Daiichi Kigenso Kagaku Kogyo 4082
第一稀元素化学工業
Recent Updates
Get in touch
Schneider Electric Osaka Building 9th floor, 4-4-9 Kitahama, Chuo-ku, Osaka 541-0041, Japan
Summary
The company mainly manufactures and sells zirconium compounds, although it also handles cesium, rare-earth, and other inorganic compounds. The value chain starts with the production of iron ore, after which intermediate materials are processed into primary products.
Chemicals
Key dates
2019-05-07
Coverage initiation
Executive summary
Business overview
Integrated production of zirconium compounds: The company mainly manufactures and sells zirconium compounds, although it also handles cesium, rare-earth, and other inorganic compounds. (In FY03/18, sales of zirconium compounds were JPY22.9bn, and sales of other compounds were JPY2.6bn.) The value chain starts with the production of raw zirconium ore, after which intermediate materials are processed into primary products. These are delivered to secondary product manufacturers, which send their products on to companies that assemble them into final consumer products. Daiichi Kigenso and its group companies produce intermediate materials from raw zirconium ore and also manufacture and sell primary products. This level of integration allows the company to offer a full lineup of products tailored to customer requirements.
Product characteristics and applications: Zirconium has extremely diverse properties, the characteristics of which vary depending on its manufacturing method, with which substances it bonds, and changes in its crystal structure. Zirconium compounds exhibit ionic conductivity, strong acidity and chemical resistance, high heat resistance, high strength and ductility, water repellency, a high refractive index, piezoelectricity, and dielectric characteristics.
Leveraging these material characteristics, the company provides secondary product manufacturers with materials for use in such applications as catalysts (62.2% of consolidated sales in FY03/21), refractories & friction materials (9.7%), fine ceramics (10.5%), and electronic parts & oxygen sensors (10.8%). In FY03/21, 47.9% of sales were in Japan, 24.9% in Asia, 13.7% in Europe, and 12.5% in North America. Overseas sales accounted for 52.1% of the total sales.
Catalysts: Catalysts are mainly used to improve performance of the catalytic converters found on gasoline-powered vehicles. (According to Daiichi Kigenso, the majority of all catalysts are used in automobiles, and the company has a global market share of around 40% in this category.) Including friction materials and oxygen sensors, the company relies on the automotive industry for some 80% of consolidated sales. As a result, performance is affected by unit production of automobiles and consumer preferences on fuel consumption (engine size).
Whereas various sources of market research suggest that internal combustion automobile production is likely to peak sometime around 2024, the company deems that its sales of catalysts are likely to peak in 2027 or later given its substantial market share when it comes to hybrid vehicles. The company plans to keep developing applications in new fields until its sales of catalysts have peaked, while generating profits from its existing applications for the time being, in alignment with the strategy it has held to thus far.
Having learned from its experience during the rare earth elements crisis from the second half of 2010 through 2012 or so (described later in the report), the company now bases the selling price of its catalysts on the market prices of raw materials.
Longer term growth drivers: The company sees two long-term growth drivers: the rapid take-up of hybrid vehicles due to tougher environmental regulations and advancements in C.A.S.E. (Connected, Autonomous, Shared & Services, and Electric) mobility; and spread of vehicles without internal combustion engines with large-capacity secondary batteries and a variety of energy sources. Based on forecasts from LMC Automotive, the company estimated that the share of internal combustion vehicles (excluding hybrids) was 88% in 2020, and would decline to 68% in 2025 and 54% in 2030. Meanwhile, hybrid vehicles only accounted for 9% in 2020, but are expected to rise to 23% in 2025 and 30% in 2030. Projections are for vehicles without internal combustion engines to rise from 3% in 2020 to 9% 2025 and 16% in 2030.
Impact of growth in hybrid vehicle market: Growth in hybrid vehicles is positive for the company, with prospects for its sales volume to outpace growth in auto sales volume. This is because hybrids have both internal combustion and electric motors. Hybrid vehicles require high-performance catalysts that work at low temperatures. High-performance catalysts have high barriers to entry due to patent protection. Competition is effectively between two companies, the company and one other, so the company aims at growing market share in catalyst applications. Further, hybrid vehicles use secondary batteries, which should drive growth in demand for secondary battery materials. Demand for electronic materials is likely to increase amid Increasing electrification.
