Toyo Tanso 5310
東洋炭素
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2022-05-17
2022-05-09
2022-02-16
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Summary
Since its inception in July 1947, Toyo Tanso has consistently devoted itself to the development, manufacturing, and sales of high-performance carbon products that use coke as the base material. For example, in 1974, the company successfully mass-produced large-size isotropic graphite ahead of domestic and overseas rivals. Its products offer excellent conductivity (thermal/electrical) and durability (thermal/chemical), and are also lightweight and easy to machine.
Electrical Equipment
Key dates
2019-05-10
Coverage initiation
Executive summary
Business overview
Pioneer with leading share in niche market for carbon specialties: Since its inception in July 1947, Toyo Tanso has consistently devoted itself to the manufacturing and sales of high-performance carbon products that use coke as the base material. For example, in 1974, the company successfully mass-produced large-size isotropic graphite ahead of domestic and overseas rivals. The market for carbon products comprises carbon specialties, electrodes, carbon fiber, refined graphite, electric brushes, heat agents, carbon black, and activated carbon. The company sells a broad range of high-value-added products focused on carbon specialties (e.g., crucibles for single crystal silicon manufacturing, electrical discharge machining [EDM] electrodes, bearings, sealing materials, pantograph sliders, carbon brushes, and metal organic chemical vapor deposition [MOCVD; a type of method used for growing crystalline layers] equipment susceptors). Carbon products are lightweight, easy to process, and offer excellent thermal and electrical conductivity as well as thermal and chemical resistance.
Toyo Tanso has established a structure in which it consolidates production of base material “isotropic graphite” (i.e., graphite with uniform properties in all directions) at the Takuma plant in Kagawa Prefecture, Japan, and conducts processing and direct sales in Japan and overseas. The company sells its products directly to customers, and the close ties it has formed as a result allow it to develop and manufacture products that conform to the diverse range of its customers’ needs. In short, by providing high-mix, low-volume production, the company is able to differentiate itself from rivals that mass produce products such as electrodes and carbon fiber. The bulk of the company’s carbon-product offerings are consumables, and demand for its products accordingly originates from replacement of equipment-related embedded components and capital investment.
All of the company’s products are special carbon (fine carbon) products. In FY12/21 special graphite products accounted for 45.4% of sales, carbon products for general industries for 25.1%, compound materials and other products for 24.7%, and related goods for 4.8%. The company has noted that compound materials and other products deliver the highest margins, followed by special graphite products, and carbon products for general industries. In recent years, Toyo Tanso has been focusing on compound materials and other products. Among these, silicon carbide [SiC] coated graphite products have promising prospects for growth, primarily for semiconductor production equipment (Si and SiC) applications.
Toyo Tanso develops products for fields that require high performance and quality, and has cultivated new fields in which it offers a diverse product line-up. In the semiconductor field, it has captured a worldwide market share of 40% in crucibles for single crystal silicon manufacturing. The company has developed copper-alloy-impregnated carbon sliders that are widely used as pantograph sliders by Japan Railways Group (JR Group; 80–90% share) and other private railway companies. It pioneered the development of carbon products impregnated with materials such as alloy or resin and has a long track record of developing new applications for such products.
Trends and outlook
FY12/21 results: In FY12/21, the company reported full-year consolidated revenue of JPY37.7bn (+20.8% YoY), operating profit of JPY5.7bn (+65.6% YoY), recurring profit of JPY6.3bn (+61.6% YoY), and net income attributable to owners of the parent of JPY4.5bn (+67.7% YoY). Growing demand for semiconductors contributed to the company's business performance—which had declined in both sales and profits in FY12/20—recovering rapidly. EPS was JPY212.9, and the company paid an annual dividend of JPY60.0 per share (JPY50.0 per share in FY12/20), for a dividend payout ratio of 28.2% (39.4% in FY12/20).
FY12/22 forecast: Toyo Tanso maintained its full year forecast at the time of Q1 announcement. The company projects full-year consolidated revenue of JPY42.0bn (+11.3% YoY), operating profit of JPY7.0bn (+23.5% YoY), recurring profit of JPY6.9bn (+10.2% YoY), and net income attributable to owners of the parent of JPY5.0bn (+12.0% YoY). The EPS forecast is JPY238.4. The company plans to pay an annual dividend of JPY70.0 per share (JPY60.0 per share in FY12/21). Based on the company's forecast, the dividend payout ratio is expected to be 29.4%. As Toyo Tanso expects revenue and profits to increase, it forecasts an operating profit margin increase of 1.7pp YoY to 16.7%, close to the 17.0% level of FY12/18.
