Electronic Materials and Functional Chemicals Q1 FY2027: Profit growth splits

• All five companies increased revenue, and operating profit rose at each company from a year earlier. Average revenue growth was 15.9%, with MGC and Sumitomo Bakelite above the average.
• AI and semiconductor demand lifted the electronic materials businesses. Sumitomo Bakelite benefited from strong semiconductor-related materials, while Daicel captured demand for AI-related polymers.
• Data center demand is another source of growth. Dexerials expanded sales of optical semiconductors, while precision bonding materials for smartphones also grew.
• Market conditions and foreign exchange had different effects across the group. Higher methanol prices and inventory valuation gains boosted MGC, while Taiyo Holdings also increased profit despite a stronger yen.

MGC led the five companies in revenue, at ¥223.7 billion, up 25.7% year on year. Operating profit was ¥27.8 billion, up 153.5%, far ahead of Sumitomo Bakelite in second place at ¥14.2 billion. Higher methanol prices and strength in electronic materials both contributed. MGC led the group in profit growth.

Some of the profit increase also reflected stronger market conditions and inventory valuation gains. To assess how sustainable it is, investors should track growth in electronic materials separately from developments in the methanol business.

Daicel faced the toughest quarter. Operating profit rose 7.7% year on year to ¥14.0 billion, but that was the slowest growth among the five. Net profit fell 2.7% to ¥9.4 billion, making Daicel the only company with a year-on-year decline. Its operating margin was also the lowest, at 9.2%. Lower profit in the Safety business and the absence of a special gain recorded a year earlier weighed on results.

• MGC raised its full-year operating-profit forecast to ¥71 billion, which would be a 56.8% increase from the previous year. It is carrying its industry-leading quarterly profit growth into its outlook.
• Sumitomo Bakelite lifted profit through more appropriate selling prices and growth in semiconductor materials. Operating profit rose 65.4% year on year to ¥14.2 billion, ranking second among the five.
• Daicel was driven by High Performance Polymers, which is benefiting from AI-related demand. Weakness in the Safety business remains a challenge, making the uneven recovery across businesses a key factor in meeting its full-year plan.
• Dexerials grew sales of optical semiconductors for data centers and is progressing with the startup of its Tome factory. Its 31.6% operating margin was the highest among the five, but optical materials such as ARF remain exposed to demand shifts and competition in China.
• Taiyo Holdings increased operating profit 48.9% year on year to ¥10.5 billion despite the headwind from yen appreciation. Its Electronics business was strong, while the ongoing tender offer makes the company’s future management structure worth watching.

• A pause in AI and semiconductor demand could reduce materials demand through lower capital spending or inventory adjustments. Companies with greater exposure to semiconductor-related products may be more vulnerable.
• Changes in raw material prices and exchange rates can move earnings. Higher methanol prices helped MGC, but procurement costs could rise or market conditions could turn lower.
• A slowdown or intensifying competition in China’s automotive and electronics markets could weigh on Daicel’s Safety business and Dexerials’ optical materials.
• Factory investment to meet rising demand can become a burden if utilization falls short of expectations. Matching capacity expansion to demand is a shared challenge for the companies.
• Progress on the tender offer for Taiyo Holdings could affect management decisions. Investors should watch for changes in its shareholder base and business strategy.

MGC ranked first in revenue and operating profit, but Dexerials had the highest operating margin, at 31.6%, followed by Taiyo Holdings at 26.9%. The rankings for scale and profitability do not align.

Sumitomo Bakelite also posted a 14.9% operating margin, above MGC’s 12.4% and Daicel’s 9.2%. Beyond overall scale, the ability to develop high-value-added materials, including products for semiconductors, is a key differentiator.

Growth in materials for AI and semiconductors is supporting roles in research and development, production engineering and quality assurance. Looking at specific products and customers, such as Dexerials’ optical semiconductors and Sumitomo Bakelite’s semiconductor materials, can help identify each company’s strengths.

Chemical companies are also exposed to market conditions and foreign exchange. At diversified companies such as Daicel, understanding both the growth businesses and those under pressure can help when considering assignments and career paths.