Mitsubishi Chemical Holdings Corp

TSE:4188

Earnings Call Analysis

Strong Start to FY '24

In the first half of FY 2024, Mitsubishi Chemical Group reported a performance that significantly exceeded initial forecasts by approximately 40%. This improvement was largely driven by a surge in the methyl methacrylate (MMA) market and rising demand in the display market, indicating a robust operational start for the year.

Financial Highlights

The second quarter showed core operating income of JPY 89.8 billion, a gain of JPY 7.2 billion quarter-on-quarter. Specialty Materials experienced increased profits, rising from JPY 11.5 billion in Q1 to JPY 13 billion in Q2. Overall, the company achieved a year-on-year sales revenue increase of 4%, totaling JPY 2.41 trillion, alongside a 44% increase in core operating income, which reached JPY 172.4 billion.

Challenges and Structural Reforms

Despite these strong results, the company faces ongoing challenges, particularly in the Specialty Materials business, which has struggled due to sluggish demand. To address this, Mitsubishi is downsizing some operations and restructuring to ensure profitability going forward.

Segment Performance

Various segments showed mixed results. Pharma led with a profit increase of JPY 4.4 billion quarter-on-quarter, driven by strong sales in the North American market. However, Advanced Composites and Shape segments continue to face deficits. Industrial gases remained strong but experienced a decline in profit due to foreign exchange impacts and increased expenses.

Revised Forecasts

The company revised its full-year sales revenue forecast to JPY 4.47 trillion, a 3% increase from previous estimates, while raising core operating income expectations by 16% to JPY 290 billion. However, they anticipate some less favorable results in the second half due to expected declines in Specialty Materials and Basic Materials.

Dividend Stability

Mitsubishi confirmed that their dividend forecasts for FY 2024 remain static, projecting a year-end dividend of JPY 16 per share and a total annual dividend of JPY 42 per share, reflecting confidence in maintaining shareholder returns.

Future Outlook

The company is adopting a more conservative outlook for the latter half of FY '24, influenced by a projected decline in demand across various sectors, particularly in the semiconductor and automotive industries. Upcoming management strategies and structural reforms will be detailed in a briefing scheduled for January.

Earnings Call Transcript 2025-Q2

[Operator]

Thank you very much for joining us today. This is the earnings conference call of Mitsubishi Chemical Group. It is time to start. Our CEO, Mr. Manabu Chikumoto, will say a few words; which will be followed by the presentation by our CFO, Mr. Minoru Kida, about the Q2 results of FY 2024. After the presentations, we will take Q&A. We plan to have this meeting for about 60 minutes.

Before we start, we'd like to say the following. The presentation will include the forecast for the future. There will be some risks and uncertainties involved and actual results could be very different from what we present today. Please keep that in your mind. The audio of today's conference, including the Q&A will be available from our website.

Now I'd like to start the conference. We'd like to invite our CEO, Mr. Chikumoto.

[Manabu Chikumoto, executive]

Good afternoon, ladies and gentlemen. This is Chikumoto, CEO. Thank you very much for taking time out of a very busy schedule to join our financial earnings conference call. And we also like to thank you again for your continued support and understanding for our business.

Firstly, I would like to make some brief comments at the outset. And then our CFO, Kida, will give you a detailed account of the first half results. The results for the first half of FY '24 exceeded the group's initial forecast by around 40%, largely to the impact of the rising MMA market and increased demand in the display market. But we are relieved at the strong start to the year.

In the 6 months as I took over as President, a new management team has been set up and the various discussions have been taking place. In the petrochemical business, three companies in Western Japan have joined forces to start a joint discussion to achieve carbon neutrality for ethylene production facilities.

On the [indiscernible] business, which continues to suffer from difficult performance, we have decided to downsize the [indiscernible] furnace at CALA works and transfer of affiliate to company or [indiscernible] affiliate companies. We will firmly implement structural reforms to achieve profitability in the coming year.

In the Specialty Materials business, the [indiscernible] taken to transfer the [indiscernible] business to the best owner. In addition, other optical sites are rationalized. In addition, in order to achieve sustainable growth, we have decided to increase production capacity for photosensitive polymers [indiscernible] for semiconductors and exchange solutions for production of ultrapure water and semiconductors and OPL films for displays.

We will accelerate the selection and concentration of our businesses based on growth potential, competitiveness and profitability. We are currently preparing to summarize our new mid- to long-term management policy in preparation for the management post briefing to be held on the 30th of January, so that we can explain this to our investors.

We will do utmost to improve our corporate value and would like to ask for your continued support for our company.

[Unknown Executive]

Thank you very much, Mr. Chikumoto. Moving on to Mr. Kida.

