Updating Resonac, Tokai Carbon: Semi Demand & Improved Corporate Governance

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Updating Resonac, Tokai Carbon: Semi Demand & Improved Corporate Governance

ed. Key growth drivers include thermal

interface materials (TIM) benefiting from robust HBM demand, die-bonding materials used in

memory applications, and solder resists for FC-BGA substrates serving PCs and AI servers.

As a result, we'd expect Resonac's revenue and profit to grow QoQ in 2Q as well. Core OP

forecasts for FY12/26 raised from ¥119bn to ¥158bn (FactSet consensus ¥166bn), FY12/27

from ¥146bn to ¥204bn (¥203bn), and FY12/28 from ¥205bn to ¥282bn (¥231bn). The PT uses

a 16x EV/EBITDA based on a semi materials–centric valuation, and is seen as reasonable

assuming a Crasus spin-off and EBITDA margin >20%.

Tokai Carbon (5301 JP, Hold): boosting shareholders' returns, TCK & SL strong. We were

positively surprised by Tokai's hairpin turn on shareholders' returns; shifting payout ratio to

40% from 30%, combining it with an adjusted DOE of 5% and a progressive dividend approach.

The company also announced a ¥15bn buyback program in order to improve capital efficiency.

Mgmt explicitly signaled its intention to improve capital efficiency and address valuation

concerns; its stock price was languishing below 1.0x P/B, and we think that both internal

(new board members with capital policy knowledge) and external (engagement funds) factors

played a pivotal role to this transformation. We also include the memory demand boosting

Tokai Carbon Korea's P/L (TCK, fine carbon division) and high aluminum price tailwind for

lining materials (smelting & lining (SL) segment) in our earnings forecasts. As for TCK, demand

for SiC focus rings is recovering, supported not only by the strong memory cycle (esp. NAND)

but also by increased SSD demand driven by AI. The company, as a qualified supplier to major