Lift PO; improved returns, but reiterate Underperform on weak earnings

Research evidence excerpt

Lift PO; improved returns, but reiterate Underperform on weak earnings

Short-term view

• In the medium-term management plan announced in March 2026, the company set

a target of achieving DOE (Dividend On Equity) above 3% in FY3/29. Based on this,

dividends are expected to increase significantly (our forecast: ¥38 for FY3/29). This

is a factor supporting higher valuation, and we reflect this in our revised price

objective.

• We forecast 1Q business income of ¥35bn and OP of ¥32.5bn (consensus ¥31.0bn).

We expect the company to keep its full-year guidance unchanged. We do not

anticipate a surprise.

• Carbon fiber, a key growth driver, is expected to grow in aerospace applications, but

overall profit growth is likely to be limited due to weak demand in general industrial

applications and higher depreciation burden from new capacity coming onstream.

• In the films business, growth in films for MLCC (Multilayer Ceramic Capacitor)

manufacturing processes is expected, but struggles in battery separator films

continue, limiting overall improvement.

Medium-/long-term view

• Structural reforms under the Darwin Project and strategic pricing initiatives are

progressing and supporting earnings. Fibers and textiles for Uniqlo and carbon fiber

for Boeing are also showing solid growth. However, across many areas including

fibers & textiles, chemicals, and carbon fiber, sluggish demand and intensifying

competition with increasingly technologically competitive Chinese players are

constraining Toray’s earnings growth.

o In performance chemicals, competition with Chinese players is

intensifying in areas such as OLED materials, with their presence

increasing. A similar trend is seen in engineering plastics. Further

deterioration in the competitive environment is a concern, raising risk