Summary
On August 5, the company raised its full-year guidance. Operating income guidance went from ¥28.0B to ¥35.0B, and net income attributable to owners of parent company from ¥12.0B to ¥22.0B. The revised plan requires 2H recurring profit growth of more than 50% YoY. The key checkpoint is therefore whether standalone 3Q profit exceeds the standalone 2Q level. The expected growth driver is the Fine Carbon business, home to solid SiC focus rings for memory semiconductors. In Carbon Black, the prior-year 3Q did not include the Thailand site, so the consolidation effect will again lift revenue. With that benefit lapping in 4Q, the question is whether the segment can rebuild profit while absorbing higher feedstock oil costs and depreciation at the new plant. The net income plan assumes gains on the sale of cross-shareholdings. We will also track the timing of these extraordinary gains and the trend in the tax burden.
Key Points for Next Quarter
| Key Points & Focus | Implications |
|---|---|
Full-Year Guidance ProgressCumulative 3Q recurring profit progress against revised full-year guidance | 1H achievement rate was 43.3%, below the prior-year 51.6% (our estimate). Hitting the plan requires 2H recurring profit of ¥19,455M, so the focus is on growth from standalone 2Q's ¥8,664M. |
Fine CarbonSales trends for solid SiC focus rings and segment margin | In 1H, revenue rose +19.1% but profit grew only +6.9%. Margin was 14.3%, down from 15.8% a year earlier. The question is whether volume growth will translate into margin improvement (margins are our estimates). |
Carbon BlackSegment profit and margin in 3Q, while the Thailand consolidation effect remains | In 1H, revenue rose +10.5% while profit fell -11.1%. The prior-year 3Q did not include the Thailand site, so consolidation will again boost revenue. Ahead of 4Q, when this effect laps, we will assess whether a tire demand recovery and better margins that absorb higher feedstock costs can restore profit. |
Turnaround SegmentsSmelting & Lining license fees and Graphite Electrode restructuring benefits | 1H segment profit was ¥2,020M (+563.9%) for S&L and ¥792M (+60.3%) for Graphite Electrodes. Whether RuC license fees are one-off or recurring will determine the 2H profit level. |
Net IncomeBooking of gains on sale of cross-shareholdings; trends in income taxes and minority interests | In 1H, recurring profit rose +9.3% but net income fell -14.0%. Progress against the ¥22,000M full-year plan was 32.9% (our estimate). The upward revision includes extraordinary gains from cross-shareholding sales, so we will check how much is booked in 3Q. |
Key Issues from Previous Results (FY12/2026 2Q Results)
1H FY12/2026 delivered higher revenue and profit. Revenue was ¥173,728M (+9.9%) and operating income ¥15,102M (+10.5%). Profit growth at Fine Carbon, Smelting & Lining, and Industrial Furnaces and Related Products offset lower profit at Carbon Black. The company raised its full-year guidance at the same time. 3Q results will be the first test of the 2H profit expansion scenario, a step toward the "Vision 2030" targets of ¥500B in revenue, a 20% EBITDA margin, and 12% ROIC.
1. Cumulative 3Q Progress Against a 2H-Weighted Plan
- Previous Quarter: 1H recurring profit was ¥14,845M, or 43.3% of the revised full-year plan of ¥34,300M (our estimate). This is below the prior-year 51.6%.
- This Quarter's Check: Meeting the plan requires 2H recurring profit of ¥19,455M (+52.9% YoY, our estimate). Quarterly recurring profit rose from ¥6,181M in 1Q to ¥8,664M in 2Q. We will check whether this momentum continues into 3Q.
- Key Metrics: Standalone 3Q recurring profit vs. standalone 2Q's ¥8,664M. Cumulative 3Q achievement rate vs. the prior-year 80.0% (our estimate based on figures before retrospective restatement).
2. Fine Carbon: Volume Expansion and Margins
- Previous Quarter: 1H revenue was ¥33,016M (+19.1%) and segment profit ¥4,716M (+6.9%). Sales volumes of solid SiC focus rings for memory semiconductors increased.
- This Quarter's Check: The company cited continued strength in focus rings as a driver of the upward revision. However, demand for SiC power semiconductor applications remains weak. We will assess how product mix affects margins.
- Key Metrics: Cumulative 3Q segment revenue and profit YoY, and segment margin. 1H margin was 14.3% vs. 15.8% a year earlier (both our estimates).
3. Carbon Black: Earnings Power Ahead of the Thailand Consolidation Effect Lapping
- Previous Quarter: 1H revenue was ¥83,480M (+10.5%) and segment profit ¥7,239M (-11.1%). Profit was hit by higher depreciation at the new Thailand plant and margin compression from higher feedstock oil costs tied to the Middle East situation.