[Minoru Kida, executive]

I will present the financial results of the second quarter of year ending March 31, 2025. And this is the summary. The business environment during the first half of 24 generally remained stable despite some different levels of strength in demand among regions and industries. The rate sales remained risk on the back of a high operating rate of panel manufacturers and semiconductor sales remained on a moderate recovery path driven by demand related to generative AI.

On the other hand, sales were sluggish in some regions and sectors, such as automotive and food-related markets. Compared to the same period of the previous year, price improved as a result of efforts to promote price management in each business and significant increase in the market prices for MMA monomer, leading to an improvement in sales volume for Specialty Materials and pharma.

In addition, our cost reduction efforts continue to contribute to income. As a result, looking at the group on a whole, our sales revenue increased 4% year-on-year and corporate in income rose 44% year-on-year. Net income attributable to owners of the parent decreased 39% year-on-year due mainly to the recording of structural reform expenses under special items investor.

Computing income for the first year of FY '24 was 57% higher than the initial forecast. On the other hand, in the second half of FY '24, business performance is expected to fall behind the initial forecast, mainly in Specialty Materials and Basic Materials and polymers due mainly to a reactionary decline in demand related to displays, which have been risk during the first half of fiscal '24, a delay in the recovery of demand related to semiconductor for consumer, industrial and automotive applications, intensified competitions for carbon fibers and the delay in the recovery of market prices for petrochemicals and carbon products.

We project that the operating income for the fiscal '24 will increase 16% compared to the initial forecast of JPY 290 billion in light of risk results in the first half of FY '24. We reiterate our initial forecast of JPY 52 billion. Our net income attributable to owners of parent as several business structure reform projects are considered in the second half of FY '24 and losses under special items are expected to be recorded.

Dividend forecast remains unchanged from our initial forecast of a year-end dividend of JPY 16 per share, and an annual dividend of JPY 42 per share. This is the overview of the P&L for the first half of FY '24. Average exchange rate in the first half was JPY 152.5, 7% lower year-on-year. The unique price of naphtha was JPY 7,700, up 19% year-on-year.

Sales revenue was JPY 2.41 trillion, an increase of JPY 92.2 billion or 4% year-on-year, including an increase of JPY 79 billion due to FX, an increase of JPY 46 billion due to higher selling prices and an increase of JPY 11 billion due to volume factors and a decrease of JPY 44 billion due to business reorganization.

Core operating income was JPY 172.4 billion, an increase of 44% year-on-year. The detail will be explained later on. Special items amounted to minus JPY 35.7 billion, down by JPY 54.7 billion year-on-year. Operating income was JPY 136.7 billion and income before tax was JPY 106.1 billion.

Net income attributable to owners of the parent was JPY 40.9 billion. This was a decrease of JPY 26.3 billion year-on-year but a significant increase compared to the forecast of JPY 10 billion for the first half of the year announced in May.

Now allow me to show the sales revenue in corporate and by segments. Specialty Materials recorded a 4% increase in sales and a 30% increase in profit year-on-year. As I mentioned -- as was mentioned in the beginning, demand from disparate markets was particularly strong with advanced [indiscernible] and volumes and advanced solutions performing better than expected at the beginning of the period.

Industrial gases continued to perform well with a 5% increase in sales and a 14% increase in profit compared to the same period last year. In Pharma, sales of RADICAVA in North America remains strong. Sales increased by 6% year-on-year and profit by 28%, which was a high performance than expected at the beginning of the year.

MMA and derivatives achieved a 25% increase in sales and JPY 23.7 billion increase in profit year-on-year, significantly higher than expected at the beginning of the year due to higher market prices of MMA monomers.

Basic Materials and polymers recorded a 1% year-on-year decline in sales and a reduction in the deficit of JPY 4.2 billion. Now the factors contributing to the year-on-year improvement was JPY 1.5 billion impact from inventory valuation gains and losses.

Materials & Polymers business recorded an increase in profit year-on-year and secured a double-digit surplus despite scheduled maintenance and repairs at Ibaraki center. While the Carbon Products business continued to see no improvement in the COGS market and recorded a loss of JPY 16.3 billion.

Net income shows a breakdown of the JPY 52.8 billion increase in operating income year-on-year. Price was positive by JPY 28.4 billion. Of this amount, JPY 9.9 billion was due to FX, mainly in industrial gases and pharma. Excluding FX, the market price increase of MMA monomers and in MMA and derivatives made a significant contribution.

In Specialty Materials, the price improved as a result of efforts to maintain an improved selling prices across the board. And the volume was positive by JPY 17.4 billion. The positive contribution from Pharma was positive.