Impact of growth in market for vehicles without internal combustion engines: Vehicles without internal combustion engines are negative for the company, as the need for catalysts to purify exhaust and oxygen sensors will disappear. However, battery electric vehicles (BEVs) with large capacity secondary batteries will drive demand growth for secondary battery materials. Daiichi Kigenso says that, if its products are used in all-solid-state batteries that will likely be installed in BEVs in the future, the volume of those products used per BEV could roughly triple from the volume used currently in vehicles with internal combustion engines. In the case of fuel cell electric vehicles (FCEVs), demand for reforming catalysts and shift catalysts in hydrogen generators used in external equipment as well as materials used in solid oxide electrolyzer cells (SOECs) and solid oxide fuel cells (SOFCs) will increase. The company plans to tap into such demand to offset the decline from catalysts used in purifying exhaust.
Earnings trends
FY03/22 results: In full-year FY03/22, sales amounted to JPY29.4bn (+25.1% YoY). Sales volumes for all applications increased 18.2% YoY. Selling prices also increased in line with a sharp rise in raw material prices. The company reported increases in sales for all five application categories. Economic conditions in the US and European are returning to normal, and these markets drove overall recovery in demand. Along with this recovery, performance from products such as automotive components, dental materials, and industrial structural materials exceeded pre-pandemic levels. Operating profit was JPY3.8bn (+87.0% YoY). This growth occurred primarily because greater production efficiency, higher selling prices, increased capacity utilization, and higher sales volumes offset impact from increases in market prices of raw materials. Recurring profit amounted to JPY6.0bn (+181.5% YoY). The company booked JPY2.1bn in foreign exchange gains at its Vietnam subsidiary. Net income attributable to owners of the parent was JPY1.9bn (+49.7% YoY). The company booked an extraordinary loss of JPY2.4bn (disclosed on April 19, 2022) in connection with its investment in a Vietnamese mineral company.
FY03/23 forecast: For FY03/23, the company projects sales of JPY34.5bn (+17.5% YoY), operating profit of JPY4.8bn (+27.4% YoY), recurring profit of JPY4.8bn (-20.0% YoY), and net income attributable to owners of the parent of JPY3.9bn (+110.9% YoY). The company expects sales volume to increase only 1.7% YoY, but projects growth of 17.5% YoY in sales thanks to higher selling prices. Although it projects that raw material prices will rise by roughly the same extent as its selling prices, the company also predicts that sales of inventory acquired when raw material prices were low will boost operating profit by about JPY1.5bn. It anticipates an exchange rate of JPY114/USD. For 1H FY03/23, the company forecasts sales of JPY16.7bn (+13.1% YoY), operating profit of JPY2.7bn (+28.9% YoY), recurring profit of JPY2.7bn (-7.7% YoY), and net income attributable to owners of the parent of JPY1.9bn (-13.9% YoY).
Medium-term management plan: On May 13, 2022, Daiichi Kigenso announced DK-One Next, its new medium-term management plan. Having announced this plan, the company will conclude its previous medium-term management plan (DK-One Project) one year ahead of schedule. Under this new plan, the company targets sales of JPY40.0bn, operating profit of JPY4.0bn, EBITDA of JPY9.0bn, and ROIC of at least 6.0% in FY03/26. As of May 2022, the auto sales volume forecast is significantly lower than it was prior to the outbreak of the COVID-19 pandemic. At the same time, organizations within the auto industry are stepping up efforts aimed at achieving carbon neutrality. Accordingly, the business environment surrounding the company is changing dramatically as the shift to electric automobiles accelerates. While securing resources essential for achieving growth through its core catalyst support materials for purifying automobile exhaust gas, the company will quickly allocate management resources to the semiconductor and electronics, energy, and healthcare fields, which will become central pillars of its next-generation business operations.
Strengths and weaknesses
Shared Research believes the company has three strengths: 1) an integrated production system from the raw ore stage allows the company to meet diverse customer needs and develop long-term customer relationships; 2) the company’s technological capabilities enable it to commercialize products leveraging zirconium’s diverse properties; and 3) business stability is a competitive advantage, stemming from the ability to produce zirconium oxychloride, an intermediate product, in-house.
We see its three weaknesses as being: 1) catalysts make up a high percentage of sales, but the company may be affected by a falling need for catalysts or technological changes that eliminate them all together; 2) the company’s primary products are niche, and customers’ purchasing policies determine the size of its own sales; and 3) price volatility of rare earth and its structural weakness in dealing with procurement issues.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Announcement of the plan to change the auditor
On May 17, 2022, Daiichi Kigenso Kagaku Kogyo Co., Ltd. announced a plan to change the certified public accounting firm it uses for auditing.
