|Toyo Ink SC Holdings, Co., Ltd. (4634)|
Toyo Ink SC Holdings, Co., Ltd.
TSE 1st Section
President and CEO
3-7-1 Kyobashi, Chuo-ku, Tokyo
End of March
* Share price as of closing on the end of December 17. Number of shares outstanding is as of quarter end from the most recent earnings briefing.
ROE and BPS are based on actual results of the previous term end.
* Estimates are those of the Company.
HistoryThe origin of Toyo Ink dates back to 1896, when founder Kamataro Kobayashi opened Kobayashi's Ink Shop as sole proprietorship at Nihonbashi, Tokyo. In 1907, it was reorganized and renamed as Toyo Ink Manufacturing Co., Ltd. During the Meiji period, many newspapers and magazines, including the Yomiuri Shimbun (founded in 1874) and the Asahi Shimbun (founded in 1879), were launched. The government also printed increasing number of materials including textbooks to enhance educational levels under the policy of increasing wealth and military power. Under these circumstances, the demand for printing inks expanded rapidly.
Initially, inks in the Japanese market were mostly imported products; however, as the national policy favored high quality domestically produced inks, the Company, with its advanced technological skills, successfully expanded its business with clients such as the Printing Bureau of the Ministry of Finance and other government bodies, in addition to private printing companies. Exports also grew during the same time. The Company's rapid growth was also due in part to the early introduction of integrated manufacturing system from raw materials (pigments, resins) to finished products (printing inks). Yet another contributing factor may be that the Company, since its inception, had strong ties with Toppan Printing Co., Ltd., which, by then, was among Japan's largest printing companies. The Company survived the difficult times of the Great Kanto Earthquake and the World War II and experienced rapid growth again during the period of high economic growth after the war. The Company was listed in the Second Section of the Tokyo Stock Exchange in 1961 and moved to the First Section of the Tokyo Stock Exchange in 1967.
The Company is expanding its businesses from manufacturing of printing inks to other fields such as LCD film materials, using its wide range of technologies and know-how cultivated through manufacturing and processing of raw materials such as pigments and resins. In 2011, the Company adopted a holding company system for further expansion and growth of the Group, and changed its name to Toyo Ink SC Holdings, Co., Ltd.
Corporate PhilosophyThe Toyo Ink Group's Corporate Philosophy was established in April 1993. It consists of 3 parts, namely, corporate philosophy, corporate policies, and guiding principles. The Philosophy embodies the original roots of the brand of the corporate group and serves as guidelines that each employee of the Group should always keep in mind and act on as a business professional.
In April 2014, "improving shareholder satisfaction" was added to its guiding principles. With this revision, the Company is aiming to improve satisfaction of all stakeholders.
Furthermore, the "Toyo Ink Group Corporate Philosophy" is printed on the first page of every single issue of the Company's in-house magazine, which is published for the Group's unity and circulated to the entire Group including the overseas locations. Also the above-mentioned credo has "Japanese/English" version as well as "Chinese/English" version to share and penetrate the corporate philosophy globally.
Market EnvironmentThe production value of the Japanese printing industry is declining especially in the realm of publication printing of newspapers and magazines as a result of increasing digitization and aliteracy.
In the realm of commercial printing, on the other hand, of posters, catalogues, fliers, POP, etc. demand is fairly steady. Furthermore, printing on food and pharmaceutical packages and plastic containers is steadily increasing at the compound annual growth rate (CAGR) of 3.4% from 2004 to 2014.
As innovation of printing machine is progressing, quality of printing is enhancing. Overseas local inks, in many cases, cannot respond to such demand for high quality, which may lead to more demand of excellent Japanese ink.
(Printing houses and printing ink manufacturers)According to the "Census of Manufactures 2013: Report by Industry" by METI, there were 27,026 business entities in the printing and related industries in 2013. 26,626 (98.5%) of them are small and medium-sized enterprises with fewer than 100 employees.
Thus, the Company's customers seek direct dealings with the Company. As a result, nearly 80% of the Company's domestic sales come from direct sales to its customers. These strong relationships with the customers are among the Company's major characteristics.
◎ Other companies in the industryThere are 6 major listed companies including Toyo Ink in the ink industry in Japan.
Whereas (4631) DIC is the number one company in the world, Toyo Ink is the top runner in Japanese printing ink industry, and ranks first or second by most product categories. Globally, the Company is ranked third (The second is a European firm).
