BRIDGE REPORT
(4205)

東証1部

投資家向けIRセミナープレミアムブリッジサロン開催!
ZEON CORPORATION (4205)
President Kimiaki Tanaka
President
Kimiaki Tanaka
Corporate Profile
Company
ZEON CORPORATION
Code No.
4205
Exchange
TSE 1st Section
Industry
Chemicals
President
Kimiaki Tanaka
HQ Address
Marunouchi 1-6-2, Chiyoda-ku, Tokyo
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,559 222,021,320shares ¥346,131 million 11.0% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥17.00 1.41% ¥112.62 13.8x ¥1,082.02 1.4x
* Share price as of closing on November 10, 2017. Number of shares outstanding as of most recent quarter end and does not include treasury shares. ROE and BPS are from the last year-end.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating
         Income
Ordinary
       Income
Net
   Income
EPS Dividend
March 2010 225,878 9,319 9,448 5,020 21.26 6.00
March 2011 270,383 35,295 33,623 18,303 78.77 10.00
March 2012 262,842 32,123 31,487 19,127 82.75 11.00
March 2013 250,763 23,696 25,212 14,750 63.81 12.00
March 2014 296,427 29,901 32,561 19,650 85.15 13.00
March 2015 307,524 28,245 31,098 19,080 84.13 14.00
March 2016 295,647 29,856 32,153 18,079 79.86 15.00
March 2017 287,624 30,767 31,805 23,152 104.31 16.00
March 2018 (Est) 325,000 35,000 38,000 25,000 112.62 17.00
* Estimates are those of the Company. Net income is net income attributed to parent shareholders.
 
This Bridge Report provides a review of ZEON CORPORATION's the first half of fiscal year March 2018 earnings results.
 
Key Points
 
 
 
Company Overview
 
ZEON CORPORATION is a petrochemical manufacturer that maintains numerous products with a large share of the global markets including synthetic rubber used in automobile parts and tires, synthetic latex used in surgery-use gloves, and other products. The Company's strengths include its creative technology development function, R&D structure, and high earnings generation capability. Many of the products and materials manufactured by Zeon are used in a wide variety of products including automobile parts and tires, rubber gloves, disposable diapers, cell phones, LCD televisions, perfumes and other products commonly used in everyday life. The Zeon Group is comprised of the parent company, 58 subsidiaries and 9 affiliated companies. Zeon also has manufacturing and marketing facilities in 16 countries around the world.
 
 
(Company Name and Management Vision)
The company name "Zeon" is derived from the Greek word for earth "geo" (phonetically pronounced "zeo" in Japanese) and the English word reflecting eternity "eon," and reflects the Company's principle of "deriving raw materials from the earth and perpetually contributing to human prosperity" through the development and application of creative technologies. (Zeon's original name "Geon," used at the time of its establishment, was derived from the trademark acquired for the vinyl chloride resin "Geon" from the Goodrich Corporation (then called B.F. Goodrich Company) in the United States, with which it had capital and collaborative technological agreements. The company name was changed to "Zeon" when the capital agreement was dissolved in 1970.)
 
(Corporate History)
Zeon was established as a joint venture company formed by the Furukawa Group of companies: Nippon Light Metal Co., Ltd., Furukawa Electric Co., Ltd., and Yokohama Rubber Co., Ltd. in April 1950 to acquire and use the vinyl chloride resin technology from B.F. Goodrich Chemicals Co. In 1951, Goodrich acquired 35% of the shares of Zeon for full-scale technological and capital partnership, and in 1952 mass production of vinyl chloride resin began in Japan for the first time. In 1959, Goodrich transferred synthetic rubber manufacturing technologies to Zeon, which, in turn, started Japan's first mass production of synthetic rubber. Manufacturing facilities were also expanded to match the growing demand for tires and other automobile parts. In 1965, use of the Company's unique technology called Geon Process of Butadiene (GPB) for the efficient manufacture of butadiene (main raw material of synthetic rubber) from C4 fraction was operational.

Goodrich transferred its specialty synthetic rubber business to Zeon along with the shift in its main business focus toward vinyl chloride resins. Capital ties were dissolved in 1970. Along with these changes, the Company name was changed from Geon to Zeon in 1971.