Company to change certified public accountants
At a meeting of the company's Board of Directors held on May 17, 2022, the board voted to approve a proposal from its Audit & Supervisory Board to change the certified public accounting firm the company uses as its outside auditor, and also approved the submission of this proposal for a vote by shareholders at its upcoming annual shareholders meeting scheduled for June 23, 2022. The outgoing auditor expressed no particular opinion regarding the change.
Overview of outgoing and incoming auditor
Background and reasons behind decision to change public accounting firm used for auditing
The contract term with the current certified public accounting firm used by the company for auditing, Ernst & Young ShinNihon LLC, will expire at the annual shareholders' meeting scheduled for June 23, 2022. Over the course of the years while Ernst & Young ShinNihon LLC was repeatedly reappointed as the company's outside auditor, the company's Audit & Supervisory Board put together a procedures manual in which "best practices" were laid out with regards to the reappointment of outside auditors so as to assure objectivity on the part of the auditor with regard to the quality of the company's accounting practices and oversight mechanisms. Seeing many overseas countries adopting an auditor rotation system to achieve this same goal, the company decided to adopt a bidding system that requires the contract for its auditing work it be opened up for bidding at least once every ten years.
In keeping with the new bidding system guidelines, the company's Audit & Supervisory Board compared the bids and proposals submitted by a number of different accounting firms, including its current auditor. Based on this assessment, and also taking into further consideration the number of consecutive years that its current auditor have already served in this capacity, the company decided that it was time for a change and that it needed to hire a new auditor that would provide a new perspective. In selecting Deloitte Touche Tohmatsu LLC as its new auditor, the company came to a conclusion based on a comprehensive review, noting in particular its favorable view of the proposal put together by Deloitte Touche Tohmatsu LLC that included plans for enhancing internal controls and other measures that could be expected to speed up and streamline its auditing processes.
Announcement of DK-One Next, the new medium-term management plan.
On May 13, 2022, Daiichi Kigenso Kagaku Kogyo Co., Ltd. announced DK-One Next, its new medium-term management plan.
Daiichi Kigenso announced DK-One Next, its new medium-term management plan. Having announced this plan, the company will conclude its previous medium-term management plan (DK-One Project) one year ahead of schedule. Under this new plan, the company targets sales of JPY40.0bn, operating profit of JPY4.0bn, EBITDA of JPY9.0bn, and ROIC of at least 6.0% in FY03/26.
Purpose and circumstances behind the formulation of the company's new medium-term management plan
As of May 2022, the auto sales volume forecast is significantly lower than it was prior to the outbreak of the COVID-19 pandemic. At the same time, organizations within the auto industry are stepping up efforts aimed at achieving carbon neutrality. Accordingly, the business environment surrounding the company is changing dramatically as the shift to electric automobiles accelerates. While securing resources essential for achieving growth through its core catalyst support materials for purifying automobile exhaust gas, the company will quickly allocate management resources to the semiconductor and electronics, energy, and healthcare fields, which will become central pillars of its next-generation business operations.
Quantitative targets (FY03/26)
Sales breakdown (FY03/26)
Total investment (over the four years through FY03/26): JPY21.5bn
Cashflow plan
The sum of cash flows from investing activities and dividends over the four-year period ending with FY03/26 shall be less than or equal to cash flows from operating activities.
Shareholder return policy
The company targets a dividend payout ratio of 30%.
Revision to its full-year FY03/22 earnings forecast and change in representative director
On April 19, 2022, Daiichi Kigenso Kagaku Kogyo Co., Ltd. announced a revision to its full-year FY03/22 earnings forecast and the appointment of a new representative director.
Revised full-year FY03/22 forecast (released on April 19, 2022)
Reasons for revisions
In Q4, sales increased due to ongoing recovery from COVID-19-related impact and higher selling prices stemming from steep growth in the prices of key raw materials.
Despite a decline in capacity utilization caused by production adjustments aimed at optimizing inventories that had been accumulated through Q3, the company expects overall operating profit to exceed the company's previous forecast primarily because average selling prices have risen relatively quickly in response to rising market prices for key raw materials, outpacing growth in average inventory costs.