In Specialty Materials, the volume was negative year-on-year in the first quarter, but by the end of the second quarter, it was positive in all subsegments. Cost reductions was positive by JPY 26 billion. Progress is being made as planned towards the a reduction target of JPY 47 billion for the current financial year.

And other differences were negative by JPY 19 billion. Inventory valuation gains improved by JPY 3.9 billion, but this was offset by increases in labor costs in each business, fixed costs due to inflationary effects and other factors.

Now let's take a closer look at the different segments. Specialty Materials recorded a year-on-year increase of JPY 5.7 billion. And the price was positive by JPY 3.6 billion. Barrier packaging applications deteriorated year-on-year, but efforts were made to generally maintain an improved selling prices in other products, resulting in an improvement in this price.

The group posted by JPY 4.8 billion. In advanced [indiscernible] and polymers, demand for police film and OPL plate from increased as polymer manufacturers increased their operations due to large commercial campaigns in China and the expected increase in demand for TVs due to international sporting events.

In Advanced Solutions, demand for semiconductor-related products recovered moderately at varying degrees depending on the products and segments. Volumes increased in materials for semiconductor manufacturing process in the precision cleaning business and water treatment equipment.

In advanced composites and shapes, sales volumes increased due to recovery in demand for high-performance engineering plastics, particularly for semiconductor fracturing equipment applications.

In Fibers, on the other hand, sales volume increased for wind power generation and other applications, but sales volumes declined in the relatively high margin pressure vessel application due to intensified competition from other companies, resulting in a negative volume.

Cost reductions amounted to JPY 4.8 billion, building on the effects of business restructuring, including the withdrawal from the acrylic fibers business and self-help measures such as procurement, optimization and productive improvements. The other difference of minus JPY 7.5 billion is due to labor and other fixed costs as well as increased amortization of intangible assets following the consolidation of CPC as a subsidiary.

Moving on to Industrial Gases, increased by JPY 7.6 billion year-on-year. In terms of profit, although there was softness in volume, mainly in the United States, foreign exchange effects as well as price management, productivity improvement and other initiatives developed in each region resulted in a price of plus JPY 2.8 billion and cost reduction impact of plus JPY 14.6 billion resulting in a year-on-year increase in profit.

Parma increased by JPY 9 billion year-on-year. Price was positive JPY 3.5 billion due to the positive effect despite the negative impact of domestic NHI price revision. And the volume was positive by JPY 8.9 billion. North America remains strong, supporting the profitability of the pharma business.

Influenza vaccine and [indiscernible] vaccine in Japan also grew. And the other difference of minus JPY 4 billion is due to labor and other cost increases.

Next is MMA and derivatives. The core operating income went up by JPY 23.7 billion year-on-year. This is a significant increase. Price factor was positive JPY 21.4 billion. MMA market prices increased year-on-year spread widened. In addition, in coating and additives business, the price gap improved.

Next is Basic Materials and Polymers. The deficit decreased by JPY 4.2 billion year-on-year. The price gap was minus JPY 2.6 billion. Materials and volumes slightly improved with lower coke market. The carbon products were negative and total number was negative.

The volume factor in materials and polymer, there was a negative impact of the scheduled maintenance repair in Ibaraki center, but the impact from the troubles of the previous year was reduced. And volume factor was positive of JPY 3.4 billion. Positive impact of cost reduction was JPY 2 billion in petrochemical derivative business, business restructuring and also the optimization of the equipment procurement and the improvement of the repair expenses.

Others include the inventory valuation of JPY 4.1 billion. The overall number was JPY 1.4 billion increase. And as for the carbon product, coking coal was declining and the inventory valuation was negative materials and polymers the naphtha price increase from the end of last fiscal year to quarter 1.

So that was positive overall. The special items, the first half total was JPY 35.7 billion. In Q1, it was JPY 2.4 billion. In Q2, we booked the special loss of JPY 38.1 billion.

Now let me talk about the major items. Gain on sales of the shares of subsidiaries and also set was positive JPY 11.1 billion. The Mitsubishi Chemical Indonesia, the share was transferred. This was operating TPA and the ForEx translation realization profit was JPY 5.6 billion, and the gain on transfer of Mitsubishi Tanabe Pharma in [indiscernible] was JPY 5.5 billion.

Impairment loss was negative JPY 27.6 billion. In industrial gases, the hydrogen production facility construction by Mason Tri-Gas was suspended. And with that, we booked JPY 10.8 billion impairment loss. In carbon products, the decision to reduce the coke production in Kagawa was made and the impairment loss of JPY 7 billion was booked.