On February 14, 2022, the company announced a new five-year medium-term management plan (the "New Medium-Term Management Plan") covering the period from FY12/22 to FY12/26. In the new plan, the company positions changes in the post-COVID business environment as opportunities. It is determined to achieve further growth by providing high value-added technologies and products on a global basis by proactively ascertaining the emergence of needs in various industries driven by changes in the business environment, and the movement of business opportunity trends sparked by progress in technological innovation. By product, the company plans to increase sales and profitability of its high-margin special graphite products and three main composite products: SiC-coated graphite products, C/C composite products, and graphite sheet products. The management targets for FY12/26, the final year of the plan, are revenue of JPY54.5bn (vs. JPY37.7bn in FY12/21), operating profit of JPY11.0bn (vs. JPY5.7bn in FY12/21), and ROE of 9.0% (vs. 6.4% in FY12/21). The company also plans to make capital investments totaling JPY37.0bn over the five-year period.
Strengths and weaknesses
Shared Research sees Toyo Tanso’s strengths as 1) a leading share in a niche market for carbon specialties, 2) an integrated structure with consolidated materials (isotropic graphite) production and global network of processing and sales bases underpinning direct sales to local customers, and 3) rapid decision-making due to strong leadership by a member of the founding family.
We believe the company’s weaknesses are 1) delays in upgrading manufacturing facilities due to prolonged restraint of capital investment, 2) high-mix and low-volume production resulting in management complexity, and 3) delayed expansion into European and US markets (See the “Strengths and weaknesses” section for details).
Key financial data
Note: FY12/13 was an irregular seven-month period (due to change in accounting year).
Note: Figures may differ from company materials due to differences in rounding methods.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Consolidated results for Q1 FY12/22
Results summary
Consolidated results for Q1 FY12/21 (January-March 2022)
The company reported double-digit growth in both revenue and profit due in part by strong demand for products used in semiconductor-related applications. For Q1 (Jan-Mar), sales were at their highest level in four fiscal years since Jan-Mar 2018 (JPY12.3bn), and operating profit and OPM recorded at their highest level in three fiscal years since Jan-Mar 2019 (JPY1.8bn, 18.1%).
By product category, most of the top-line growth came from sales of special graphite products and compound materials/other products. In particular, sales of the company's highly profitable products increased in the electronics field for specialty graphite products and the three main composite materials and other products (SiC coated graphite products, C/C composite products, and graphite sheet products). On the other hand, sales of general carbon products for mechanical and electrical applications were both down YoY.
Q1 FY12/22 marked the fifth straight quarter of positive YoY growth in both revenue and operating profit.
Shared Research plans to update this report and provide further details following our upcoming interview with management.
Company forecast for FY12/22
The company made no changes to its full-year forecast for FY12/22 at the time of its Q1 results announcement (in May 2022). The figures and remarks below reflect the company's outlook as recorded by Shared Research at the time of its initial forecast for FY12/22 (announced in February 2022). Shared Research plans to update this report and provide further details as needed following our upcoming interview with management.
Overview of company forecast for FY12/22
The company's newly announced forecast for FY12/22 follows.
The EPS forecast is JPY238.4. The company plans to pay an annual dividend of JPY70.0 per share (JPY60.0 per share in FY12/21). Based on the company's forecast, the dividend payout ratio is expected to be 29.4%.
The company plans to increase revenue and profits in FY12/22, building on the momentum of the earnings recovery in FY12/21. It expects to book a new high for sales, exceeding the previous record of JPY41.1bn (FY12/18) and looks for the bottom line (net income) to approach the previous peak of JPY5.1bn (FY05/08). The operating profit margin is expected to rise 1.7pp YoY to 16.7%, close to the recent peak of 17.0% achieved in FY12/18.
Sales forecast by product category
Sales forecast by product category is as follows. The company does not disclose earnings by product category.
In special graphite products for electronics, the company expects increased sales of products for single-crystal silicon manufacturing and compound semiconductor applications, which both reached record highs in FY12/21. Demand for solar cell manufacturing applications also appears to be solid. In general industrial applications, the company expects higher YoY demand for EDM electrodes and industrial furnaces.
In carbon products for general industries, the company expects sales for mechanical applications to be unchanged YoY. However, it expects sales for electrical applications to decrease YoY as demand peters out in 1H, for a 5.6% YoY decline in full-year sales.
In compound materials and other products, the company looks for ongoing YoY growth in sales of the three major products (SiC-coated graphite products, C/C composite products, and graphite sheet products). In SiC-coated graphite products, it expects to increase sales for semiconductor and LED applications as it runs at full capacity after a capacity expansion in FY12/21 and works through its order backlog. In C/C composite products, it expects higher sales across the board for semiconductor, industrial furnace, and solar cell applications. In graphite sheet products, it forecasts higher sales for semiconductor, automotive, and metallurgical applications.
