Summary

Daiichi Rare Element Chemical Industry Co., Ltd. (Daiichi Kigensō Kagaku Kōgyō Co., Ltd.; hereinafter “DKK”) is a manufacturer and distributor of zirconium compounds, holding an approximately 40% market share. Since its establishment in 1956, the company has pursued quality and technological innovation, supplying a wide range of products for applications such as automotive exhaust gas purification catalysts, electronic materials, and fine ceramics.
DKK’s business model is characterized by an integrated value chain covering everything from raw material procurement to product sales. While approximately 90% of its raw materials are sourced from China, the company is promoting the establishment of manufacturing bases in Vietnam to diversify risk. In fiscal year 2023, net sales reached ¥35,748 million, representing a year-on-year increase of 21.7%. Demand from the automotive sector was a key driver of this performance, influenced by stricter environmental regulations and the growing adoption of electrified vehicles.
According to the income statement, operating profit amounted to ¥5,391 million, with an operating margin of 15.1%, indicating stable profitability, although rising raw material costs had an impact. For fiscal year 2024, a decline in operating profit is expected, highlighting the need for tighter cost control and improved efficiency. On the balance sheet, total assets increased to ¥66,004 million and the equity ratio rose to 53%, reflecting a solid financial position; however, the increase in interest-bearing debt warrants caution.
The cash flow statement shows operating cash flow of ¥3,893 million and investing cash flow of −¥4,423 million, reflecting the impact of new plant operations and capital expenditures. Under the medium-term management plan “DK-One Next,” DKK aims to expand its business in the semiconductor, energy, and healthcare fields, targeting a revenue contribution of 30% by 2029 and over 50% by 2032. From the perspective of environmental regulation compliance and sustainability, the company is also advancing R&D on new materials and has adopted a stable dividend policy as part of its shareholder return strategy. Investors need to understand performance volatility and risk factors while closely monitoring the company’s growth strategy and changes in the market environment. DKK continues to implement measures to enhance its competitiveness and achieve sustainable growth.

1.Overview of Fiscal Year 2023 Performance

In fiscal year 2023, Daiichi Rare Element Chemical Industry Co., Ltd. (DKK) recorded net sales of ¥35,748 million, achieving a year-on-year increase of 21.7%. This growth was driven by increased demand for oxygen sensors and exhaust gas purification catalysts in the automotive sector. Reviewing performance over recent years, sales declined in fiscal year 2020 from ¥27,484 million in fiscal year 2019 due to the impact of COVID-19, but recovered in fiscal year 2021 and reached ¥29,366 million in fiscal year 2022. The strong growth in fiscal year 2023 is considered to be influenced by tighter environmental regulations and a rebound in demand within the automotive industry.

Operating profit amounted to ¥5,391 million, with an operating margin of 15.1%, indicating high profitability; however, rising raw material costs pushed the cost ratio to 70%, remaining at a relatively high level. For fiscal year 2024, a decline in operating profit is anticipated, making cost control and operational efficiency increasingly important.

On the balance sheet, total assets increased to ¥66,004 million, and the current ratio remained stable at 113%. Borrowings stood at a high level of ¥25,229 million, while the equity ratio rose to 53%. In the cash flow statement, operating cash flow was ¥3,893 million and investing cash flow was −¥4,423 million, reflecting expenditures related to new plant operations and capital investment.

Key performance indicators included ROE of 11.2%, ROA of 6.1%, and EBITDA of ¥8,108 million, demonstrating the company’s financial soundness and profitability; however, there are concerns about potential declines in these indicators in the future. Overall, DKK is advancing strategies to achieve sustainable growth, and investors should pay close attention to the company’s ability to respond flexibly to changes in the market environment and to secure new sources of revenue.

2. Earnings Outlook for the Fiscal Year Ending March 2024

For the fiscal year ending March 2024, DKK forecasts net sales of ¥34,200 million, operating profit of ¥4,800 million, ordinary profit of ¥4,600 million, and net profit attributable to owners of the parent of ¥3,200 million, all of which represent declines from the previous year. In particular, in the automotive exhaust gas purification catalyst market, demand for vehicles equipped with internal combustion engines is expected to decrease due to the increasing penetration of electric vehicles. Rising raw material costs and intensifying competition are also expected to exert pressure on performance.

To counter these challenges, DKK plans to expand its business into the semiconductor, energy, and healthcare fields in line with its medium-term management plan “DK-One Next,” with the creation of new businesses expected to serve as a key growth driver. The start-up of a new plant in Vietnam is also expected to contribute to stable supply and improvements in cost structure; however, in the short term, the burden of investment may weigh on profits.

For investors, fiscal year 2024 will be an important year for laying the foundation for sustainable growth, making it essential to closely monitor performance trends and changes in the market environment. In particular, initiatives related to cost management and efficiency improvements are expected to have a significant impact on future profitability, underscoring the need for a strategic approach by the company.