Also in 1971, Zeon developed a unique technology called Geon Process of Isoprene (GPI) and began using it to manufacture raw materials including high-purity isoprene, hydrocarbon resins, and synthetic perfume ingredients from C5 fraction.

After entering the 1980s, Zeon aggressively launched new businesses in various fields including photoresists and other information materials, and medical-related applications in addition to its main synthetic rubber business.

In 1984, production of hydrogenated nitrile rubber Zetpol®, which currently has top share of the worldwide market, began at the Takaoka Plant.

In 1990, manufacture of synthetic cyclo-olefin polymer resin (COP) ZEONEX®, which is the main product of the specialty material business using the GPI method to extract and synthesize products, was started at the Mizushima Plant.
In 1993, Zeon entered China with its electronics materials business.

In 1999, Zeon Chemicals L.P. (Consolidated subsidiary in the United States) acquired the specialty rubber business of Goodyear Tire & Rubber Company of the United States to become the world's top manufacturer of specialty rubber.
In 2000, Zeon discontinued production of vinyl chloride resins at the Mizushima Plant, and thus withdrew from the Company's founding business.
In 2002, ZeonorFilmTM was launched as optical film for liquid crystal display (LCD).
Zeon Chemical Singapore Pte. Ltd. and Zeon Korea Co., Ltd. were founded, in 2010 and 2011 respectively, as part of the strategy to fortify Zeon's global production and sales structure.
In March 2013, a takeover bid of Tohpe Corporation was completed and Tohpe became a fully-owned subsidiary.
In September 2013, the plant for S-SBR in Singapore was completed and started commercial operation from April 2014.
In February 2015, Zeon enhanced capacity of optical film for LCD in Himi City, Toyama prefecture.
In November 2015, Zeon started the world's first mass production of "super growth carbon nanotube".
In April 2016, the second series is in operation at S-SBR production base in Singapore.
 
(Business Description)
Zeon's main products use various extracted from naphtha, which is extracted by distillation of crude oil.

Zeon uses butadiene extracted in the GPB method developed in-house from C4 fraction after extracting propylene (C3), isoprene monomer (IPM) extracted from C5 fraction using the GPI method, high-boil monomer (HB), dicyclopentadiene (DCPD), and 2-butyne as raw materials to be processed into synthetic rubber, synthetic latex and various other materials.
 
 
Zeon has three business segments: 1) the elastomer business, where manufactured basic materials are sold to customers; 2) the specialty material business, where basic materials are submitted to primary processing for sale to customers as processed materials, and 3) the other business.
 
 
<Elastomer Business>
Elastomers are "high molecular compounds that have rubber-like elastic properties," an example of which is synthetic rubber. As described in the corporate history section of this report, in 1959 Zeon became the first company in Japan to mass-produce synthetic rubber, which became the foundation underlying all of Zeon's businesses. This business includes the segments of synthetic rubber, synthetic latex, and chemical products (hydrocarbon resins, thermoplastic resins) businesses.
 
①Synthetic Rubber Business
<Example of final product : Tires>

Zeon provides the world's leading tire manufacturers with the world's highest-quality synthetic rubber for use in tires. Among the various types of synthetic rubber manufactured are styrene butadiene rubber (SBR), which promotes superior abrasion resistance, aging resistance and mechanical strength properties, butadiene rubber (BR), which includes a superior balance between elasticity, wear and low-temperature properties, and isoprene rubber (IR), which features similar high levels of quality, consistency and other properties as natural rubber.

Zeon expects the demand for S-SBR for low fuel consumption tires, which further improved the characteristics of SBR, to expand rapidly in the future. In order to increase the supply capacity corresponding to this, Singapore plant started operation in September 2013 (the first line). The second line started operation in April 2016. The supply capacity of the Singapore plant is 70,000 tons.
 
 
Radiator hoses, fuel hoses, fan belts, oil seals, and various other car engine parts use specialty synthetic rubber that has superior oil resistance and heat deterioration-resistant qualities. Zeon is the world's number one manufacturer of specialty synthetic rubber and features high quality levels and high market share of specialty synthetic rubber automobile parts. In particular, Zeon's Zetpol® hydrogenated nitrile rubber timing belts display superior heat and oil resistance and claims approximately 70% share of the worldwide fan belts market.