The company raised its projection for recurring profit in part because it anticipates growth in operating profit and in part because it expects to record JPY1.6bn in foreign exchange gains over Q2–Q4 due to significant exchange rate fluctuations.
As for net income attributable to owners of the parent, the company adjusted its forecast because it now plans to record an extraordinary loss of JPY2.4bn in connection with its procurement of zirconium minerals in Vietnam and a JPY507mn in income tax deferred (a reduction in deferred tax assets).
Supplemental information regarding extraordinary loss and income taxes deferred
History
In March 2012, the company established a consolidated subsidiary, VIETNAM RARE ELEMENTS CHEMICAL JOINT STOCK COMPANY ("VREC"), to strengthen its supply chain for zirconium compounds, and in June 2016, it began producing and selling zirconium oxychloride using zirconium minerals extracted in Vietnam. In December 2016, VREC began to consider conducting investment targeting expanded production, but at that time, no companies in southern Vietnam were producing zirconium minerals at the quantities VREC required.
Around this time, Duong Lam Joint Stock Company ("DL"), a mineral company in southern Vietnam, had plans to increase its production of zirconium minerals to a level that would meet VREC's requirements. In June 2018, the company began the process of investing in Solid Success International Limited ("SSI"), which was planning to invest in DL and reorganize through its acquisition, with the objective of procuring long-term, low-cost, stable zirconium minerals, which are VREC's primary raw material. Pursuant to a share transfer agreement subsequently concluded between the company and SSI, the former made all required payments to SSI shareholders by January 2019. However, the investment process was held up by litigation between entities including SSI affiliates and DL shareholders that began in June 2019 and concerned share transfers and other issues related to the process. Additionally, this litigation stalled DL's business activities, and deliveries of zirconium minerals in accordance with the sales and purchase agreement between VREC and DL were impeded as a result.
Circumstances leading to extraordinary losses
The company has been negotiating a settlement to facilitate a reorganization of DL and the resumption of its business activities. However, realizing that no settlement could reached in the near future, the company's Board of Directors resolved to terminate the share transfer agreement between the company and SSI's shareholders at a meeting held on April 19, 2022. The board based this decision on comprehensive consideration of its responsibility to fulfill obligations stipulated in the share transfer agreement, calculations of the value of DL shares, and the low likelihood that, in the near future, DL will resume its business activities and fulfill the responsibilities it has incurred through the sales agreement with VREC.
In reaching this decision, the company determined that it could not recover long-term advance payments made to SSI's shareholders due to the lack of value associated with DL's shares, for which the company has established security rights. Accordingly, in FY03/22, the company will record a JPY1.8bn provision for doubtful accounts (extraordinary loss) to cover the portion of these long-term advance payments that has not already been covered by the company's existing allowance for doubtful accounts. Recognizing that DL's business activities are unlikely to resume in the near future, the company will cancel the zirconium mineral sales contract it concluded with DL and book JPY546mn in advance payments made in connection with this contract as extraordinary losses (valuation losses on advance payments).
Circumstances leading to income taxes deferred
Due to an increase in deductible temporary differences resulting from the additional recording of allowance for doubtful accounts, the company adjusted its company classification in accordance with the ASBJ's "Implementation Guidance on Recoverability of Deferred Tax Assets" standard and decided to record a reversal of deferred tax assets.
Future outlook
As the sizes of other companies that produce zirconium minerals in southern Vietnam have increased, VREC has made efforts to build relationships with suppliers other than DL and consequently expects that it can secure these minerals at required quantities from other sources. Meanwhile, the market price of zirconium oxychloride has been rising, and partly for this reason, the company does not expect impact on its current investments in Vietnam. The company has decided to record a provision for doubtful accounts and valuation losses on advance payments as extraordinary losses to cover impact stemming from long-term advance payments it made previously. However, the company aims to maximize recovery by exercising its right to demand the return of these advance payments.
Change in representative director
On April 19, 2022, the company announced that it would appoint a new representative director to ensure that it can quickly respond to changes in its surrounding business environment through a renewed structure based on managerial leadership; facilitate proper implementation of its medium-term management policy, which is currently being formulated; and further strengthen its management base. The appointment of the new representative director will be officially finalized at the General Meeting of Stockholders and Board of Directors Meeting scheduled for June 23, 2022.