(4633) SAKATA INX is the second largest shareholder of the Company. The Company and SAKATA INX complement each other mainly in logistical aspects. The two companies concluded a capital and business alliance agreement in 2000.
The Company's operating income rate during the current FY is the highest among the 6 companies; however, its ROE is lower than that of DIC, and its PBR is less than 1.0x.
Business ContentsFollowings are the summary of printing inks, one of the major product categories of the Company, categorized by "raw materials" and "types and purposes of use".
◎ Concerning "printing inks"
Since its foundation, the Company also has been expanding its business categories by exploring application of these raw materials in the process of manufacturing them.
◎ Business segmentsThe business activities of the Company are classified into 4 segments: the "Colorants & Functional Materials Related Business", "Polymers & Coatings Related Business", "Printing & Information Related Business", and "Packaging Materials Related Business".
The "Printing & Information Related Business" mainly deals with planographic inks that are used for printing on papers (offset inks, etc.). The "Packaging Materials Related Business" deals with gravure inks and flexographic inks that are used for printing on films of food packages. The "Colorants & Functional Materials Related Business" deals with products related to pigments that are also the raw materials of printing inks as core materials. The "Polymers & Coatings Related Business" began with resins that are the main raw materials of inks and their design technologies.
Furthermore, the Company's dispersion processing technologies are used not only for organic pigments but also inorganic materials such as carbon nanotube (CNT), which lead to expansion of their business in the new energy field such as secondary battery materials. They constitute about 40% of the Company's operating income.
The Company offers not only printing inks but also sales of machinery/equipment, support for streamlining customers' printing process, and support and tools for color management and color universal design.
◎ Overseas expansionWhile the Company is improving profitability by offering high-value-added products in the Japanese market, where a rapid growth is not expected, it is aggressively expanding its business from both production and sales perspectives in the overseas market where future growth is expected.
Development of its overseas manufacturing structures were almost completed during the previous Midterm Business Plan, and the Company is carrying out both raw material procurement and production at the local sites.
As of the end of March 2015, the Company has 49 overseas subsidiaries and 50 plants in 24 countries around the world.
ROE is expected to increase by enhancing margin and efficiency (total asset turnover rate).
Characteristics and StrengthsAs described above, the Company has been manufacturing in-house pigments and resins, which are the raw materials of printing inks. Its technological capacities form the basis of high quality printing ink production and lead to expansion of business areas and product range to include, for example, LCD color filter materials, adhesive bonds and adhesive compounds.
(1) Strong technological edge
(2) Excellent problem solving skillsOne of the reasons for the Company to be at the top of the Japanese printing inks industry is its excellent problem solving capability in all aspects of printing.
The Company not only produces and supplies printing inks but also studies elements related to "printing" as a whole including plate making and images. Such efforts enable the Company to make technological proposals, demonstrate advanced service skills, and obtain high customer satisfaction.
(3) Environmental concernsThe Company is a forerunner in CO2 emission reduction as well as production of eco-friendly inks such as non-VOC inks, water-base inks, and UV inks. In the newly developed countries, too, the environmental regulations are becoming tighter, and the needs for environmentally friendly products are increasing. The Company is also working on assuring safety such as chemical substances control and manufacturing a line of products that meet the Swiss Ordinance, ahead of other companies.
(4) Uniqueness of management strategiesThe Company considers M&A as one of the options for exploring new markets with its technological edge, if M&A is expected to bring synergy effects to the Company. It is also taking an initiative in the printing ink industry to establish "local production for local consumption" policy in the overseas market for enhancing efficiency (e.g. reduction in transport mileage) and social contribution (e.g. utilization of local products) purposes.
|1H of Fiscal Year March 2016 Earnings Results|
Sales levelling off. Decrease in profit due to reduction in sales volume, etc.Sales increased to 140.9 billion yen, up 1.0% from the previous term. The company managed to level off despite factors such as the printing demand in the domestic market being stagnant and the Chinese economic deceleration. Operating income decreased to 8.4 billion yen, down 6.1% from the previous term. Although there were profit improvements by the yen depreciation (900 million yen), profit margin improvement (1.4 billion yen) mainly by price revision (500 million yen), and the decrease in price for raw materials (500 million yen), profit declined due to the decrease in sales volume (1.1 billion yen), decrease of highly functional products (900 million yen), and the increase in fixed costs (400 million yen).
Neither sales nor profit reached the estimates at the beginning of the term.