Other than that, there are multiple temporary losses in relation to the closure of some profitable sites. Special retirement, minus JPY 17.9 billion included Mitsubishi, Manabe Pharma's voluntary retirement program.

Next is cash flow. Operating cash flow was JPY 275.1 billion cash in. Operating receivables and payables was JPY 33.3 billion positive. Inventory was outflow of JPY 42.4 billion. The working capital total was the cash out of JPY 9.1 billion. In pharma, due to the brisk demand, the inventory was increased, and this was one of the reasons. We will continue to appropriately manage the working capital of each business.

Investment cash flow was minus JPY 145.3 billion. CapEx cash flow minus JPY 172 billion. Industrial gases, special materials, there was growth investments mainly in those segments. And also in Basic Materials and Polymer, there was a investment for the maintenance and the update of the facility in tandem with the scheduled maintenance in Ibaraki.

Asset sales, cash flow was JPY 24.3 billion positive and we conducted a review of the business portfolio and we booked a gain on sale of shares of subsidiary and PDH. And there was a cross-held share sales as well as necessary asset sales. As a result, free cash flow was positive JPY 129.8 billion. Financing cash flow was minus JPY 124 billion.

Next is balance sheet. The total assets were JPY 5,452 billion, down JPY 159.3 billion from the end of last fiscal year. Major reasons include foreign exchange in all the currency. Yen strengthened from the end of March. So that was the negative impact of JPY 103 billion on assets.

And the end of the last fiscal year was a holiday and that was about JPY 45 billion difference. Net interest-bearing debt was down by JPY 115.2 billion. Net D/E ratio was 1.11, which is 0.05 point improvement from 1.16, which was the end of last fiscal year. It shows the core operating income trend from Q1 to Q2 of FY '24.

Q2 core operating income was JPY 89.8 billion, which was up by JPY 7.2 billion Q-on-Q. In Specialty Materials, in Q1, it was JPY 11.5 billion. In Q2, it was JPY 13 billion, so up by JPY 1.5 billion. Barrier packaging and so on, last year, there was -- the demand was sluggish due to the inflation. But at the end of the last fiscal year, it bottomed and is gradually recovering.

From Q1 to Q2, both sales and profit increased. And the water treatment equipment for electronic devices -- in Q2, we booked directively large orders and this led to the higher profit.

Advanced Composites and Shape segment continues to be in red. High performance engineering plastics for the application of the semiconductor manufacturing equipment, the demand is recovering. But in Q2, we -- there is a seasonality in Western markets. So the deficit increased.

In industrial gases continues to be strong, but from Q1 to Q2, there was an impact of the strong yen and also higher fixed expenses. And that led to the lower profit of JPY 2.9 billion. In pharma, in Q1, it was JPY 18.5 billion; in Q2, JPY 22.9 billion, so an increase of JPY 4.4 billion.

In Japanese ethical drugs, there was an impact of the lower sales of the long-listed products, but the [indiscernible] sales grew and the flu vaccine contributed to the higher profit revenue. In overseas ethical drugs, the North America RADICAVA sales continue to be strong, and there was a positive impact from ForEx.

M&A and derivative in Q1, it was JPY 10.5 billion. In Q2, it's JPY 15.4 billion. So up by JPY 4.5 billion. MMA monomer in the first half, there was a supply-demand balance in Asia. And from Q1 to Q2, the market price has increased. And the profit improved further with the price gap improvement.

In Basic Materials and Polymers, in Q1, it was minus JPY 6.8 billion. And in Q2, it was minus JPY 3.7 billion. So deficit was reduced by JPY 3.1 billion. In materials and polymer, from Q1 to Q2, naphtha prices declined and the inventory valuation worsened. But polyolefin and other price gap improved and the -- as the impact of the scheduled maintenance decreased, the profit increase.

In carbon products, the coking coal prices came down. Coke price difference or gap improved and inventory valuation worsened. So it was about the same as Q1. Next, about the revision of the full year forecast for FY '24. Now the assumption for the second half is the exchange rate of JPY 145 to the dollar and naphtha price of JPY 72,000.

Full year sales revenue forecast is JPY 4,470 trillion. So compared with the beginning of the fiscal year, 3% of our sales revenue is expected, but the core operating income is expected to increase by 16%. So we are revising upward to JPY 290 billion.

Segment-wise, information will be shown on the following pages. Special items in the second half, together with the business structure we home, we expect to book our losses we are revising the full year forecast of minus JPY 40 billion to minus JPY 72 billion. As a result of operating income is expected to be JPY 218 billion, Net income attributable to owners of the parent is expected to be JPY 52 billion. Bottom line, full year forecast remains the same.

