Sekisui Chemical Q2 FY2027: Profit rises 33%, full-year outlook lifted

Sekisui Chemical reported first-half revenue of ¥701.7 billion, up 11.4% year on year, operating profit of ¥60.4 billion, up 33.0%, and net income attributable to owners of the parent of ¥34.7 billion, up 9.7%. Revenue, operating profit and ordinary profit all reached interim-period records.

• Pricing improvements: The company moved quickly to raise prices in response to higher raw-material and component costs, protecting margins.
• Higher-value products: Stronger sales in growth markets, including electronics, helped lift profit.
• Demand pulled forward: Shipments increased as the company responded to supply concerns linked to worsening Middle East tensions and inventory building in the market.
• Factors limiting net income growth: Sekisui Chemical recorded ¥9.7 billion in extraordinary losses, including costs to replace certain batteries and expenses related to exiting the stationary battery business.

Price increases and higher-value products helped drive record earnings, while extraordinary losses meant net income grew more slowly than operating profit. As some demand was brought forward, investors will be watching whether first-half momentum can carry into the second half.

High Performance Plastics posted revenue of ¥264.2 billion, up 18.2% year on year, and operating profit of ¥38.3 billion, up 35.1%. Sales grew for higher-value products used in semiconductors and liquid-crystal displays, as well as interlayer films for head-up displays. Demand from the aircraft and air mobility markets also contributed.

Environment and Lifeline recorded revenue of ¥123.2 billion, up 10.0%, and operating profit of ¥13.2 billion, up 63.3%. Higher pipe shipments and protected spreads, along with increased sales of fire-resistant and noncombustible materials and European synthetic-wood railway sleepers, lifted profit margins above 10%. Some overseas projects, however, were delayed.

Housing reported revenue of ¥278.7 billion, up 7.8%, and operating profit of ¥16.8 billion, up 3.0%. Orders for new homes fell to 98% of the year-earlier level amid a weaker market, but orders by value reached 102% as sales of higher-priced products increased. Renovation, rental management and condominium sales also grew.

Medical posted revenue of ¥45.2 billion, up 2.2%, and operating profit of ¥4.9 billion, up 9.5%. Demand for diagnostic reagents was subdued in Japan and China, but pull-forward demand in Europe and the U.S. and profitability measures provided support. Some medical business projects were delayed. The contrasting profit growth rates show that Environment and Lifeline and High Performance Plastics led the company's overall earnings increase.

Sekisui Chemical raised its FY2027 full-year forecast to ¥1.491 trillion in revenue and ¥123.0 billion in operating profit. Compared with its previous forecast, it lifted revenue by ¥82.6 billion, or 5.9%, and operating and ordinary profit by ¥8.0 billion, or 7.0%, each.

The company expects some reversal of first-half demand brought forward, but said it now expects results to exceed its initial forecast, supported by maintained spreads and increased sales of higher-value products. It left its net income forecast unchanged, with the increases reflected mainly in operating and ordinary profit. The full-year forecast represents year-on-year growth of 13.9% in revenue and 15.5% in operating profit.

At the end of the first half, total assets had risen ¥77.6 billion from the previous fiscal year-end to ¥1.5055 trillion, and the equity ratio was 57.4%. Operating cash flow was below the year-earlier level, while investment cash outflows increased. Financing cash flow turned positive, partly reflecting borrowing.

The decline in operating cash flow was partly due to higher inventories. Spending on property, plant and equipment rose to ¥53.2 billion from ¥27.4 billion a year earlier, weighing on investing cash flow. Sekisui Chemical raised its interim dividend by ¥1 from its previous forecast, taking its full-year dividend to ¥82, up ¥2 from the previous year. The move is in line with its shareholder-return policy, which includes progressive dividends and a payout ratio of at least 40%.

In housing, Sekisui Chemical signed share-transfer agreements for Noble Home, Mirai Toshi Development and Australia's Ausbuild Group as it seeks to strengthen its domestic housing and residential businesses and overseas operations. With the new-home market challenging, the company aims to broaden its business base through acquisitions as well as renovation, rental management and existing-home resale.

The company also recorded ¥2.6 billion in business restructuring costs related to its exit from the stationary battery business. It booked a further ¥5.1 billion for replacing certain batteries sold in the past following product defects. The moves point to a dual focus on investing in growth areas while sharpening its portfolio and addressing product quality.

The strong first-half results included increased shipments tied to demand being brought forward and inventory building. Difficulties sourcing raw materials, a weak housing market and battery replacement costs could affect future performance.

• Higher raw-material and component costs, and supply constraints: Worsening Middle East tensions could affect prices and procurement. Delays in passing higher costs on to customers could put pressure on margins.
• Reversal of demand pulled forward: Shipments rose in the first half, but sales growth could slow if demand or market inventories adjust in the second half.
• Weak housing market: New-home sales volume is declining, making it important for higher-priced products, renovation and other businesses to offset the weakness.
• Product defects and business exit: Additional costs could arise from battery replacements and the exit from the stationary battery business.
• Delays to overseas projects: Delays in some overseas projects in infrastructure and renewal are affecting revenue, putting project management in focus.