Sales forecast by destination
Sales weighting is share of JPY42.0bn in forecast FY12/22 consolidated sales. The company expects to book sales of JPY181mn in regions not listed above, so the total does not come to JPY42.0bn.
While the company expects sales growth in all regions, it expects higher growth in China and other Asia to widen the gap with Japan.
Outlook for factors driving change in operating profit
The company expects that the following factors will drive YoY change (compared to FY12/21) in operating profit. The company forecasts a YoY increase of about JPY1.3bn in operating profit (JPY5.7bn in FY12/21→JPY7.0bn in FY12/22).
According to the company forecast, higher sales (it forecasts record sales) and a higher contribution margin due to improved product mix (increase in sales mix of three high-margin major compound materials) will be the biggest profit drivers. The company expects cost pass-through to offset some of the drag from higher raw material and fuel prices. It also believes that the higher contribution margin will offset cost-push factors such as increased fixed costs for personnel expenses accompanying higher operating rates and higher depreciation.
The company forecasts operating profit of JPY7.0bn and an OPM of 16.7%. While operating profit is likely to fall short of the record JPY8.0bn (posted in FY05/08), the company expects OPM to come close to the recent peak of 17.0% (FY12/18). The record high for the OPM was 23.3% in FY05/08.
Outlook for capital investment, depreciation, and R&D expenses
The company expects FY12/22 capital investment to decline YoY. It continues to assign clear priorities to capex, its approach since FY12/19. It forecasts capital investment of JPY37.0bn (averaging JPY7.4bn yearly) over the five years of its new medium-term plan starting in FY12/22. Capex will be under JPY5.0bn in FY12/22, reflecting the timing of investments. The company also expects R&D spending to be down to 2.8% of sales (3.7% in FY12/21) because temporary projects booked in FY12/21 bumped the share of sales above normal.
Business Strategy
R&D strategy
The company held an R&D briefing on December 9, 2021.
R&D strategy aiming to allow Toyo Tanso to maintain its position as a technology company
The company aims to establish itself as the de facto standard in special graphite products worldwide and become the quality leader in carbon. To that end, its policy is to take a customer-inspired approach to assure quality, reduce costs, and deliver enticing new products.
Its R&D roadmap includes prioritizing improvement and innovation in production technologies and strengthening international operations.
In R&D activities, the company ascertains customer needs at the individual community level, both domestically and internationally, and fast tracks development by starting small. Commencing small-scale development can uncover needs of which even the customer was unaware.
Integration of R&D and sustainability strategies
In FY12/21, the company commercialized products through collaboration with outside entities (April 2021), established a sustainability committee (June 2021), and endorsed the TCFD recommendations (July 2021).
The company is integrating its R&D strategy and sustainability management following progress in rolling out sustainability systems and initiatives. Its sustainability committee has an ESG value creation and promotion group and sustainable consumption and production group which will be involved in R&D strategy.
R&D resource allocation
In the three years up to FY12/21, the company spent an average of 3.1% of sales on R&D, significantly above its three carbon maker competitors (1.0%, 1.0%, 0.4%). R&D spending is allocated on basic development, application development, new materials/technologies, manufacturing technology, and evaluation and analysis, with allocations optimized in line with the overall business strategy. In FY12/21, R&D spending was JPY1.4bn (3.7% of sales).
R&D in FY2021
The company is conducting R&D in five priority growth areas, with the aim of contributing to a sustainable society through the development of ESG-compatible products. These areas and key development themes are outlined below.
Priority growth areas and key development themes
Energy: C/C composites for solar power manufacturing, and catalytic carriers for fuel cells
Electronics: Graphite for power semiconductor manufacturing, improved metal-coated graphite materials
Mobility: High-density C/C composites for oil quenching, extrusion resin materials
Social infrastructure: carbon materials for chemical plants
Life science: Carbon brushes for home appliances, carbon materials for medical equipment
Application research that is nearing completion
Fundamental research
New products families commercialized over the past year
Once it brings a newly developed product to market, Toyo Tanso keeps a close watch on sales for a period of five years. According to the company, the value of sales on newly developed products has risen year to year over the past several years, and newly developed products have grown to account for a greater percentage of overall sales.
Versatile graphite material: IG-41
IG-41 has higher permeability to gases than the company’s standard isotropic graphic material IG-11, so has prospects for applications in industrial plants such as in air bearings and filters.
Lead-free grounding brush: MX-80B
This eco-friendly material is being promoted to railways inside and outside Japan (as of December 2021).
CNovel for fuel cells (for testing): MT-18-50PT
Commercializing through collaboration with outside parties and accelerating sales overseas. As sales expand to leading companies globally, it has already established a good reputation with customers.
Position of R&D in new medium-term management plan
In its new medium-term plan released in February 2022, the company outlined four priority issues for R&D, aimed at rapid growth in the future: establishing superiority, enhancing productivity, strengthening the foundation, and taking on challenges.