Furthermore, a new grade of Zetpol® has vastly improved the performance of products using the original versions of Zetpol®.
Products using the new grade of Zetpol® are heat resistant at temperatures that exceed the limits for the original version of Zetpol® by 15 degrees centigrade, thereby extending the life of seals and gaskets, and are in strong demand for use in next generation bio-fuel engines. The new grade of Zetpol® is well suited to extrusion processing which is being leveraged to expand its usage in various hoses. Products using Zetpol® have also been well received by customers, and are being used increasingly as a replacement material for more expensive competitive rubber in Japan, Asia, Europe and North America.
Commercial production of the new Zetpol® started in November 2012 at Zeon's Kawasaki Plant and reached full-scale production in 2013.
 
②Synthetic Latex Business
Synthetic latex is liquid rubber that synthetic rubber dispersed in water. It is used to manufacture gloves, paper coating, textile processing, adhesives, paints, and cosmetic puffs, etc. Zeon has close to 90% share of NBR latex used in cosmetic puffs.
 
③Chemical Products Business
Zeon produces C5 fraction by its unique in-house GPI method, and turn it into materials for adhesive tapes and hot melt adhesive, traffic paint binder and a wide variety of other products.
 
<Specialty Material Business>
①Specialty Plastics and Electronic Materials
Zeon deals in high value added materials and parts that are created using its unique technologies including polymer design and processing technologies.
Cyclo-olefin polymer extracted and synthesized from C5 distillate using GPI methods are thermoplastic plastics developed using Zeon's own unique technologies and are used to make the commercial products ZEONEX® and ZEONOR®.
ZEONEX® leverages its high transparency, low water absorption and low absorptive properties for use in camera and projector lenses and other optical applications, and in medical use containers including syringes and vials.

ZEONOR® leverages its high transparency, transferability, and heat resistance properties for use as transparent general use engineering plastics used in light guide plates, automobile parts, containers, discs and a wide range of other product applications.

ZeonorFilm® is the world's first optical film by the melt extrusion method from the cyclo-olefin polymer. It is excellent in optical properties, low water absorption / low moisture permeability, high heat resistance, low outgassing and dimensional stability. Not only for displays for LCD TV, smartphones and tablets, is it expected to be used in a wide range of applications such as digital signage in the future.
 
 
"Diagonally-stretched optical film" is also Zeon's world first development.
The OELD application as anti-reflection film is progressing, and demand for small- to medium-sized flat panel display applications is growing. In addition to the current plants in Takaoka and Himi (an annual output of 15 million square meters for optical film in total), the construction of a new plant in Tsuruga, Fukui Prefecture was completed in October 2013.
ZEOCOAT® is organic insulation material used in cellphones, smartphones, and LCD televisions. ZEOCOAT® was successful in improving both the picture quality and reliability of displays because of its high transparency, extremely low water absorption and low gas generation properties. Zeon will aggressively expand its marketing efforts for OELDs, which will be thinner displays than LCD, thin-film transistors using new semiconductors, and flexible displays.
 
②Battery Materials
Zeon provides materials for lithium ion battery in this segment; anode / cathode binders, binder for functional layer (heat resistant separator), and sealant.
Currently, Li-ion batteries are widely used as a power source for mobile devices such as mobile phones and notebook computers. Due to the rapid popularization of smartphones, there is a strong demand for higher capacity batteries. Adoption for industrial power sources (such as electric vehicles, including hybrid and plug-in hybrid cars, and smart grids, etc.) also have begun, since it is lightweight, compact and can store a lot of energy. On the other hand, there was a problem that lifetime tends to decrease under high temperature usage.
The company has advanced the function of Li-ion battery binder and succeeded to develop an aqueous cathode binder, which greatly contributes to longer battery life. In addition, Zeon succeeded in commercializing anode binder, which can raise the storage capacity of Li-ion battery by 5% to 15%.
Zeon believes that its materials contribute to safety, long life and battery capacity increase of Li-ion batteries and contribute to the widespread of hybrid cars.
The company focused on the promising future of Li-ion batteries and worked on it for a long time. In this business segment for 2020, Zeon seeks to keep its top share in the Li-ion battery binder market, aims to expand the diffusion of new material functions that meet the needs of the application and propose functional materials to realize the next generation of new batteries.
 