☆Colorants and Functional Materials Related BusinessThis segment had decreases in sales and profit, and did not reach target values.
As for the new main products, the sales of carbon dispersing elements for secondary lithium ion batteries exceeded sales goals but the sales of the masterbatches for solar batteries did not reach goals.
<Chemical products>Both sales and profit decreased year-on-year.
General purpose pigments are sold as raw materials for printing inks and paints, but with the printing demand in Japan decreasing due to the decrease in printed materials, sales became stagnant and ended on a low tone. As for color filter (CF) paste for LCD, it is internally manufactured in affiliated companies by mainly Korean LCD panel manufacturers and is exported as a raw material for RGB resist ink, but has been affected by the production adjustment caused by the model change in the Korean market.
<Display materials>Both sales and profit decreased.
Display materials are resist inks of each color of RGB and are used in LCD color filter materials. It is a product where CF paste is processed into ink and used in
<Colorants>Decreases in both sales and profit.
The container market was steady, but the stagnant overseas OA equipment market caused it to end on a low tone.
☆Polymers & Coatings Related BusinessBoth sales and profit increased year-on-year. The amount of sales did not meet the target value, but the profit exceeded the target value.
As for new products, the sales of adhesives for health care exceeded the target value and the sales of newly developed adhesives for optical use greatly exceeded the target value.
<Coating materials>Both sales and profit decreased year-on-year.
Sales promotion for functional film in Korea and China progressed. On the other hand, sign related markets have been stagnant from August.
<Adhesives and adhesive compounds>Both sales and profit increased.
The increase of high value added products such as industrial adhesives and the lowering of its costs made it a steady source of income.
<Coating resins>Both sales and profit increased.
The attempt to bring in new customers in the domestic market for canned paint succeeded. In the resin market, the sales for energy related materials expanded.
☆Packaging Materials Related BusinessAlthough both sales and profit increased year-on-year, neither reached the intended values.
The sales of the new products: liquid ink for wrapping food and flexo ink for film both exceeded the target values.
<Gravure inks in Japan>Both sales and profit increased.
Demands made a recovery since June, and the performance of the private brand is favorable.
<Gravure inks overseas>Both sales and profit increased.
Cost reduction efforts were successful to some degree by reviewing raw materials and production methods at each location, standardizing production methods and raw materials, and using raw materials available in each country. Also, the sales of environmentally friendly general ink is expanding due to the growing awareness of the environment mainly in China and Southeast Asia.
☆Printing & Information Related BusinessIncrease in sales and decrease in profit year-on-year. Nether sales nor profit reached target values.
As for new products, the sales of optical hard coating agents for displays greatly exceeded target values, but the sales of UV inkjet ink did not reach target values.
<Offset inks (Japan)>Decrease in both sales and profit.
The market has kept shrinking, but the performance of UV ink, which is relatively high in added value, was healthy, thanks to the growth of demand.
<Offset inks (overseas)>Increase in both sales and profit.
The demand for offset printing, which is shrinking in the domestic market, is continuing to expand in emerging countries, and with the strengthening of the sales set up, the results have been growing. UV ink sales have grown as well.
Total assets were 360.7 billion yen, down 3.4 billion yen from the end of the previous term.
Total liabilities decreased by 5.2 billion yen to 145.3 billion yen, due to the decrease in trade payables.
Net assets increased by 1.7 billion yen to 215.4 billion yen, due to the increase in retained earnings, etc.
Equity ratio increased by 0.9% from 56.9% at the end of the previous term to 57.8%.
The decrease in the negative margin for investing CF grew due to decreased income from the selling of property, plant and equipment, which resulted in the free CF turning negative.
Increase in short-term debt caused the negative margin to decrease for financial CF.
Cash position increased.
|Fiscal Year March 2016 Earnings Estimate|
From the increases in sales and profit to the increase in sales and the decrease in profit. The downward revision of the full-year forecastThe full-year earnings forecast had a downward revision because the performance deviation factors for the first half are anticipated to continue during the second half as well. Some of these factors were the decreasing demand for highly functional products and the economic slowdown of emerging countries.
Target sales are 290 billion yen, up 1.2% from the previous term. The sales of colorants and functional materials are estimated to decline, but the sales of the others are expected to increase. Operating income is estimated to decrease by 1.2% to 18 billion yen. Similarly to the amount of sales, the profits from colorants and functional materials are expected to decrease, but the profits for other segments are expected to increase.