Establishing superiority
Enhancing productivity
Strengthening the foundation
Taking on challenges
R&D into carbon materials that support carbon neutral industries
Technological development in semiconductor production materials
Epitaxial silicon (Si) materials
Customer needs in semiconductors are becoming increasingly advanced and diverse. In response, the company is developing a variety of technologies to improve membrane quality and enhance purity.
Improving process technologies to meet customer needs
Developing technologies to improve and extend membrane life and boost purity to satisfy future quality requirements
Structural components for single-crystal SiC growth systems
In structural components for SiC power semiconductors, the company expects progress in inching up, just as in single-crystal silicon semiconductors, and mounting demands for increased durability, so is developing structural components to deal with inching up and add durability
SiC wafer epitaxial growth systems
The company is developing more durable SiC wafer epitaxial growth system components (susceptors) and improving membranes
The company expects the SiC semiconductor market to grow at 20% yearly, and expects sales of associated products to grow faster
Aluminum nitride (AIN)
The company is tackling Thermal Interface Material (TIM). TIM refers to thermally conductive material inserted between components to efficiently dissipate unwanted heat generated inside electronic devices. Generally, TIM is inserted between a heat-generating element such as an integrated circuit (IC) and a heat-dissipating component (such as a heat spreader or heat sink).
In the Chinese TIM filler market, 5G base stations alone are projected to account for 150 tons of AIN annually.
TIM needs to be flexible enough to adhere firmly to uneven surfaces, so plastic is generally used as the main constituent. However, its thermal conductivity is low, so filler is added to increase overall thermal conductivity of TIM. The thermal conductivity of filler varies greatly depending on its physical properties and density. Boron nitride (BN), aluminum nitride (AIN), and alumina (Al203) are typically used as fillers.
In China, AIN predominates.
The company is developing AIN particle filler for TIM applications in the Chinese market. It has already established the manufacturing technology, and customer assessment in China is underway. Based on heat treatment technologies developed to date, and in-house production of the graphite needed in manufacturing, the company believes it will be very cost competitive. It plans to commercialize the product during 2022.
CNovelⓇ products
CNovelⓇ is a new carbon material with a structure unseen in conventional porous carbon, thought to be hard to obtain for industrial purposes. The structure is characterized by a large number of mesopores (pores 2–50nm in diameter) controlled by the company’s proprietary technology and an inter-connected pore structure (mesopores are connected to each other). This characteristic structure enables functional expressions and improvements not seen in conventional materials.
The company expects CNovelⓇ sales to quadruple from FY12/21 to FY12/26, but has not disclosed specific sales targets (value terms). It expects a CAGR of 30–35% in sales of CNovelⓇ for fuel cells. It targets JPY600mn in sales for this application by FY12/30. The commercial launch of CNovelⓇ for fuel cells took place in April 2021 as catalytic carrier (trial use) for fuel cells MH-18-PT50 (electrocatalyst for fuel cells) in collaboration with catalyst manufacturer N.E. Chemcat Corporation.
CNovel™ for fuel cells
Taking on challenge of environmentally friendly technology
1) Contributing to carbon neutrality through process innovation
Reducing graphite material waste by improving commercialization rate
Some of the graphitized blocks the company produces cannot be turned into products due to unstable surface materials and characteristics, so become waste (although some are recycled). The company aims to rethink the production process and eliminate waste.
Reducing waste with shaping control process technology and cutting CO2 emissions by shortening lead times
Controlling product shapes during the formation process reduces waste generated during processing. Reduction of 20–40% in baking/graphitizing processes reduces CO2 emissions commensurately.
2) Developing recycling technologies
Company plans to develop process technologies for recycling waste carbon materials
3) Searching for new material sources
Research into technology for carbon fixation from low molecular weight carbon compounds
Company plans to research technology for synthesizing fixed carbon in fine powder form from low molecular weight carbon compounds synthesized from atmospheric CO2 to look for potential sources of materials not dependent on fossil fuels
4) Contributing to recycling and reducing environmental impact
Developing highly efficient wastewater treatment technology using recycled graphite powder in collaboration with water treatment manufacturers and end users
Medium-term management plan
New medium-term management plan (announced February 14, 2022)
Overview of new medium-term plan
On February 14, 2022, the company announced a new five-year medium-term management plan (the "New Medium-Term Management Plan") covering the period from FY12/22 to FY12/26. In February 2018, the company formulated a medium-term management plan covering the five-year period from FY12/18 to FY12/22, and worked to achieve management targets of JPY50.0bn in revenue, JPY8.0bn in operating profit, and ROE of 8.0% in FY12/22, the final year of the plan. However, unforeseen external factors such as trade friction between the U.S. and China and the COVID-19 pandemic presented considerable obstacles to achieving the targets set forth in the plan. Given these circumstances, the company has formulated a new medium-term management plan with FY12/22 as the inaugural year.