3. Medium- to Long-Term Growth Strategy

Daiichi Rare Element Chemical Industry Co., Ltd. (DKK) has formulated the medium-term management plan “DK-One Next,” aiming for sustainable growth from fiscal year 2023 through fiscal year 2032. The company is focusing on three strategic areas—semiconductors, energy, and healthcare—and aims to increase the revenue contribution of these fields to 30% by 2029 and to more than 50% by 2032. This plan is intended to reduce dependence on traditional automotive-related businesses and establish a new business model.

Domestically, DKK is promoting R&D and capital investment to strengthen the competitiveness of existing businesses. Overseas, the company plans to establish a new zirconium compound plant in Vietnam to secure stable raw material supplies and improve its cost structure. The development of new businesses is also being emphasized, targeting automotive-related and new energy fields. These initiatives are essential for improving profitability and stabilizing business performance.

The company plans cash flow of approximately ¥35.5 billion, allocating these funds to capital investment and R&D. In particular, ¥8.0 billion is earmarked for R&D investment aimed at developing new products in the semiconductor and energy fields, with the goal of creating high value-added products. Performance indicators such as net sales, operating profit, EBITDA, and ROIC have been established, with a sales target of ¥34.0 billion to ¥41.0 billion set for fiscal year 2026.

Risk factors include intensifying competition, fluctuations in raw material prices, and stricter environmental regulations. The company is formulating strategies to address these risks through market research and competitive analysis. Strengthening the execution framework is also essential, and smoother implementation of initiatives is expected through enhanced interdepartmental cooperation and thorough information sharing. DKK is expected to establish a clear path toward sustainable growth while providing investors with transparent progress updates.

・In fiscal year 2023, net sales reached ¥35,748 million, up 21.7% year on year, and operating profit amounted to ¥5,391 million, demonstrating high profitability. However, rising raw material costs pushed the cost ratio to 70%. While a stable financial position has been maintained, there are concerns about potential declines in performance indicators going forward.

・For the fiscal year ending March 2024, net sales of ¥34,200 million, operating profit of ¥4,800 million, ordinary profit of ¥4,600 million, and net profit attributable to owners of the parent of ¥3,200 million are forecast, representing year-on-year declines. Amid declining demand in the automotive exhaust gas purification catalyst market and rising raw material costs, DKK is promoting business expansion under the medium-term management plan “DK-One Next,” with the creation of new businesses expected to be a key growth driver.

・Under the medium-term management plan “DK-One Next,” Daiichi Rare Element Chemical Industry Co., Ltd. aims to increase the revenue contribution of the semiconductor, energy, and healthcare fields to over 50% by 2032, while strengthening competitiveness and advancing new business development.

Business Overview

1. Overview of the Business Model

Daiichi Rare Element Chemical Industry Co., Ltd. (hereinafter “DKK”) is a manufacturer and distributor of zirconium compounds, primarily zirconium oxide, and is a global leader with approximately a 40% share of the zirconium market. Since its establishment in 1956, DKK has consistently pursued quality and technological innovation, supplying products for a wide range of applications, including automotive exhaust gas purification catalysts, electronic materials, and fine ceramics.

A key feature of DKK’s business model is its vertically integrated structure, encompassing everything from raw material procurement to the sale of finished products in-house. While approximately 90% of raw materials are sourced from China, in recent years the company has been advancing the establishment of manufacturing bases in Vietnam in order to diversify risk and secure stable supply. These initiatives enable DKK to mitigate geopolitical risks while also achieving cost reductions and improvements in productivity.

DKK also places strong emphasis on research and development, advancing the development of new technologies and products such as perovskite-type composite oxides. These technologies are expected to become important drivers of future growth, particularly in the electronics, energy, and healthcare markets. The company’s commitment to sustainable growth is evident, and it is increasingly required to conduct its business with consideration for environmental impact and social responsibility.

In this way, DKK is a company with a robust business model and a strong ability to adapt to technological innovation and changing market needs, positioning it for continued growth in the future.

2. Major Business Segments

DKK primarily manufactures and sells products for automotive exhaust gas purification catalysts, electronic materials, fine ceramics, energy-related products, and healthcare applications. These segments are all expected to experience significant growth even under current market conditions.

The automotive exhaust gas purification catalyst segment is DKK’s core business, supplying products to major automobile manufacturers both in Japan and overseas. While the company holds a high market share in this field, competition is expected to intensify as electric vehicles become more widespread and environmental regulations grow stricter. In recent years, products for oxygen sensors in particular have contributed to increased demand.

In the electronic materials segment, demand from the semiconductor and electronics industries has been rising, and DKK is expected to demonstrate strong competitiveness in this market. As digitalization progresses, increasingly advanced electronic materials are required.

In the energy-related field, demand for products used in lithium-ion batteries and fuel cells has been growing rapidly, and DKK’s technologies have the potential to drive growth in new markets. In the healthcare field, demand is expected for materials that offer high added value, particularly for medical applications.

Through the mutual support of these diverse business segments, DKK has built a foundation for sustainable growth while dispersing risk.