The dividend forecast remains unchanged, which means that the dividend is estimated to be 15.00 yen per share, up 0.50 yen per share. Estimated payout ratio is 37.3%.
◎ Resist related productsAs for LCD panels, the level of the expected quality depends on the screen: Higher grade models are expected to have "higher pixel count and higher definition," whereas generic models are expected to be more "energy efficient". CF resin ink is expected to expand the color gamut and increase the concentration for higher grade screens as well as increasing the transmittance and luminosity of generic models.
① Increase of CF material market share with original pigments.
The company has developed original pigments in the three colors: green, blue, and red. The company plans to launch them in the first quarter of the term ending March 2017, the fourth quarter of the term ending March 2016 (January 2016), and the third quarter of the term ending March 2017, respectively.
② Enrichment of the growing image sensor productsWith the arrival of IoT society, sensors are expected to have a rapid increase in demand. With this, the sensors are expected to have new functions such as spectral filters that are capable of various waves ranging from the visible light region to the whole spectrum.
The company has introduced a high performance sensor product created with various colorant design technology and ultrafine dispersion technology this term in hopes of contributing to the performance from the next term.
③ Introducing specialized products for TVIn the Chinese market, large companies have started to run panel factories one after another, and the demand for resist ink is expected to surge from the current 240 tons per month to 420 tons per month in the span of 3 years. With this in mind, the company plans to expand product lines for the generic market while starting marketing with local production in mind to expand the trade area in the Chinese market.
With all of these approaches, the company plans for the amount of sales for CF resist ink to be 12.6 billion yen this term, 15 billion yen next term, and 16.5 billion yen the term after the next term.
◎ Market expansion in the healthcare marketUsing its own technology, with polymer technology at its core, the company is implementing applications for healthcare products among the functional material product group, such as "polymer tape for medical equipment", "medical adhesive", "healthcare related materials", and "package related materials".
The sales for healthcare related products were 1.03 billion yen in the previous term while it is estimated to be 1.27 billion yen this term (500 million yen for the first half), and 1.4 billion yen in the next term.
◎ Expansion of the UV businessToyo ink, which has strong developing skills as well as color management skills, would like to work with Toyo ink Arets, which has a production base in Europe and knows what European brand owners need. The company would like to maximize the synergy effects.
Starting to expand in the packaging and labeling market, commercial printing market, and emerging markets (Central and South America, the Middle East, Africa) the company aims to achieve sales of 30 billion yen in the next term, and grow further.
Also, with high value-added products such as UV curing adhesives, the company plans to differentiate the products by using the original technology and ability to customize products, and launch the products in the optical component market of Japan, Korea, Taiwan, and China.
◎ GlobalIn China, the company aims to make the Chengdu gravure ink factory and Sichuan offset ink factory profitable in order to establish strongholds and expand the sales in the growing inland regions, and expand revenue by introducing highly functional products, including polymer related and environmentally friendly products.
① Expanding revenue at the priority investment locations
In India, the company plans to expand the sales of printing ink, release differentiated products of inks for food packages, and strengthen the sales systems. In addition, the company aims to expand the businesses of colorants and inkjet inks in order to cultivate the market of highly functional adhesives.
The company plans to increase sales by 40% from the previous term.
In Brazil, the company will enhance local production to improve the competitiveness, and increase export to surrounding countries by taking advantage of the depreciation of the real. The company will expand the production capacity of offset inks by 20%. The company will also release new products in the soft package market in the volume zone, and make inroads into high-grade markets.
② Expansion into new areasToyo Ink Turkey Kimya Sanayi A.S., which was established as a sales company in January 2015, is planning to expand its trade area to Europe, the Middle East, Africa, and Russia, while thinking about establishing production sites there. The company will promote the sales of paper sheet and UV inks, and cultivate the customers of liquid inks and paints for food packages.
In the spring of 2016, the company plans to start operating the factory of Toyo Ink (Mexico). Making the market of high added value plastic containers as its foothold, this local corporation, established in Nov. 2015, aims to enter the Mexican automobile market.
The company aims to deliver the products to U.S. and European manufacturers, while expanding sales toward local Japanese manufacturers. In addition, by utilizing the comprehensive power of the corporate group, this company will develop products of UV inks and adhesives.