In the new plan, the company positions changes in the post-COVID business environment as opportunities. It is determined to achieve further growth by providing high value-added technologies and products on a global basis by proactively ascertaining the emergence of needs in various industries driven by changes in the business environment and the movement of business opportunity trends sparked by progress in technological innovation. In the process, it also intends to enhance its corporate value.
By product, Toyo Tanso plans to increase sales and profitability of its high-margin special graphite products and three main composite products: SiC-coated graphite products, C/C composite products, and graphite sheet products. The company has set its management targets for the final year of the plan, FY12/26, as follows.
The company forecasts operating profit to exceed the record JPY8.0bn (posted in FY05/08), and the OPM to be above the recent peak of 17.0% (FY12/18). The record high for the OPM was 23.3% in FY05/08.
Furthermore, under the new medium-term management plan designed to realize this growth, the company plans to make capital investments totaling JPY37.0bn over the five-year period.
Company’s view of external environment
The company’s view of the external environment underpins its medium-term management plan. It expects ongoing development of digital technologies such as 5G, IoT, and AI, leading to advances in semiconductor manufacturing techniques. The company thinks these changes in the industrial structure and technological innovations will lead to the creation and growth of business opportunities for it.
On the path to a carbon neutral society, coping with climate change risk is bound to have an impact on national policies. In particular, a shift toward electric vehicles (EVs) and renewable energy should provide new business opportunities for the company.
The company’s take on the operating environment in the key markets relevant to its businesses is as follows.
1) Semiconductors
Si semiconductors
Semiconductor manufacturers are making major capex plans to meet growing demand for use in 5G applications and data centers. It expects the wafer market to grow at a CAGR of at least 5%. It expects even higher growth for epi wafers (thin-film crystal wafers for power semiconductors) due to demand from logic semiconductors (used for control, processing, and arithmetic operations).
SiC semiconductors
SiC semiconductors (power device semiconductors that exceed the limitations of Si semiconductors, also known as SiC power semiconductors) are being taken up in applications such as EVs and high-voltage devices. The company expects the market to grow at a CAGR of roughly 20%.
LEDs
In addition to lighting and LCD backlight applications, demand for consumer applications is growing amid the spread of micro-LEDs for next-generation displays and UVLEDs for sterilization.
2) Solar cells
The company expects increasing momentum for production to resume and grow outside China due to US-China trade friction and reappraisal of demand for renewable energy.
3) Automobiles
The company expects the automotive electrification market including EVs to expand on factors such as an increase in number of motors installed. It also expects increased use of carbon in car parts to reduce weight and enhance fuel efficiency. However, the company is concerned about the shift away from internal combustion engines and decrease in parts volume.
4) Home appliances/power tools
The company expects demand for household washing machines and vacuum cleaners to increase as consumer lifestyles change and appliances grew more sophisticated. It also expects increasing disposable incomes in emerging economies to spur demand for home appliances. It looks for modest growth in power tools for home use and increased use in factories for production.
In light of these structural changes in the external environment and demand projections, the company’s new medium-term plan sets forth direction, company policies, and strategy as follows.
Direction
Growth and increased value: The company sees changes in the operating environment as opportunities, and aims to expand corporate value and societal value
Company policies
Toyo Tanso aims to become a global company for the world, for society, and to become a strong company
Strategies
FY12/26 sales targets by product/application
Business portfolio direction and positioning
The company classifies businesses as growth, stable, or differentiating, and plans to implement a decisive strategy focused on growth businesses.
Stable businesses
High-growth businesses
Differentiating businesses
Strategy by business/product
In line with its usual practice, the new medium-term plan sets forth strategies aimed at achieving the company’s sales targets for individual businesses and major products. The strategies and specific measures it has outlined for special graphite products, carbon products for general industries (mechanical applications), carbon products for general industries (electrical applications), and compound materials (three major products) are as follows.
Special graphite products
Strategy
Strengthen sales in high value-added areas, boost competitiveness, and secure profitability
Electronics applications
While the company has a presence in products for single-crystal silicon manufacturing, this varies by region. The new medium-term plan aims to boost market share with strategies tailored to individual regions.
In products for compound semiconductor applications, it plans to use its global sales network to understand market needs in a timely manner and build a robust presence in growth markets, including emerging economies.
In products for solar cell manufacturing applications, the company will prioritize profitability while selling products with high value-added to differentiate itself from Chinese graphite makers, the key players.
General industrial applications
The company plans to differentiate itself and increase profit by expanding sales of high value-added products in terms of materials quality and processing.