 
③Medical Device
The medical device market is relatively well insulated from fluctuations in the economy, and is anticipated to grow with the aging society in Japan and expansion in developing countries. Furthermore, medical device companies are subject to strict laws and regulations, and they need to submit approval applications to regulatory bodies. In addition, the need to develop relationships with healthcare professionals is critical and the subsequent high barriers to entry makes this a highly attractive market.
Along with the start of development of artificial kidneys in 1974, Zeon aggressively promoted its medical device business. In 1989, a subsidiary Zeon Medical Inc. was established to conduct development, manufacturing, sales and all other functions of the medical field for the Zeon Group. Zeon has shown bountiful development track record both in gastroenterology and cardiovascular area. The Offset Balloon Catheter as a means of differentiation in the gallstone removal process and with Japan's first biliary covered stent Zeostent Covered in the area of gastroenterology products, and the world's smallest diameter XEMEX IABP Balloon PLUS as a device to aid the heartbeat at times of acute myocardial infarction in the area of cardiovascular products.
 
 
Currently Zeon is focusing efforts in the development of devices that eliminate gallstone pain by removal of gallstones. Zeon has a lineup of products that can remove gallstones ranging from extremely large stones to sludge and sand with products such as XEMEX Crusher Catheter, XEMEX Basket Catheter NT, Extraction Balloon Catheter, and is aiming at a 50% share of the gallstone removal market.
In March 2016, the Company launched the world's first optical sensor FFR device as a type of guide wire. Because it uses an optical fiber sensor, mistaken readings of blood pressure measurements rarely occur. The operability as a guide wire has also gained a high evaluation and Zeon is aiming for a 30% share of the Japanese market by 2020.
 
④Chemical Business
Zeon deals in specialty chemicals that use ingredients derived from C5 fraction, such as synthesized fragrances for cosmetics and flavor used in foods, solvents and plant growth regulator. The Company holds the world's top share of the synthesized fragrances in green note. They provide a wide range of specialty products including ingredients for intermediary bodies used in medical and agricultural chemicals, alternative CFCs solvents, cleaning agents, urethane expanding agent, and functional ether agents.
 
 New Specialty Materials Development: ~Carbon Nano Tube (CNT)~  
Aggressive R&D activities have allowed Zeon to launch various new materials into the market, and particularly high expectation is in the development of "single-wall carbon nanotubes (CNT)".
 
①What is Single-Walled CNT?
Carbon Nanotubes (CNTs) are cylindrical nanostructure formed by hexagonal lattice of carbon atoms. In 1993, Sumio Iijima, Ph.D., head of the Applied Nanotube Research Center of the National Institute of Advanced Industrial Science and Technology (AIST), discovered this structure for the first time in the world and named Carbon Nanotubes (CNTs). CNTs are categorized into single-walled and multiple-walled CNTs. Multiple-walled CNT is relatively easy to manufacture and the developments for commercial applications already started.
 
 
At the same time, single-walled CNT exhibits the following properties and is superior to multiple-walled CNT:
-  20 times stronger than steel
-  10 times more heat conductive than copper
-  Half as dense as aluminum
-  10 times the electron mobility of silicon
-  lightweight but highly flexible
-  has extremely high electric-and heat-conductivity properties
Possible CNT applications are electrical conductivity assistance agent in Li-ion batteries, transparent conductive film used in electronic paper and ultra-thin touch panel because of its high elasticity and strength, and as a heat dissipating material. Because of its ability to absorb a wide spectrum of light, practical applications of single-walled CNT are being promoted in the area of electromagnetic wave absorbing materials for use in a wide range of fields including energy, electronics, structural materials, and specialty materials.
 
 
Conventional single-walled CNT has several major issues including high levels of impurities, low levels of productivity and high manufacturing costs, which are about several tens of thousands to hundreds of thousands of yen per gram.
 