On the other hand, investors are expecting an expansion in overseas sales in the medium to long terms, and the focus is on the development of new sources of earnings following the LCD color filter materials. This is expected to be done by developing energy related and health care related products by making the best use of the company's materials and technical capabilities.
|<Reference : Midterm Business Management Plan, SCC-III>|
(1) Midterm Business Management Plan, SCC-IIIThe Midterm Business Management Plan, called Science Company Change (SCC), began in April 2008. In April 2014, its 3rd term, "SCC-III Evolution Plan" for April 2014 to March 2017 began.
◎ Business domains and technology platformsIn the SCC-III, the Company is aiming to "transform from Specialty Chemical Manufacturer to a Science Company" and established 3 business domains and 5 technology platforms. Through collaboration between the "Group Technology Center", which is the laboratory facility of the Holdings, and business departments of each group company in Japan and overseas, the Group will carry out basic research and product development.
<Business Domain>Each business domain sets priority areas and will continuously develop and offer products that respond to the changing tide and market needs. Although the progress thus far is uneven, development of secondary battery related parts in the "Sustainability Science" domain reportedly started showing good results from this FY.
<Expansion of Technology Platform (TPF)>Technology platform refers to technology accumulation and basic technologies that will be the basis and foundation for developing new products.
The Company initially had three conventional TPFs: 1) "Specialty Materials" that advance existing materials to special materials, 2) "Material Processing" that adds functions and values with unique processing technologies to specialty materials, and 3) "Converting Components" that process materials to meet diversifying and advancing needs. Then Company added two more TPFs. One is "Module Designing," which is a technology for examining products from customers' point of view and reflecting the results in the downstream expansion of products and development of new products. The other is "Solution," which is aimed at creating products that are valuable for the users by proposing design and formation. Thus the Company has a total of five TPFs.
◎ Plans for each business segmentThe Company aims to expand its four business segments in a well-balanced manner.
The potential growth of "Colorants and Functional Materials Related Business" with a focus on LCD color filter, which occupies about 40% of the current operating income, is high but subject to economic trends. Printing inks, on the other hand, can expect little of their market growth, but they are less likely to be affected by the changing economic environment. The Company will pursue market development in newly emerging countries based on the principle of "local production for local consumption" to obtain stable income base for the "Printing and Information Related Business" and "Packaging Materials Related Business" segments. At the same time, it will pursue growth by developing and selling new high-value-added products for the "Colorants and Functional Materials Related Business" and "Polymers and Coatings Related Business" segments.
◎ Overseas expansionThe goal of SCC-III for the overseas sales ratio is 50% (it was 43% during FY 2015).
The local manufacturing structure of printing inks in India and Brazil has been almost completed during the previous Medium Term Plan. From this FY on, the Company is planning to accelerate increase in production amount and strengthen production and sales of adhesives in Asia and the United States for diversification.
Furthermore, in an effort to explore new markets, the Company will also work on marketing in Mekong Basin area and Mexico and strengthen sales in Turkey for the possible future local production.
In the market of emerging counties, the Company will make efforts to expand sales by selling high-spec products just like the ones sold in Japan, as well as lowering costs of the Company's unique middle-spec products that are high quality and eco-friendly.
In developed countries, the Company will make efforts to expand sales of UV inks, which is the Company's strength, taking advantage of growing number of Japanese printing machinery sold in Europe and the U.S. The UV inks for packaging made by Arets International NV (current Toyo Aretz International NV), which was acquired by the Company in April 2013, will also be strong weapon for the Company.
◎ Strengthening management foundationIn addition to the above-mentioned actions to expand the business, the Company is making efforts to strengthen management base through "strengthening the manufacturing base" with a focus on cost reduction, "promotion of environmental management" to reduce CO2 emission, "development and utilization of human resources" by expanding diversity, and "streamlining management" by introducing integrated systems on a global scale.
(2) Message from the Company to the investorsAs stated in our management philosophy, we Toyo Ink, a lifestyle creating company, is always aiming to develop products from the consumers' perspective.
Even if you have never heard of our name, we would like you to know that our products are used in various situations in your life.
Not as a mere ink manufacturer but as a science company, we will continue looking towards the client companies' future and plan to expand the range of products that are essential to the society.
We added "improving shareholders' value" last year in its Guiding Principle, and are successfully changing the corporate minds and the mind of employees.
We would like our investors to see our steady growth through new product development and overseas expansion, and seek support from our investors from mid- to long-term perspectives.
DisclaimerThis 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 comes 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.
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