Details of change
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Changes in selling prices lag changes in raw material prices. However, any impact on operating profit stemming from this delay is typically offset. Zirconium oxychloride prices remain high due primarily to rising raw ore and chemical prices. Neodymium oxide prices are currently high due primarily to an increase in demand for magnets.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/22 results
Summary
Sales in FY03/22 amounted to JPY29.4bn (+25.1% YoY). Sales volumes for all applications increased 18.2% YoY. Selling prices also increased in line with a sharp rise in raw material prices. The company reported increases in sales for all five application categories. Economic conditions in the US and European are returning to normal, and these markets drove overall recovery in demand. Along with this recovery, performance from products such as automotive components, dental materials, and industrial structural materials exceeded pre-pandemic levels. Operating profit was JPY3.8bn (+87.0% YoY). This growth occurred primarily because greater production efficiency, higher selling prices, increased capacity utilization, and higher sales volumes offset impact from increases in market prices of raw materials. Recurring profit amounted to JPY6.0bn (+181.5% YoY). The company booked JPY2.1bn in foreign exchange gains at its Vietnam subsidiary. Net income attributable to owners of the parent was JPY1.9bn (+49.7% YoY). The company booked an extraordinary loss of JPY2.4bn (disclosed on April 19, 2022) in connection with its investment in a Vietnamese mineral company.
In FY03/22, sales achieved 100.0% of the company's full-year forecast (revised on April 19, 2022), while operating profit reached 99.2%, recurring profit 99.3%, and net income attributable to owners of the parent 114.2%. Sales, operating profit, and recurring profit were largely commensurate with the company's revised full-year projections, but net income exceeded the revised forecast.
Finished goods amounted to JPY5.6bn, down from JPY6.2bn at the end of Q3. Work in process fell from JPY2.2bn as of end-Q3 to JPY2.0bn. Raw materials and supplies came to JPY4.2bn, up from JPY3.4bn as of end-Q3.
In the automotive industry, which is the company's key market, global sales of light vehicles in 2021 were lower than planned due to the global semiconductor shortage, forcing automakers to reduce production. Despite a 5% YoY increase, sales did not reach pre-pandemic levels. On the other hand, growing awareness of the need to reduce greenhouse gas emissions has helped the shift to electric vehicles gain momentum.
For FY03/23, the company forecasts sales of JPY34.5bn (+17.5% YoY), operating profit of JPY4.8bn (+27.4% YoY), recurring profit of JPY4.8bn (-20.0% YoY), and net income attributable to owners of the parent of JPY3.9bn (+110.9% YoY). The company expects sales volume to increase only 1.7% YoY, but projects sales growth of 17.5% YoY thanks to higher selling prices. Although it projects that raw material prices will rise by roughly the same extent as its selling prices, the company also predicts that sales of inventory acquired when raw material prices were low will boost operating profit by about JPY1.5bn. Daiichi Kigenso anticipates an exchange rate of JPY114 per USD. In 1H FY03/23, the company forecasts sales of JPY16.7bn (+13.1% YoY), operating profit of JPY2.7bn (+28.9% YoY), recurring profit of JPY2.7bn (-7.7% YoY), and net income attributable to owners of the parent of JPY1.9bn (-13.9% YoY). Please refer to the section entitled "FY03/23 company forecast" for details regarding assumptions the company applied when formulating its forecast.
On May 13, 2022, Daiichi Kigenso announced DK-One Next, its new medium-term management plan. Having announced this plan, the company will conclude its previous medium-term management plan (DK-One Project) one year ahead of schedule. Under this new plan, the company targets sales of JPY40.0bn, operating profit of JPY4.0bn, EBITDA of JPY9.0bn, and ROIC of at least 6.0% in FY03/26. As of May 2022, the auto sales volume forecast is significantly lower than it was prior to the outbreak of the COVID-19 pandemic. At the same time, organizations within the auto industry are stepping up efforts aimed at achieving carbon neutrality. Accordingly, the business environment surrounding the company is changing dramatically as the shift to electric automobiles accelerates. While securing resources essential for achieving growth through its core catalyst support materials for purifying automobile exhaust gas, the company will quickly allocate management resources to the semiconductor and electronics, energy, and healthcare fields, which will become central pillars of its next-generation business operations.
Application-specific circumstances
Catalysts
Full-year sales of products for catalysts amounted to JPY17.7bn (+21.1% YoY) in FY03/22.
