Shin-Etsu Chemical (4063.T): Q1 review: FY3/27 cut on weaker PVC outlook, but strong semiconductor and AI materials support FY3/28 onwards

Research evidence excerpt

Shin-Etsu Chemical (4063.T): Q1 review: FY3/27 cut on weaker PVC outlook, but strong semiconductor and AI materials support FY3/28 onwards

Goldman Sachs Shin-Etsu Chemical (4063.T)

Lithography Materials, Optical Materials, and Magnetic Materials

We have raised our earnings forecasts from FY3/27 onward for photoresists, photomask

blanks, rare-earth magnets, encapsulation materials, and optical fiber preforms.

Photoresists remain particularly strong. In addition to advanced EUV and ArF

photoresists, multilayer materials are seeing substantial growth driven by leading-edge

GPUs and HBM. The timing of the new Isesaki plant ramp-up appears highly favorable,

and we expect high growth to continue, supported by attractive incremental margins.

Rare-earth magnets remain exposed to potential bottlenecks in heavy rare-earth

procurement. However, the company is actively working with customers to significantly

reduce, or ultimately eliminate the use of heavy rare-earth elements while

simultaneously implementing price increases. Demand from HEVs, HDDs, and

semiconductor manufacturing equipment also remains healthy.

Quartz cloth used in encapsulation materials is currently undergoing qualification for AI

server motherboard CCL applications, although sample shipment volumes have already

increased considerably. Meanwhile, demand for optical fiber preforms now exceeds

production capacity, prompting the company to consider further expansion. We will

closely monitor developments in this area.

Infrastructure Materials

We have lowered our assumptions for North American and export PVC markets from Q2

FY3/27 onward, resulting in substantial cuts to our operating profit forecasts for the

segment of 26%, 25%, and 26% for FY3/27, FY3/28, and FY3/29, respectively.