
3.5
Capital Returns
  • ✓ Electronic materials is a genuine, high-margin growth engine (20%+ rev CAGR, 16% margin, AI-MLCC tailwind, capacity sold out) — 90% of FY26 OP growth.
  • ✓ The pigment-TiO₂ exit is disclosed, deliberate, and balance-sheet-cleaning; FY2027 group OP -7% is the visible, one-time cost of transformation.
  • ✓ Record operating CF (¥14.5B), FCF ¥9.8B, net cash, equity ratio 66.3% — earnings are cash-backed.
  • ✓ Valuation support: P/B 0.79x, P/E 14.0x FY27E, dividend yield ~4.0%, 4 consecutive hikes, ¥7.0B buyback.
  • ✓ ROE 8% target for FY2027 vs 3.5% FY2026 — re-rating optionality if delivered.
  • ✓ 無機材料 (23.5% margin) and その他 (¥1.5B OP) quietly pay the transition cost; 触媒 recovering (+630M).
  • ✓ FY2027 Q1 already confirms the electronics trajectory (+22.1% OP) and the disposal gain (¥2.0B NP).
  • ⚠ Single-engine concentration: 電子材料 must deliver capacity expansion to offset the TiO₂ hole; delays cap the story.
  • ⚠ Sinocera second-sourcing (GS report) is the first credible threat to the merchant high-end powder franchise.
  • ⚠ Aggressive payout (82.2% consol. EPS) leans on asset-sale proceeds; FY2027 delivery is the proof point.

Recommended actions: Accumulate at current levels (¥3,900–4,100); add on confirmation of electronic-materials capacity capex or FY2027 guidance delivery; trim if MLCC cycle turns or Sinocera wins material share.

Sources: Company 有価証券報告書 FY2022–FY2026 (EDINET via ima knowledge base 7485568325796905); FY2026 決算説明会 & FY2027 Q1 call transcripts; Electronic Materials Business Strategy Briefing (Dec 2025); 変革・BEYOND2030 mid-term plan materials; Integrated Report 2025; kabutan/Monex/Yahoo Finance/MarketWatch/BigGo market data (2026-08-14 close ¥4,010); FISCO & secondary supply-chain analyses (flagged as secondary where used).

Disclaimer: This report is for informational purposes only and does not constitute investment advice or a solicitation to buy/sell securities. Figures are compiled from public disclosures; estimates are analyst calculations. Japanese market convention: red = up, green = down.