- This Quarter's Check: The Thailand site has been consolidated since 4Q 2025, so the YoY uplift persists through 3Q and fades only from 4Q. In 3Q, we will check whether profit turns toward recovery despite the new plant's depreciation burden. The focus is on how far the auto and tire demand recovery, cited by the company as a revision driver, shows up in volumes.
- Key Metrics: Cumulative 3Q segment revenue and profit YoY, and segment margin. 1H margin was 8.7% vs. 10.8% a year earlier (both our estimates).
4. Sustainability of the Turnaround at Smelting & Lining and Graphite Electrodes
- Previous Quarter: S&L segment profit was ¥2,020M (prior year: ¥304M), helped by cost cuts and RuC® license fee income. Graphite Electrodes revenue fell -8.5%, while profit rose to ¥792M (+60.3%).
- This Quarter's Check: We will check whether license fee income is one-off or recurring. ERFTCARBON was deconsolidated in April 2025, so the 3Q YoY comparison for Graphite Electrodes is free of deconsolidation effects. This allows a clean assessment of restructuring benefits.
- Key Metrics: Cumulative 3Q S&L segment profit YoY, and Graphite Electrodes segment revenue and profit YoY.
5. Extraordinary Gains, Tax Burden, and Consistency With the Net Income Plan
- Previous Quarter: 1H net income was ¥7,235M (-14.0%). The company booked ¥1,452M in gains on sale of investment securities. However, deferred income tax adjustments rose to ¥2,475M (prior year: ¥1,002M) and minority interests to ¥2,224M (prior year: ¥1,587M).
- This Quarter's Check: The net income upgrade (¥12,000M → ¥22,000M) includes extraordinary gains from cross-shareholding sales. Against the required 2H net income of ¥14,765M (our estimate), we will check 3Q gains on sale and trends in costs such as special retirement payments.
- Key Metrics: Cumulative 3Q gains on sale of investment securities, total income taxes, net income attributable to non-controlling interests, and net income progress against full-year guidance.
Key Timely Disclosures During the Period
- 2026/08/24Notice Regarding Cancellation of Treasury Shares - This follows the buyback approved by the board on May 13 (11,210,700 shares, ¥14,977M). The move is consistent with the company's policy of enhancing shareholder returns with an eye on cost of capital. We will confirm its impact via shares outstanding and treasury shares at end-3Q.
- 2026/08/05Notice Regarding Differences Between Consolidated Earnings Forecasts and Actual Results for 2Q (Interim Period) and Revision of Full-Year Consolidated Earnings Forecasts - Full-year guidance was raised to revenue of ¥386,000M, operating income of ¥35,000M, and net income of ¥22,000M. Key assumptions are a recovery in auto and tire demand, continued strength in SiC focus rings, and gains on cross-shareholding sales. 3Q results will test progress on each.
Previous Quarter Results (FY12/2026 2Q Actual)
The company is a carbon materials manufacturer centered on carbon black for tires. It also offers fine carbon for semiconductor production equipment, cathodes for aluminum smelters (Smelting & Lining), graphite electrodes, and industrial furnaces. Its long-term "Vision 2030" targets revenue of ¥500B, a 20% EBITDA margin, and 12% ROIC by 2030. In May, the company announced a higher payout ratio, the adoption of a DOE target, and a reduction in cross-shareholdings. 1H revenue and operating profit rose on the Thailand consolidation effect and growth in SiC focus rings for memory. Net income declined, however, due to a heavier tax burden and other factors.
| Item | Amount | YoY | vs. Company Plan | Notes |
|---|---|---|---|---|
| Revenue | ¥173,728M | +9.9% | - | Driven by Thailand consolidation and higher Fine Carbon volumes. 45.0% of full-year guidance (our estimate) |
| Operating Income | ¥15,102M | +10.5% | - | Profit up at Fine Carbon, S&L, and Industrial Furnaces. Carbon Black down on higher depreciation and feedstock costs |
| Recurring Profit | ¥14,845M | +9.3% | - | Interest expense of ¥1,462M (prior year: ¥1,149M); FX gain of ¥795M |
| Net Income | ¥7,235M | -14.0% | - | Gains on sale of investment securities of ¥1,452M; special retirement payments of ¥556M. Higher deferred tax adjustments and minority interests |
| EPS | ¥34.40 | -12.7% | - | Average shares outstanding fell due to buybacks. Full-year EPS guidance of ¥108.73 |
Guidance Achievement Rate (Recurring Profit Basis): 43.3% (Prior-Year Period: 51.6%)
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