Carbon products for general industries (mechanical applications)
Strategy
The company plans groupwide efforts including overseas subsidiaries to improve manufacturing techniques in materials and processing and cut costs through automating production lines
The company expects the market for automotive applications to grow by about 5% yearly, with higher growth for EVs. It has factored in a decline in internal combustion engine applications due to the shift to EVs, and sees automotive applications as a target market. It also plans to lift the overseas sales weighting.
Carbon products for general industries (mechanical applications)
Strategy
The company aims to strengthen its production technologies through materials development and automation to achieve high quality and low costs.
Carbon brushes are a mainstay product for the company in this area. It expects a further shift to brushless motors, but sees solid demand for motors with brushes due to cost competitiveness. It thus expects a moderate increase in carbon brush demand for home appliances and power tools. It aims to leverage its quick delivery times and service to increase market share. It also aims to expand sales for automotive and industrial applications, which currently account for low volume, including through alliances with other companies.
Compound materials (three major products)
In its new medium-term plan, a key priority is to expand sales of the three major products in compound materials as part of its moves to grow individual businesses.
1) SiC-coated graphite products
Strategy
In SiC-coated graphite products, a core value-added business, the company aims at rapid growth as it fully utilizes expanded capacity (completed in 2021).
Specific measures
In Si-Epi for semiconductors, the company aims at a leading global market share as it meets its key customers’ high expectations. It aims to maintain and expand its share of the rapidly growing SiC-Epi market as it taps into consumables as well as new equipment demand.
In LED applications, the company plans to aggressively target large MOCVD equipment for mass production in the key Chinese market.
To enhance profitability, the company aims to use innovative manufacturing techniques to boost productivity, quality, and cost competitiveness. It will also strive to develop manufacturing methods and quality that can meet the changing demands of the market 10 years in the future.
The company plans further capacity boosts during the period of the new medium-term plan, with the details to be announced as early as FY12/22.
2) C/C composite products
Strategy
For the three main applications (semiconductors, solar cells, and industrial furnaces), the company plans to step up its proposal based approach, including design and usage methodology ideas to tap into demand to substitutes for other materials and underlying demand.
Specific measures
In industrial furnace applications, the company expects a shift from metal jigs as C/C composite products have superior characteristics (in materials for example), aided by accelerating needs for labor saving and automation. The company thinks replacement demand will more than offset the impact of a decline in the number of parts processed as EVs become more prevalent.
3) Graphite sheet products
Strategy
In graphite sheet products, the company plans to outpace market growth in automotive and manufacturing jig applications by leveraging its strengths in customizing to customer specifications in areas of current low volume, including overseas and heat dissipation applications.
Specific measures
The company’s raw material joint venture (established in 2020) has already started improving thermally expandable graphite (a raw material). The company hopes to use this to improve quality and develop new applications.
R&D and capex
R&D activities
The company outlined four priority issues for R&D to achieve rapid growth in the future: establishing superiority, enhancing productivity, strengthening the foundation, and taking on challenges.
Establishing superiority
Enhancing productivity
Strengthening the foundation
Taking on challenges
Capex
The company forecasts capital investment of JPY37.0bn over the five years of its new medium-term plan. This breaks down to 60% strategic investment (primarily in growth) and 40% on normal investment (routine maintenance and replacement).
Direction
Capex in the new five-year plan is targeted at three areas: 1) boosting production capacity in high value-added businesses globally, 2) reinforcing competitive strengths in core/stable businesses, and 3) labor saving, energy-saving, and manufacturing process innovation.
Boosting capacity in SiC-coated graphite products
The company completed a capacity expansion in 2021, and plans to add more in its new medium-term plan. The additional capacity combined with the 2021 expansion will double capacity from previous levels.
Expanding facilities in carbon products for mechanical applications
The company plans to renew and expand facilities to boost capacity for EVs and other next-generation automobiles.
Boosting processing capacity globally
The company plans to boost production capacity at group subsidiaries, primarily in mechanical and other processing aimed at value-added products.
Shareholder returns
The company has made no major changes to shareholder returns policy in the new medium-term plan. It aims to strike a balance between profit distribution and growth investment, underpinned by ongoing profit growth, and pay stable dividends. In FY12/21 it paid an annual dividend per share of JPY60.0 (dividend payout ratio of 28.2%), following a DPS of JPY50.0 in FY12/20 (39.4%). It plans to pay a DPS of JPY70.0 (29.4%) in FY12/22.
Shared Research prepared the commentary following on the company’s business strategies in its previous medium-term plan. The new plan formulated and announced February 2022 reworked these policies, but we retain the commentary for comparison purposes.