②Zeon's Efforts and Position
Against this backdrop, the AIST and five companies* jointly established the technological consortium Technology Research Association for Single-Walled Carbon Nanotubes in May 2010 (*Zeon, NEC Corporation, Toray Industries, Teijin Limited, and Sumitomo Precision Products Co., Ltd.). The consortium aims at establishing technologies that are necessary for the commercialization of new products using single-walled CNT developed in Japan with its numerous superior qualities in response to the worldwide social demands to realize a low-carbon society.
Using the synthesizing technology super growth method developed by Dr. Kenji Hata (Ph.D.) of the AIST as a base, the above-mentioned consortium has been conducting research and development for mass production and application development for compound materials at a validation plant that was established in December 2010 on the premises of the Tsukuba Center of the AIST. Among the main reasons that the AIST Nanotube Application Research Center selected Zeon to become its partner were the impressive track record and results obtained by Kohei Arakawa, Zeon's former Managing Director, as a researcher in CNT research and development. Furthermore, the fact that the consortium director is Zeon President Furukawa reflects the importance of Zeon in this project to realize commercial applications of single-walled CNT.
 
③Future Endeavors
Having established the mass production technology based on the super growth method, Zeon completed the CNT production facility and started mass production, the first in the world in November 2015 in its Tokuyama plant at Shunan-city, Yamaguchi Prefecture.

Zeon is the only company in the world that has established mass production technologies for single-wall CNT. In addition to those companies within the consortium mentioned above, about 100 Japanese and foreign companies request for its product samples. Consequently, shipments of samples have already begun. Zeon has also begun to propose practical applications of this product.

At the same time, single-wall CNT is a type of nanomaterial that is extremely small and fiber shape . Therefore, there is a concern that it may have some impact upon biological processes depending upon its size and shape. Currently, the AIST is conducting standardization of the evaluation process, and activities for the OECD endpoint measurement are being conducted, with global standardization and legal and regulatory aspects being considered.
 
<Other Business>
The combination liquid for Reaction Injection Molding (RIM) and molded items using the ingredient dicyclopentadiene (DCPD) as a raw material.
 
(Characteristics and Strengths)
1. World's Leading Creative Technology Development Capability
The GPB method used to manufacture butadiene from C4 fraction is the most important development in Japan's postwar history of chemicals, and is licensed to 49 plants in 19 countries around the world.

In addition, the Mizushima Plant is the world's only plant with GPI method to extract high-purity isoprene and other effective substances from C5 fraction. This Zeon's GPI method is a completely unique technology, which is not provided to other companies. Zeon is able to acquire basic ingredients used in synthesized fragrances and hydrocarbon resin.

These two technologies represent the creative technological capabilities that are among the strengths of Zeon. They also are highly regarded and have received numerous awards in the global markets. With regard to technologies, Zeon has received 48 awards since 1960 including the GPB and GPI methods, in addition to 26 awards since 1982 for its environment conservation and safety efforts.
 
2. High Worldwide Share
Zetpol®, ZEONEX®, and ZEONOR® are representative of the products born from Zeon's highly creative technologies, which have allowed it to acquire high shares of worldwide markets. In addition, their Leaf alcohol for in cosmetics and food flavorings and NBR latex for cosmetic puffs have the world's top share.
 
3. R&D Structure that Continues to Yield Creative Technologies
Zeon seeks to conduct research and development activities based upon its basic corporate philosophy of "developing creative technologies in special fields of strength that enables Zeon to contribute to society by generating the world's leading businesses."

The Company's main R&D center is located in Kawasaki City, Kanagawa Prefecture. Zeon has also established the Precision Optics Laboratory and Medical Laboratory at the Takaoka Plant, and the Chemical Product Research Facility at the Yonezawa Plant for more efficient research and development activities to be conducted closer to the manufacturing sites. The research groups are also in the United States.
The R&D personnel are never satisfied with the current conditions, and always keep conscious of the threat that their competitors pose in their research activities. Furthermore, Zeon bases its valuation on a positive point awarding system that places high priority -on speed and creativity. R&D expenses were formerly measured as a percentage of sales, but now it has established an annual value amount of ¥12.0 ~ ¥13.0 billion as an investment budget to ensure that stable R&D activities can be maintained in the future.
 