Now this shows the core operating income, our first half results of the JPY 172.4 billion, and the forecast of the second half, JPY 117.6 billion. I will explain by segment.

First about the specialty materials. First half, it was JPY 24.5 billion. Our forecast for the second half is JPY 9.5 billion, so down by JPY 15 billion. Display market in Q1, the utilization was high by the panel manufacturers. So we are likely to enter into the adjustment period.

In the second half, our polyester film, OPL film display-related products, we expect sales to decline based on the EV demand trend in the Western market, lower sales of the battery material is also expected. As for the semiconductor market at the beginning of the fiscal year, we expect that the demand in the second half to recover.

But aside from AI demand, consumer, industrial and auto applications are still weak. So we expect a similar trend for the second half. So the second half, semiconductor-related material as well as the precision cleaning service business we expect about the same sales level as the first half. Also, there will be some delay from the first half and have higher expenses in the second half. And also, there will be an impact from the scheduled maintenance and repair.

We expect the profit to decline in the second half. Industrial gases in the second half due to the ForEx as well as seasonal impact, we expect a lower profit. In pharma, in the first half, it was JPY 41.4 billion. Our forecast for the second half is JPY 19.6 billion, so down by JPY 21.8 billion.

Out of this, about JPY 16 billion is due to the higher SG&A and R&D in the second half. RADICAVA sales will continue at the high level. But in the second half, due to the ForEx impact, we expect a lower profit. MMA and derivatives, in the first half, it was JPY 26.7 billion, and our forecast for the second half is JPY 18.3 billion, so down by JPY 8.4 billion.

Starting with October in China, other companies, MMA monomer plant utilization rate increase. So the MMA monomer on Asian market prices came down and there is some trend of just making adjustments again. Although we expect some recovery of the market toward the end of the fiscal year.

In comparison to the first half, we expect the profit to be lower in the second half. Basic Materials and polymers, the first half was JPY 11.3 billion. The second half forecast is JPY 9.7 billion, so up by JPY 1.6 billion. The deficit will shrink.

Materials and polymer. There will be a smaller impact from the scheduled impact in Ibaraki, but with the lower naphtha price and inventory valuation worsening and higher expenses, we expect a deficit in the second half. Carbon products, the carbon coking price will stabilize. And we expect that the price gap as well as the inventory valuation to improve.

In the second half, we expect a deficit. So we will continue to make efforts to reduce costs. So we like to talk about the dividend. The interim dividend payment for FY 2024, as we announced the forecast previously, we have resolved at the BOD on the first of November, the interim dividend payment of JPY 16 per share.

As for the year-end dividend, this is expected to be the same as our expectation, that is JPY 16 per share. And as a result, the annual dividend payment in FY '24 will be JPY 32 per share. As for the dividend policy for the future, on the 13th of November, we will have a briefing session on the management policy. And we will announce the new growth strategy as well as capital allocation.

With that, I'd like to end my presentation. Thank you for your attention.

[Unknown Executive]

Thank you very much, Mr. Kida. And now we would like to open the call for questions. First on the question is Morgan Stanley MUFG Securities, Watabe-san. Please ask your question.

[Takato Watabe, analyst]

This is Watabe. I understand that the start was very strong. operation, new organization started from April. And my question is what has changed in terms of positive and negative? I'm sure that there are not many negatives. But can you please explain what the changes have been? And are you ready for the January 13 meeting, are you perfectly ready? Can we have high expectations for that meeting?

[Unknown Executive]

Mr. Chikumoto, please.

[Manabu Chikumoto, executive]

We are steadily getting ready and working up details as we speak. The biggest change we have observed there are too many meetings. Sometimes you would feel that there may be your just meeting is not making money. But actually, even despite the many meetings, things are progressing forward, very quickly. So we would like to continue to make fast decisions. That's all for me. Thank you.

[Unknown Executive]

Next question from Daiwa Securities, we have Umebayashi-san, please.

[Hidemitsu Umebayashi, analyst]

Umebayashi speaking. In the first half to second half, in many businesses, profit is likely to worsen, but the carbon product, the deficit is half. So we mentioned that the spread improvement in the inventory -- the profit and loss improvement was mentioned. Other than those factors, in the first half, there was an impairment loss. So amortization expenses being reduced. Is that one of the factors?

When you look at the sales from the first half to second half, less than 50%. So I think that the March next year, I think you mentioned this trend. But from the second half, is this something already starting and the sales volume coming down? Is that what we see or expect?

[Unknown Executive]

So first half to second half, a trend of the carbon products, Kida-san, please.