Performance from catalyst support material for purifying automobile exhaust gas, one of the company’s core product categories, exceeded pre-pandemic levels. From the second half of 2021 onward, sales volumes associated with these materials had been increasing due to a sharp recovery in the volume of automobiles sold and growth in demand for the company's products stemming from stricter environmental regulations. However, recovery in demand slowed during 2H FY03/22, reflecting marked impact from automobile production cutbacks caused by shortages of semiconductors and other components.
Refractories & Friction Materials
Sales for products for refractories and friction materials amounted to JPY3.4bn (+48.6% YoY) in FY03/22.
Performance from refractory materials fell short of pre-pandemic levels. Despite recovery in domestic crude steel production, performance from refractory materials was affected by a state of oversupply caused by crude steel production cutbacks in China.
Sales of friction materials increased due in part to recovery in the volume of automobiles sold and soaring market prices for raw materials.
Fine Ceramics
In FY03/22, sales of products for fine ceramics rose 39.6% YoY to JPY3.5bn.
Sales of fuel cell materials, which the company anticipates will generate strong performance as next-generation products, were strong. The market for these materials continues to grow due in part to policies implemented in various countries and regions to promote sustainable energy.
Demand for dental materials and industrial structural materials surpassed pre-pandemic levels, driven by economic normalization in major developed economies.
Sales of kitchen ceramics increased. While acknowledging that recovery in demand fromh inbound tourists will take time, the company generated positive impact through measures such as its successful expansion of sales channels for finished products.
Electronic Parts & Oxygen Sensors
Sales of products for electronic parts and oxygen sensors were JPY2.9bn (+14.1% YoY) in FY03/22.
In the electronic materials category, sales of products used in the production of piezoelectric devices and multilayer ceramic capacitors expanded despite downward impact from final product production cutbacks that were implemented in response to shortages of semiconductors and other components. This expansion was primarily due to demand for medical devices, household appliances, and communications equipment that remained robust during the COVID-19 pandemic, recovery in the volume of automobiles sold, and the ongoing shift toward electrical equipment.
Sales of materials for secondary batteries rose YoY, following a YoY drop in FY03/21 caused by diversification in auto batteries. Demand for these materials rose in line with growth in the electric vehicle market. In addition, new adoption of these materials progressed according to the company's projections.
Sales associated with oxygen sensor applications exceeded pre-pandemic levels as the volume of automobiles sold recovered.
Other applications
Sales of products with other applications amounted to JPY2.0bn (+23.6% YoY) in FY03/22.
Performance from cesium compounds fell short of pre-pandemic levels, due primarily to final product production cutbacks implemented in response to shortages of semiconductors and other components. This shortfall occurred despite strong performance from cesium compounds with applications related to medical equipment and an increase in sales of cesium flux for home appliances and aluminum pipe brazing that was partly due to a recovery in the volume of automobiles sold.
Outside of the cesium compound and flux categories, sales of products with other applications grew. The company captured demand as economic activity returned to normal levels.
FY03/23 company forecast
Initial forecasts for FY03/23 (as of May 13, 2022)
For FY03/23, the company projects sales of JPY34.5bn (+17.5% YoY), operating profit of JPY4.8bn (+27.4% YoY), recurring profit of JPY4.8bn (-20.0% YoY), and net income attributable to owners of the parent of JPY3.9bn (+110.9% YoY). The company expects sales volume to increase only 1.7% YoY, but projects growth of 17.5% YoY in sales thanks to higher selling prices. Although it projects that raw material prices will rise by roughly the same extent as its selling prices, the company also predicts that sales of inventory acquired when raw material prices were low will boost operating profit by about JPY1.5bn. It anticipates an exchange rate of JPY114/USD. For 1H FY03/23, the company forecasts sales of JPY16.7bn (+13.1% YoY), operating profit of JPY2.7bn (+28.9% YoY), recurring profit of JPY2.7bn (-7.7% YoY), and net income attributable to owners of the parent of JPY1.9bn (-13.9% YoY).
Sales outlook by application
Catalysts
In FY03/23, the company projects a YoY increase of 20.9% in sales in this category . In 1H, the company anticipates a sales increase of 19.0% YoY.
Refractories & Friction Materials
The company expects sales in this category to rise 16.2% YoY and 23.5% YoY in 1H.
Fine Ceramics
In FY03/23, the company projects that sales in this category will rise 8.4% YoY. In 1H, the company forecasts that these sales will decline 4.8% YoY. It anticipates increases in sales generated through products with applications related to fuel cells and structural materials.