 
First Half of Fiscal Year March 2018 Earnings Results
 
 
Sales and profit grew by double digits thanks to the increase in quantity sold and price effects, exceeding the respective estimates considerably.
Sales were ¥166.6 billion, up ¥26.4 billion year-on-year. The effects of the increase in quantity sold and price effects raised sales by ¥18.8 billion and ¥6.2 billion, respectively. As for elastomers, general-purpose rubber for export and special rubber sold well. As for specialty materials, the performance of diagonally stretched films for small and medium-sized displays was favorable.
Operating income grew ¥6.6 billion year-on-year to ¥19.9 billion. The effects of the increase in quantity sold and price effects raised profit by ¥5.2 billion and ¥6.2 billion, respectively, while the augmentation of cost due to the rise in prices of Japan naphtha and Asia butadiene decreased profit by ¥4.4 billion.
Ordinary income grew ¥9.5 billion year-on-year to ¥21.6 billion. An exchange gain of ¥600 million was posted, while an exchange loss of ¥1.8 billion was recorded in the same period of the previous year. Both sales and profit exceeded the respective initial estimates considerably.
 
 
Sales and profit increased. Operating income margin rose 1.4 points year-on-year from 10.2% to 11.6%.
The quantity sold of rubber increased 16%. The quantity sold of general-purpose rubber for tires grew 20% year-on-year. In Japan, the quantity sold dropped 4% year-on-year, because the factory utilization rate of each tire manufacturer was sluggish, but outside Japan, it increased 38% year-on-year, as SSBR was healthy and the market was thriving.
The sales volume of special rubber rose 3% year-on-year. Inside Japan, it increased 3%, while outside Japan, it rose 4% although it dropped 1% in the first quarter.
The ratio of special rubber declined 4% to 27% in terms of quantity sold, and dropped 6% to 51% in terms of sales.
As for latex, the materials for gloves exported well.
 
 
Sales and profit grew. Operating income margin rose 6.1 points year-on-year from 12.9% to 19.0%.
As for the breakdown of sales growth of the segment of specialty chemicals, the sales of electronic materials increased 16% year-on-year, while the sales of battery materials grew 37% year-on-year, because the performance of materials for in-vehicle batteries was favorable. The sales of chemicals decreased 2% year-on-year, while the sales of toners recovered to 13% increase.
The sales of the segment of specialty plastics rose 20% year-on-year. The sales of COP resin grew 4% year-on-year. The sales of optical films increased 26% year-on-year, as the films for small and medium-sized displays sold well. The quantity sold increased 10% year-on-year.
The ratio of sales for small and medium-sized displays rose from 19% to 28%.
 
 
Sales and profit increased. Operating income margin rose 0.4 points year-on-year from 5.8% to 6.2%.
 
 
Sales and profit grew from the previous quarter.
The quantity sold factor increased sales by ¥2.7 billion, the price factor decreased sales by ¥1.8 billion, and the exchange rate factor raised sales by ¥200 million.
Quantity sold did not influence operating income, and price factor decreased operating income by ¥1.8 billion. The cost factor and exchange rate factor increased operating income by ¥2.4 billion and ¥200 million, respectively.
 
 
 
Due to the increase in cash and deposits, current assets grew ¥18.1 billion from the end of the previous term. Total noncurrent assets rose ¥5.2 billion from the end of the previous term, as the value of investment securities increased due to the rise in share price. Total assets rose ¥23.4 billion from the end of the previous term.
Total liabilities augmented ¥4.4 billion from the end of the previous term, as interest-bearing liabilities declined ¥1.9 billion and payables rose ¥4.4 billion from the end of the previous term.
Net assets grew ¥18.9 billion, due to the increase in retained earnings and valuation difference on available-for-sale securities. As a result, capital adequacy ratio rose 1.1 points from the end of the previous term to 59.5%.
 
 
The surplus of operating CF grew due to the increase in net income before taxes and other adjustments, etc. The deficit of investing CF shrank due to the decrease in purchase of property, plant and equipment, and the surplus of free CF expanded considerably. The deficit of financing CF dropped due to the decline in repayments of long-term loans payable. The cash position improved considerably.
 