[Minoru Kida, executive]

Yes. Thank you for your question. About the carbon products. Unfortunately, first half compared with the year before, the deficit expanded right now, are we going to make improvements toward the second half. So let me answer to that question. First of all, the first half, what was painful was inventory valuation loss, this was a major negative factor. The carbon products 1 transaction last long. So 3 months before we set the price. And then after 3 months, it will come in, and we would make the coke and so forth. So something that we did in the past. There is always a time delay of 3 months or mark. So frankly speaking, there were some room for improvement in our operations. So we learned that. So price gap when the spread improves, as I mentioned, we would like to be best of the operation. As for the second half, amortization depreciation about this, it would increase in the second half because there was an impairment loss the fixed cost, the repair and maintenance and capital related, they will be handled. So this amortization depreciation would increase. So as you said correctly, this is not yet implemented. And from April, this will start. And so we will continue to make Coke. And as for the lower sales, confided to [indiscernible] which is the joint venture with Kobe and these shares transferred to Kobelco was something that we announced. So about this, about the JPY 70 billion sales -- consolidated sales were incorporated. So this would be going away, and that would push down the sales revenue sales revenue.

[Hidemitsu Umebayashi, analyst]

I see. Now it's clear. Just one thing towards the next fiscal year, so the second half, the second half the deficit. There will be a further improvement, and we start to see the profit. Is that what we can expect in the next fiscal year?

[Minoru Kida, executive]

Yes. That's the image that we have.

[Unknown Executive]

Moving on to the next question, SMBC Nikko Securities, Miyamoto-san. Please ask your question.

[Go Miyamoto, analyst]

This is Miyamoto, Nikko Securities. I have a question about MMA. You provided us with outlook for the market. But in the last 1.5 months, it declined very rapidly. What do you think is happening? And also toward the end of the year, I understand that the market may improve. But where do you see the demand expectations? And also investment in North America, please update us with the current status. And as for the operation, 70% in the second -- first quarter and then 80% was mentioned for the second quarter. So what was the actual utilization in the second quarter? And what is the outlook for the third quarter? Please update us on the current situation of MMA.

[Unknown Executive]

Thank you for your question. Kida-san, please respond to this question.

[Minoru Kida, executive]

MMA, allow me to explain what's happening recently. In the first half, that was $2,100 so a very high-level trend. I don't think I need to explain the background. Demand was tight in China. Nitra utilization was low material was not being supplied. These are the major factors. And just for the major holiday, there were some manufacturing being done. But the tank was maybe overflowing and the situation between demand and supply changed since then. But maybe time costs going overflow and there was a lot of shipment and then the price declined. So prices basically went down because of the situation in China. And now the price is down. manufacturers recently started to increased utilization, but the price is actually coming down. and they cannot continue the suppression, so they had to stop online, for example. So at a low level of price, they cannot continue to run deficit. And therefore, the supply has to be adjusted the adjustment will go further.

And during the second half, that will -- that is what we will see. In terms of demand, it is actually very difficult to see whether the demand will increase rapidly in the second half, especially for polymer, injector material or sheet whether it's Japan or Southeast Asia, the demand seems to be slow, sluggish, and we may see this situation continue for some time. As for the utilization, in total was achieved in the first quarter -- sorry, 89%. 75%, this is for the joint venture. So across the board, approximately 89% or 90% is being maintained. And that's from July to September. And from October, we are expecting high level operation. So for MMA, I know that compared to the first half, second half profit will be smaller, but it will not be a disaster. This is what we expect.

[Go Miyamoto, analyst]

Profit on price was quite low at 1 time. And the asset shortage was maybe addressed and that had an impact. As each material costs have come down for you. So your margin would not be suppressed that much? Would that be the right interpretation?

[Minoru Kida, executive]

You are correct that asset on status has changed. [indiscernible] and polycarbonate was about and acetone was quite tight, but now the situation has recovered, and there is an extra supply of acetone. But this is an impact of acetone, SCH Chinese competitors. Anita is used a lot and neutral is trending low still. And the neutral situation NVR, AVS, acrylic fiber, none of them are very strong right now. So asset-owner could be positive or slightly negative, but anyway, there is an impact. But more than that, the material is going to have a bigger impact.

[Go Miyamoto, analyst]

And can you please update me on the new investment for the new factory capacity?

[Minoru Kida, executive]

Yes, we're negotiating. And we will we should be able to decide comparatively early what to do. But we are basically talking with potential buyers, potential customers about the terms of contract. We're negotiating the terms of the contract now.

[Operator]

Next question is from Mizuho Securities, Yamada-san please.