Business strategy direction (previous medium-term plan)
Toyo Tanso plans to concentrate its resources into four fields, all of which are expected to deliver growth, profitability, and stability: (1) Special graphite: expand share in high-value-added fields; (2) Carbon for mechanical applications: attract overseas customers through stronger cost competitiveness; (3) Carbon for electrical applications: make further inroads in automotive and industrial carbon brushes; and (4) SiC coating, C/C composite, graphite sheets: attract overseas customers by strengthening application development for compound materials. The high-value-added fields within special graphite is distinguished by high stability and margins. Product quality is a key requirement, so the company does not view competition from Chinese manufacturers as a major threat. Carbon for mechanical applications is poised for steady growth, and the company believes it can achieve further expansion by increasing cost competitiveness through enhanced production technology. The company expects carbon for electrical applications is expected to grow steadily, and (similar to special graphite) believes it faces little threat from Chinese manufacturers, as customers put a premium on quality. As for SiC coating, C/C composite, and graphite sheets, Toyo Tanso is competitive on the technology front, but says it could gain further stability and efficiency if the company were able to secure customers in Europe or the US.
Business strategy (previous plan)
Special graphite products
Toyo Tanso has captured a certain market share in Japan and Asia, but it has a limited presence in Europe and the US. In the Chinese market for solar cells, the company is facing competition from new local players. It estimates its main target markets for special graphite products to be worth JPY63.0bn (semiconductor-related applications JPY58.0bn, high-value-added EDM applications JPY5.0bn). It sees the semiconductor-related applications market growing at a CAGR of 18% from 2017 to 2022. The company plans to increase sales of special graphite products from JPY17.0bn in FY12/18 (excluding JPY3.2bn in sales for Chinese high-temperature reactor-pebble-bed modules [HTR-PM]) to JPY20.0bn in FY12/22. By bolstering sales of processed products rather than materials, it will aim to expand its share in high-value-added fields. For example, Toyo Tanso plans to pursue a strategy of selection and concentration by focusing on semiconductor-related applications (such as MOCVD equipment susceptors, crucibles for single crystal silicon manufacturing) and high-value-added EDM applications, both fields that face little risk of erosion by Chinese manufacturers. It aims to expand its market shares in Asia and North America by enhancing the volume and quality of overseas processing and technology sales and by improving lead times. In China, it will target expansion through a balance between solar cell applications, which are prone to fluctuations, and general-purpose EDM applications.
Carbon products for general industries (carbon products for mechanical applications)
Toyo Tanso has started supplying carbon products for general industries to German automotive companies, and is making steady moves toward further expansion. It holds a high market share for pantograph sliders in Japan, and sees related operations gaining further traction as it expects to win orders from Chinese subway operators.
In terms of main target markets, Toyo Tanso estimates the automotive water pump applications market to be worth JPY22.0bn and pantograph sliders JPY2.0bn. It sees the automotive water pump applications market expanding at a CAGR of 8–10% from 2017 to 2022, and the market for pantograph sliders at 7–12%. The company intends to strengthen overseas operations for automotive applications and pantograph sliders. It aims to expand production infrastructure at its German subsidiary with a view to capturing market share centered on automotive applications in Europe and the US, and looks to establish a certain presence in these areas. It will develop pantograph sliders for the Chinese market, which is expected to grow and cultivate overseas markets for these products; sliders for high-speed rail in Japan are already under development.
Carbon products for general industries (carbon products for electrical applications)
Although Toyo Tanso commands a certain market share for home appliance/power tool applications and some automotive applications, it has only captured several percent of the overall market for carbon brushes, where it faces little competition from major Chinese rivals and little threat from new Chinese entrants. In terms of main target markets, the company estimates the industrial applications market to be worth JPY45.0bn, the automotive applications market JPY45.0bn, and the home appliance/power tool applications market JPY60.0bn. It sees these markets growing at a CAGR of 4% from 2017 to 2022. It intends to make further inroads into automotive and industrial carbon brushes. While pursuing share gains through aggressive investment in product quality improvements, the company is also exploring potential alliances and approaches to strengthen its presence in this product category by leveraging other capabilities.
Compound materials and other products (SiC coated graphite products)
Toyo Tanso holds a high share in MOCVD equipment aftermarket sales to Japanese, South Korean, and Taiwanese customers, and is expanding sales by growing its share of supply to Chinese, European, and US customers. It has captured high shares in SiC-Epi and Si-Epi aftermarket sales. In terms of main target markets, the company estimates the MOCVD equipment market to be worth JPY12.0bn and aftermarket sales JPY9.0bn. It sees these markets expanding at a CAGR of 14% from 2017 to 2022, and intends to double sales of related products by FY12/22 (relative to FY12/18).