Electronic Parts & Oxygen Sensors
In FY03/23, the company projects that sales in this category will rise 15.3% YoY. In 1H, the company anticipates a YoY decline of 0.1% in corresponding sales. It forecasts that performance from products with applications related to secondary batteries will grow steadily due to market expansion.
Others
It expects that sales will rise 8.1% YoY in FY03/23 and decline 1.1% YoY in 1H.
Initial company forecasts vs results
Note: The company did not disclose an initial forecast for FY03/21 due to the impact caused by the COVID-19 pandemic. As such, the forecast announced in September 2020 is taken to be the company’s initial forecast in the above.
Medium-term management plan
On May 13, 2022, Daiichi Kigenso announced DK-One Next, its new medium-term management plan. Having announced this plan, the company will conclude its previous medium-term management plan (DK-One Project) one year ahead of schedule. Under this new plan, the company targets sales of JPY40.0bn, operating profit of JPY4.0bn, EBITDA of JPY9.0bn, and ROIC of at least 6.0% in FY03/26.
Purpose and circumstances behind the formulation of the company's new medium-term management plan
As of May 2022, the auto sales volume forecast is significantly lower than it was prior to the outbreak of the COVID-19 pandemic. At the same time, organizations within the auto industry are stepping up efforts aimed at achieving carbon neutrality. Accordingly, the business environment surrounding the company is changing dramatically as the shift to electric automobiles accelerates. While securing resources essential for achieving growth through its core catalyst support materials for purifying automobile exhaust gas, the company will quickly allocate management resources to the semiconductor and electronics, energy, and healthcare fields, which will become central pillars of its next-generation business operations.
Quantitative targets (FY03/26)
Sales breakdown (FY03/26)
Total investment (over the four years through FY03/26): JPY21.5bn
Cashflow plan
The sum of cash flows from investing activities and dividends over the four-year period ending with FY03/26 shall be less than or equal to cash flows from operating activities.
Shareholder return policy
The company targets a dividend payout ratio of 30%.
Business
Business description
Zirconium
The company mainly manufactures and sells zirconium compounds, although it also handles cesium, rare-earth, and other inorganic compounds. (In FY03/18, sales of zirconium compounds were JPY22.9bn, and sales of other compounds were JPY2.6bn.)
Zirconium is obtained by decomposing and refining zircon sand, a type of ore. Zirconium can also be produced from baddeleyite, which is rare.
Zirconium has diverse properties that vary depending on manufacturing method, with which substances it bonds, and changes in its crystal structure. Zirconium compounds exhibit ionic conductivity (useful in oxygen sensors and catalytic converters), strong acidity and chemical resistance (industrial catalysts), high heat resistance (refractories and catalytic converters), high strength and ductility (fine ceramics), water repellency (waterproofing agents), a high refractive index (optical materials), piezoelectricity (ignition elements, buzzers, and actuators), and dielectric characteristics (ceramic capacitors and radio wave filters).
One of the company’s strengths is its large number of engineers who can develop products that utilize these characteristics. Company policy is to recruit and cultivate post-graduate-level students in science and technology. The R&D department accounts for around 20% of employees.
Business description by application
Leveraging these material characteristics, the company provides secondary product manufacturers with materials for use in such applications as catalysts (62.2% of consolidated sales in FY03/21), refractories & friction materials (9.7%), fine ceramics (10.5%), and electronic parts & oxygen sensors (10.8%). Although the ratio of catalysts is high, energy-related applications such as fuel cell applications, included in fine ceramics, and secondary battery applications, included in electronic parts & oxygen sensors, began to emerge around FY03/19 as new fields.
The company does not use end-product applications as its reporting segments because the materials it supplies for different applications are broadly similar, products for different applications are manufactured at the same plants, and the same chemicals and raw materials are used. Application categories are essentially the same as manufacturing categories. The company uses a dry manufacturing method for refractories and friction materials, while a wet manufacturing method is used for electronic parts and oxygen sensors. Catalysts are composites of zirconium and rare earth elements, while most electronic parts and oxygen sensors are 100% zirconium. Also, in general, products of the same class have similar gross profit margins.
Prices differ due to differences in production method, makeup, and characteristics: products for catalysts sell for USD15–30/kg, refractories and friction materials for around USD5/kg, and ceramics for USD50/kg.