[Mikiya Yamada, analyst]

Yes, this is Yamada speaking. I have a question say, even month, the R&D and others would be booking. That was a seasonality. But this time, the profit increase and R&D cost is not increasing. So at is not there. So could you explain the background -- is it the rebound from the weaker sales before. we expect the cost to come down, but lower profit is expected in the second half. Is there any onetime back up? Also about the listing timing and other pipeline products are included for the oral drug. So what is the probability of that? This is, I think, something that you might know the DPO. So could you talk about the launching of those products to similar counties?

[Minoru Kida, executive]

Yes. About your first question about the R&D cost, we need -- so usually, as we did last year in the second half. There are some special -- no special items and also the R&D items just like last year and Adia as well. As for this second half, as we made a press release that Bureau down -- additional testing was conducted, it will be conducted. So the second half, the R&D expenses will be higher. Also the second question, that the [indiscernible] also for the Canaria, right, yes, the possibility of getting approval. It's on the drug. So about approval probability. I cannot give you a specific number are continuing so that this product can be approved. [indiscernible] the cost increase.

[Mikiya Yamada, analyst]

Is that going to be the -- putting the negative pressure in the second half?

[Minoru Kida, executive]

There are several projects that are starting the clinical testing, so the second half the R&D cost would go up. It's not ND0612 only. So in the pipeline, Phase II to Phase III are the ones that are moving toward that, it's not so many.

[Mikiya Yamada, analyst]

But there are some starting in the pre clinical?

[Manabu Chikumoto, executive]

Yes, there are several. So the rebound is not something that we see, but rather a vaccine becoming available and profitability might be low, but the sales is increasing. Yes, Mantaro is growing as expected. And the flu vaccine, Daiichi Sankyo stopped providing the injection type and some withdraw from the market. So our shipment has been higher because of that.

[Unknown Executive]

Next question UBS Securities, Omura-san, please ask your question.

[Shunta Omura, analyst]

Omura, UBS. I have an overall question, Specialty Materials volume impact. Looking at Page 7. 4 8, this is a positive number. Now give us 4 to 7 last year. So compared to first half of FY '22, I think the situation is still quite bad. What would be the ideal volume trend and also capacity utilization? And what is missing? What is the gap? Where do you see the gap on challenges in which specific products against what you would consider ideal?

[Unknown Executive]

Specialty Materials first half demand trend, Kida-san, please respond to this question.

[Minoru Kida, executive]

Thank you. I think you're looking at the difference of the difference. And the difference of the difference is not necessarily very accurate because we miss [indiscernible] against what we had in FY '22, but it really depends on the products. so much variance between different products. And generally speaking, we don't see any major gap with any single specific product. So 2022 -- some of the products exceeded the performance of vacant in the first half of this year. For example, display, you could consider this bubble. Why are the TV manufacturer making so many TVs? Been able to even question the situation there making so many. And I talked about the funnel for serial -- it's true that we have not really recovered to the 22% level. But compared to the disaster situation last year, we have seen a major recovery. So across the board, one of the big gaps is high function engineering plastics. The advanced materials company is deploying this quite quietly. Semiconductor-related products are recovering. So there's a huge recovery compared to FY '23. But if we go back all the way to FY '22, a lot of automotive applications existed. So that's a little bit slower now. And that is why there is not a high recovery compared to FY '22. And the carbon fiber pressure vessel. This is not the market status, but fierce competition. And we are tracking some of the businesses because of that. So that is why we're not seeing a recovery to the FY '20 level in that particular segment. But generally sticking, we don't think there is a huge gap between what we are doing and what we had in 2022.

[Shunta Omura, analyst]

I see. Just to confirm, Sono and display, we have already exceeded the FY 22 level or not?

[Minoru Kida, executive]

Display has already exceeded level, but Sono is a little bit lower than what we had in FY '22. But in the first and second quarters, we are seeing gradual recovery, steady recovery. So we believe that we will be covered to that level sooner or later.

[Operator]

JP Morgan Securities. Nakada-san, please.

[Unknown Analyst]

Nakada speaking. Petrochemical, recently, utilization rate, what is the level -- and July, September, the second half, there was one of the things that has stopped due to the other companies, but it's still 80% as an industry average. So customer, I think it's pretty good, but all about [indiscernible]. And from January to September, ethylene production added compared with last year, production speed is lower. So maybe it's going to be below 5 million tons. So maybe I should ask this on the 13th, but in Mizushima, some discussion in Chiba, 1 or 2. So excessive supply in Japan probably will not be solved. So could you talk about utilization and also the reorganization in petrochemical.

[Unknown Executive]

So about the petrochemical utilization, Kida-san, please.

