KEIWA Incorporated

The liquid crystal display industry, a major customer base, is exposed to fierce global price competition, and the Group is also being forced to respond to market pricing pressures. Although the Group seeks to differentiate itself by concentrating on high-value-added segments, if competitors intensify low-price strategies, further declines in selling prices may continue, which could have a material impact on operating results.

The main raw materials used in the Optical Products Business are plastic products such as resins and films, which are directly affected by international commodity markets such as crude oil and naphtha. Although the Group hedges this risk by securing multiple domestic and overseas procurement sources and adjusting order ratios, if price increases cannot be passed on to selling prices, it could affect business performance.

The majority of overseas sales in the Optical Products Business are concentrated in China. If country risks materialize in China, such as abrupt changes in tax systems and regulations, political and economic turmoil, terrorism, conflict, or natural disasters, this could have a material impact on the Group's business performance. Countermeasures against geopolitical risk are limited, and the high degree of concentration represents a structural vulnerability.

The Group's business is concentrated in optical films such as light-diffusing films for liquid crystal displays. If technological innovation renders light-diffusing films unnecessary for liquid crystal displays, or if competing or substitute products are introduced at lower prices, intensifying price competition, this could significantly affect business performance. Although the Group continues to develop new products, it faces a structural risk of high dependence on specific product fields and technologies.

The Wakayama Techno Center (Hidaka-gun, Wakayama Prefecture), the Group's main domestic site, is where coating and sheeting processes for optical sheets are concentrated. In the event of a large-scale natural disaster, there is a risk that production capacity and logistics functions could be severely affected. While the Group has dispersed construction to elevated sites to reduce the risk of accident escalation within the premises, concerns remain about significant impacts on financial position and business performance, including delays in supply chain recovery and power supply shortages.

The Group continues to make R&D and capital investments to respond to market needs. However, if rapid market changes or technological innovation prevent the Group from securing orders, capacity utilization, and quality as planned, this could result in higher raw material costs due to lower yields, increased depreciation and financing costs, and a prolonged period for recovery of invested capital. The importance of this risk is increasing as the Group actively pursues growth investment.

The Group procures foreign-currency-denominated materials from overseas and sells products overseas in foreign currencies, so fluctuations in exchange rates directly affect business performance. In particular, the high proportion of overseas sales in the Optical Products Business, with the majority directed to China, makes the Group structurally susceptible to exchange rate movements such as yen appreciation or renminbi depreciation. The securities report does not disclose specific hedging measures.

In new product development and other activities, certain operations directly involve highly confidential customer information, making the maintenance of trust in information management important for business continuity. Although the Group has established relevant regulations and conducts awareness and training for all employees, if confidential information is leaked due to unauthorized access by a third party or other causes, this could affect business performance through a decline in social credibility, incurrence of substantial response costs, and damage to corporate image.

Organic solvents are used in the manufacturing processes at the Wakayama Techno Center and the Shiga Advanced Techno Center, subjecting the Group to multiple regulations including the Industrial Safety and Health Act, the Air Pollution Control Act, and the PRTR Act. Environmental regulations are becoming stricter year by year, and strengthening, revision, or introduction of new regulations could render existing equipment unusable, requiring additional capital investment, which could constrain business activities and affect business performance.

Securing personnel capable of operating in the global market and outstanding engineers is recognized as a key challenge for the continuous development of the business. Although the Group is implementing measures such as active recruitment activities, improvements to personnel evaluation systems, and training programs, if it is unable to sufficiently secure and develop the necessary personnel, or if turnover of hired personnel progresses, this could affect the business and business performance.