 
Fiscal Year March 2018 Earnings Estimates
 
 
 
The earnings forecast has been revised upwardly. It was initially estimated that sales would grow and profit would decline, but it is currently forecasted that both sales and profit will increase.
Considering the healthy business performance, the full-year earnings forecast has been revised upwardly. Sales are estimated to grow ¥37.4 billion or 13.0% year-on-year to ¥325 billion. The performance of elastomers and specialty materials is forecasted to be healthy. Operating income is projected to rise ¥4.2 billion or 13.8% year-on-year to ¥35 billion. The estimates for specialty materials have been revised upwardly, as the performance of battery materials and optical films is favorable. Although the profit from elastomers was estimated to decline due to the drop in prices, it is forecasted to increase thanks to strong demand. Ordinary income and net income are projected to grow ¥6.2 billion and ¥1.8 billion to ¥38 billion and ¥25 billion, respectively. There is no revision to the estimated dividend, and the dividend is projected to rise ¥1/share year-on-year to ¥17.00/share. The estimated payout ratio is 15.1%.
 
 
"New Mid-term Business Plan SZ-20 Phase III"
 
Progress of "New Mid-term Management Plan SZ-20 Phase III" covering a four-year period beginning from this term is as follows.
 
 
 
① Elastomer Business
◎ SSBR: Exploration
In August 2017, construction of the facilities for oil-extended rubber, which is the strong field of the company, was completed in Singapore. The company has developed the ground for expanding its business through optimal manufacturing at two factories in Tokuyama and Singapore.
Tokuyama Pland produces differentiated products as a site for developing new products, while Singapore Plant handles mass-produced products after transferring operations from Tokuyama Plant.
The quantity sold of SSBR is estimated to increase about 1.5 times between 2017 and 2020.
 
◎ Specialty rubber: Solution
The company established Asia Technical Support Laboratory (ATSL) in Singapore to offer compound design and testing assistance to clients in emerging markets. It will cover ASEAN countries and India, where the demand for specialty rubber is expected to expand as the market of vehicles with internal-combustion engines will grow.
It will enhance its presence in the emerging markets as the Zeon's fifth largest facility for offering technical services in the world.
 
◎ Hydrocarbon resin: Reinforcement
In order to meet the needs for odor reduction, which are now growing, the company started producing low-odor grade by adding hydrogen at Mizushima Plant in September 2017. The hydrogenation equipment is based on Zeon's original technology.
The company will promote the use of petroleum resin for special adhesive tapes, which need to be low-odor and low-VOC (volatile organic compound), such as sanitary products and insulation tapes for automobiles.
The sales volume of hydrogenated hydrocarbon resin is estimated to expand 8 times in the coming two years.
 
◎ SIS: Reinforcement
By further promoting asymmetric SIS that has superior strength and elasticity, the company will expand the target field of SIS, including flexography, protective films, adhesive tapes, and hot-melt adhesives, in addition to elastic films and adhesive labels.
The company aims to expand the sales volume of asymmetric SIS about 6 times by 2020.
 
◎ PSC (powder slash compound): Solution
The company plans to respond to the expansion of the market based on its three facilities in Japan, China, and Mexico.
The first phase of construction of Mexico Plant, whose production capacity is 1,200 tons per year, was completed, and its operation began in June 2017.
The second line, whose production capacity is 1,200 tons, is scheduled to be in operation from 2020. Then, global production capacity will be 6,800 tons.
Global sales are estimated to increase about 1.8 times between 2017 and 2020.
 
② Specialty Material Business
◎ ZSM established: Exploration
In October 2017, Zeon Specialty Materials Inc. (ZSM) was established for handling specialty materials in Silicon Valley, which is the hub of the IT industry. In January 2018, its business operation will be started.
This corporation will respond to market needs regarding specialty plastics (COP: cycloolefin polymer), specialty components (optical films), battery materials (binders for Li-ion rechargeable batteries), electronic materials (insulation materials, resist, and etching gas), etc. more speedily.
 