[Minoru Kida, executive]

Yes, thank you for your question. And thank you very much for your concern. Well, about other companies, of course, we don't know the details. But as far as we are concerned, July, September, utilization is about -- or above 90%. So it's very high. So I cannot give you the details very much. But the ag much higher than 90% and Okayama is a little bit lower than 90%, but late 80s. So it's very close to 90%. We are maintaining that level. So our situation is like that. And for the reorganization of the petrochemical, Chikumoto is a better person to answer to that question. That [indiscernible] was mentioned. And [indiscernible] we are discussing with them from the beginning of the year. And as we said before, within the end of the fiscal year, we should be able to show you some specific plans. Does that answer your question?

[Unknown Analyst]

Just 1 thing, but okay utilization being high. Other companies, when they resume the operations, does it go down? Or would it continue in the second half as well?

[Manabu Chikumoto, executive]

Well, the second half overall demand has not yet -- will not recover. So maybe it will come down a little bit. But as you said, Eastern and Western customers, the applications or the use are different. So I think you're right. So the trend in Japan is exactly what you described.

[Unknown Executive]

Next question. Nomura Securities, Okazaki-san. Please ask your question.

[Shigeki Okazaki, analyst]

Apologies. Specialty Materials first half versus second half. It's going to be a big truck. You talked about the display and other factors already -- looking at Q2, it was better than 3 months prior to that. I'm sure that there are many factors, but the -- I think in the first half, maybe some of the factors were brought forward or happened earlier, I wonder the case. Maybe you're being conservative because of lack of visibility to the market. Is that true? And I don't think it's just about the specialty materials, but structural reform is mostly focus in a big chunk of Specialty Materials. And 3 months ago, Mr. Chikumoto, you gave us a very passionate comment. But in terms of the structural reform, I have not really seen any progress in the last 3 months. So carbon fiber and directivity Materials, it seems that there are some struggles still. So looking forward to hearing something about that and the specialty materials structure reform in the last 3 months, what has happened? Can you please share that with us?

[Unknown Executive]

Okay. First half versus second half. Can you please respond to this question, Kida-san?

[Minoru Kida, executive]

Thank you for your question. First half versus second half. Specialty Materials business includes a lot of different products. So it's very difficult to generalize. But display, as we have mentioned already, during the first half, there was a bit of a bubble claim. So therefore, we expect to see some adjustment starting from the second half. So that's included in our outlook and EV application. It's going to be continued lack of visibility in terms of battery materials and also electrolytes. We believe that the demand will drop towards the second half. And also, I'm sure that you're paying attention to semiconductor.

Semiconductor is growing. Everybody says that it's growing but generative AI and high-ticket products are growing. But in terms of volume, we have not really seen a full recovery yet. So if you look at semiconductors, test close to service sales will continue to stay strong from the first half to the second half. But when it comes to focuses or build materials. This is totally dependent on volume.

And therefore, from the first half to second half, well, in the second half, expected the demand to recover in the second half, and we will see bigger numbers. But it seems that the recovery demand may be a little bit longer than we had expected. So yes, we are applying a slightly more conservative view. So Advanced Materials, carbon fiber composites and shapes, advanced competition ship volume will continue to stay strong because of our semiconductor-related businesses. And in terms of profit, intangible asset depreciation was quite big in the first half. Some of them are only single year impact. So the depreciation will be much smaller in the second half. should push up the overall profit. So we have to take that into account as well. And you may think that there's a big gap from the first half to the second half, but this explains why we have this outlook. The second half outlook is actually relatively conservative when we cut to the structural reform. We are trying to pick up the pace of structural reform status. For example, semiconductor cleaning business, in general, is quite solid. But looking at the details, some sites are still unprofitable, for example, in the United States. Closure of multiple sites may be decided within this fiscal year and some losses actually have been already posted in the first half. then with regard to the structural reform, you are basically trying to dig up all the long varied problems and resolve them as quickly as for small one. That is what we're trying to do.

[Unknown Executive]

We are running out of time. And with that, we'd like to end Q&A session. Mr. Kida, would like to say a few words at the end?

[Minoru Kida, executive]

Yes. So thank you very much for taking the time out of your busy schedule to join us today. In the full year results earnings in May, we said that those are the targets that we must achieve. And in the first month, we exceeded those expected results. And for the second half, in order to make sure that we realize the updated forecast, we will work the most. We try to improve the capital efficiency and profitability and take measures so that we can respond to your expectations. So I hope you will continue to support us. Thank you very much.

[Unknown Executive]

Thank you. Today's conference will be archived, and you'll be able to access it any time from our website. So with that, we'd like to end the earnings conference call. Thank you very much indeed for your participation.