Compound materials and other products (C/C composite products, graphite sheets)
Toyo Tanso has captured a certain market share for C/C composite products for industrial furnaces in Japan, but it still has a limited presence in this field overseas. It mainly supplies graphite sheets for semiconductor and automotive applications in Japan, but it has ample room to grow product sales in untapped applications or areas (chemical and oil/gas companies, and overseas automotive customers). In terms of main target markets, the company estimates the industrial furnace applications market to be worth JPY35.0bn and the graphite sheet market (piping applications for chemical and oil/gas plants) JPY7.0bn. It sees the market for industrial furnace applications growing at CAGR of 5–10% from 2017 to 2022, and the graphite sheet market at 5–7%. It intends to step up overseas operations involving C/C composite products for industrial furnace applications and strengthen development of graphite sheet applications. In industrial furnace applications, Toyo Tanso will focus on North America, where it has yet to build up a presence, and aim to expand market share by strengthening technology sales. Anticipating demand growth for industrial furnace applications, the company expanded related production capacity in 2018. For graphite sheets, the company will continue to focus on semiconductor and automotive applications and develop new piping applications for untapped areas such as chemical and oil/gas plants. It invested roughly JPY700mn in production capacity expansion to improve graphite sheet production efficiency in 2018.
Business
Business model
Concentration on carbon specialties
Toyo Tanso develops, manufactures, and sells high-performance carbon products that use coke as the base material. Carbon products can be divided into carbon specialties, electrodes, carbon fiber, refined graphite, electric brushes, heat agents, carbon black, and activated carbon. The company has adopted a business model of direct sales of a range of products, concentrating on carbon specialties. While it has made forays in the electrode field and product areas other than carbon in the past, it has decided not to enter these markets due to the presence of a large number of competitors and in view of the company’s limited management resources. Instead, Toyo Tanso has adopted an approach of focusing on carbon specialties, particularly isotropic graphite.
Growth in existing businesses
President Naotaka Kondo says there are a large number of products and areas the company has yet to explore in the field of carbon specialties alone. Accordingly, Toyo Tanso rolled out a strategy of reinforcing the company’s business foundations by expanding existing businesses, while strengthening operations in overseas markets, which offer vastly higher growth potential than the domestic market. The company plans to invest in automation and robotization of production lines (for which upgrades have lagged), expand production capacity, and aggressively pursue M&A opportunities.
Carbon is a chemical element that occurs abundantly in the natural world, and it is used in variety of fields from regular living environments to general industry, transportation equipment, and cutting-edge fields such as environment, energy, aerospace, and medical care. Despite its widespread use, however, carbon still bears untapped potential. Toyo Tanso thinks carbon can play an even greater role and be applied to more fields, so is combining it with different materials (such as metals, ceramics, or resins) and exploring other uses.
Anticipating customer needs through direct sales
Toyo Tanso’s key strengths are its technological and design proposal capabilities accumulated through product development centered on high-performance and high-quality applications. On the sales front, the company aims to differentiate itself from rivals by leveraging product development that anticipates customer needs through a robust direct-sales structure.
Business overview
Summary
The Toyo Tanso group mainly manufacturers, processes, and sells high-performance carbon products that use isotropic graphite materials as the base material. It pioneered this field in 1974, when it started mass-producing large isotropic graphite materials ahead of domestic and overseas rivals, and has since led the market, enjoying first-mover advantages while expanding usage applications. The group has established a system, under which it manufactures isotropic graphite and other carbon materials at consolidated manufacturing sites in Japan to ensure production efficiency, supplies these materials to processing and sales bases in Japan and overseas, and sells its products directly to local customers. It achieves stable product supply with short lead times through integrated production (covering all aspects from raw material to finished products) and a unique sales structure. Toyo Tanso has developed close ties with customers through its direct sales approach, and it is able to rapidly develop products in line with diverse customer needs and provide high-mix, low-volume production.
Pioneer in isotropic graphite materials
Carbon materials consist of graphite materials manufactured through heat treatment at high temperatures, and other carbon materials. Isotropic graphite is a type of graphite that exhibits the same material properties in all directions. It is manufactured by applying uniform pressure from all directions to the raw material during the forming process. Toyo Tanso developed the cold isostatic press (CIP) method (application of pressure of 1 t/cm2 in water) to manufacture isotropic graphite ahead of rivals in Japan and overseas.
The manufacturing process of isotropic graphite comprises the following 10 processes, and the entire process from raw materials input to completion takes between six and eight months: (1) pulverizing; (2) kneading, pulverizing, and mixing; (3) isostatic pressing; (4) baking (roughly 1,000ºC, about one to two months); (5) pitch impregnation; (6) graphitizing (roughly 3,000ºC, about two months); (7) machining; (8) high-purity treatment; (9) chemical treatment; and (10) quality control.
In FY12/21, special graphite products accounted for 45.4% of revenue, carbon products for general industries for 25.1%, compound materials and other products for 24.7%, and related goods for 4.8%.