◎ COP: Solution
The company will promote COP in the fields of medicine and biotechnology, and launch the service of prototype production of microfluodic chips, etc.
By undertaking all processes, including substrate molding, microchannel cutting, and bonding, on a one-stop basis, the company produces prototypes in small lots at low cost in a short period of time.
 
◎ New grade of COP for optical lenses: Reinforcement
With the aim of expanding sales in the automobile sensing camera market, the company released "ZEONEX®T62R," a highly heat-resistant product for optical lenses. Compared with conventional products, it does not deform easily or get discolored under a high-temperature environment.
Through the popularization of "ADAS (advanced driver assistance system)," a system for detecting and avoiding the risks of car accidents, etc., the market of automobile camera modules for sensing is estimated to grow considerably.
 
◎ ZeonorFilm: Reinforcement
As the area of the LCD panel market is expanding, products are expected to become larger in the OLED (Organic Light Emitting Diode) TV market. As the demand for ZeonorFilm for high-pixel big-screen TV sets is strong, the company will develop base materials for touch sensors and foldable films based on the development of new retardation films, to take advantage of the growth of the OLED market.
The operation of the sixth line of retardation films for LCD TV has been started.
 
◎ Energy materials: Solution
The company will enrich products further to expand its business.
The sales of battery materials exceeded the estimate in the period of the previous mid-term plan, as the Li-ion battery capacity increased.
Major automobile manufacturers plan to expand the sales of electric vehicles (EVs).
As the company started its business with sealants, it will actively propose the adoption of materials (binders) that can achieve safety, long service life, and high output, and aims to exceed the estimated sales in the period of the current mid-term plan.
 
◎ Medical devices: Accelerate new business creation and product development
FFR with optical sensors, which was released in the previous term, is increasingly adopted, because of its high reliability. The company aims to achieve a market share of 30% by 2020.
(FFR means fractional flow reserve, which is an indicator for estimating how much blood circulation is hindered by stenosis inside a coronary artery.)
 
◎ Carbon nanotubes (CNT): Accelerate new business creation and product development
In February 2017, the company, National Institute of Advanced Industrial Science and Technology (AIST), which is a National R&D Agency, and Sunarrow Limited jointly established Zeon Sunarrow AIST CNT Composite Material Research Center, and have been proceeding with the research into CNT composites. As a result, the following two products have been announced.

*O-ring, which is so robust and safe as to keep its shape even at a high temperature
They developed an O-ring by combining CNT and fluorine-containing rubber (O-ring is a rubber sealant used for preventing the leakage of contents from pipes and containers).
Since its shape can be maintained even at high temperatures, where fluorine-containing rubber thermally deteriorates, due to the fiber-reinforcing effect of carbon nanotube, it could be used under a severe environment in which products need to tolerate high temperatures and pressures, such as automobile and chemical plants.
From now on, the company will establish the technology for mass-producing rubber sealants at the CNT composite research center. The company plans to put it into practical use within 3 years, by enriching the lineup of molds.

*Shield of electromagnetic waves with a coating material using carbon nanotube
The company embodied a coating film that can block over 99.9% of electromagnetic waves with a water-based coating using carbon nanotube. Since this film is heat-resistant and durable and tolerates bending, it can be used also for parts that have a complex shape and movable parts.
This film is expected to be used for blocking electromagnetic waves in various fields, including wire harnesses for automobiles and robots.
 
 
Conclusions
 
In the previous term, price factors affected the performance of the company, but recent results are favorable as quantity sold and prices made a positive contribution thanks to strong demand, and the progress rate of profit is as healthy as 57% even after the upward revision.
The company is steadily improving its capacity to supply SSBR, Powder Slash Compound, retardation films for LCD TV, etc.
In the current term, we would like to pay attention to whether the company will mark a record high in sales and profit.
 
 
<Reference: Regarding Corporate Governance>
 
 
◎ Corporate Governance Report
The company submitted a latest corporate governance report on July 5, 2017.
 
 
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and come from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
Copyright(C) 2018 Investment Bridge Co., Ltd. All Rights Reserved
 
 
<Reference: Fact Sheet>
 
 
 
 
 
 
 
 
 
PAGE TOP