3. Market Position and Competitive Advantages

DKK is a leading manufacturer with approximately a 40% share of the zirconium compound market, and its competitive advantage is particularly prominent in the automotive industry. Its customer base consists of major automobile manufacturers in Japan and abroad, and long-standing relationships of trust provide a stable stream of orders.

The company’s competitiveness is driven by several factors. First is its investment in research and development, which enables the creation of new products and technological innovation, enhancing its ability to respond to customer needs. Second is the consistency of its manufacturing processes and its quality control system. DKK applies rigorous quality management from raw materials through finished products, and this high level of quality has earned strong customer trust.

In addition, strengthening the supply chain is a key factor. The establishment of a plant in Vietnam has reduced supply risks and enhanced competitiveness. The company’s commitment to sustainability is also highly regarded; as development of environmentally friendly products progresses, DKK is increasingly gaining support from customers and the market.

Through its technological capabilities, quality, customer relationships, supply chain resilience, and sustainability-focused business operations, DKK has established a strong competitive advantage.

4. Market Background

Demand for zirconium compounds is increasing rapidly amid ongoing electrification and tighter environmental regulations. In the automotive industry, stricter emissions regulations are driving demand for more efficient catalyst materials. Furthermore, the expansion of the semiconductor market and growing demand for digital devices are broadening the range of applications for zirconium.

In the energy sector as well, demand for new technologies such as lithium-ion batteries and fuel cells is increasing, allowing DKK to benefit from growth opportunities by supplying products for these applications. Heightened awareness of environmental issues in recent years has accelerated demand for sustainable materials, making it necessary for DKK to continue developing products that address these needs.

At the same time, competition in international markets is intensifying, making geopolitical risks and supply chain stabilization critical challenges. In particular, the heavy reliance on raw materials sourced from China underscores the need to explore alternative supply sources as a risk-hedging measure.

Against this market backdrop, DKK is expected to establish future growth strategies and enhance corporate value by providing products and services that respond promptly to customer needs.

5. Outlook for the Future

DKK is focusing its future growth strategy on specific market segments, particularly semiconductors, energy, and healthcare, which are expected to experience strong growth. Under the medium-term management plan “DK-One Next,” business expansion in these segments is positioned as a key priority, requiring proactive investment in research and development as well as market development.

The launch of a new plant in Vietnam will strengthen the procurement base and help establish a stable production system, thereby contributing to enhanced competitiveness. Furthermore, from a sustainability perspective, continued R&D on new materials is essential, and expanding environmentally conscious product lines will be critical to improving the company’s reputation in the market.

Overall, DKK must continue to execute strategies that enable flexible responses to market changes and the realization of sustainable growth. Through these efforts, the company is expected to achieve continued success.

Daiichi Rare Element Chemical Industry is implementing measures to continue growing as a sustainable enterprise through the provision of highly reliable products. This chapter concludes by emphasizing that the company as a whole is following a strategic vision, capturing new market opportunities, and progressing along a path of growth.

Performance Trends

1. Overview of Recent Performance

Daiichi Rare Element Chemical Industry (hereinafter “DKK”) recorded strong sales in fiscal year 2023, achieving a year-on-year increase of 21.7%. As a result, net sales reached ¥35,748 million. In particular, rising demand for oxygen sensors and exhaust gas purification catalysts in the automotive sector was a major factor driving performance. Looking back over the past several years, sales stood at ¥27,484 million in fiscal year 2019, declined in fiscal year 2020 due to the impact of COVID-19, then recovered in fiscal year 2021 and reached ¥29,366 million in fiscal year 2022, ultimately leading to the strong growth seen in fiscal year 2023.

According to expert assessments, DKK’s performance recovery has been influenced by stricter environmental regulations and a rebound in demand in the automotive industry. Another factor underpinning sustainable growth is the progress of the “DK-One Next” plan, which is expected to promote business diversification and expansion into new markets. For investors, this plan is attracting attention as a long-term growth strategy.

From an investor perspective, key points of focus include whether the growth achieved in fiscal year 2023 can be sustained and how DKK will adapt to changes in the market environment. In particular, stable demand is expected to continue in the automotive sector, leaving room for further growth.

2. Analysis of the Income Statemen

An analysis of the income statement for fiscal year 2023 shows net sales of ¥35,748 million and operating profit of ¥5,391 million. The operating margin stood at a solid 15.1%, confirming a high level of profitability. At the same time, cost of sales amounted to ¥25,140 million, resulting in a cost ratio of 70%, which remains somewhat elevated. This is believed to reflect rising raw material costs, and while stable sales have been secured, measures to maintain profit margins are required.

In addition, the plan for fiscal year 2024 anticipates a decline in operating profit, as profits are expected to be pressured by ongoing investments. Ordinary profit is also forecast to decrease, and future market conditions and trends in raw material costs may have a significant impact. Under these circumstances, tighter cost control and efficiency improvements will be increasingly important.

Based on these income statement figures, investors need to assess whether DKK can sustain its profit margins over the long term and secure new sources of revenue. In particular, efforts to improve the cost ratio will be a key factor in enhancing profitability.

3. Analysis of the Balance Sheet

An examination of DKK’s balance sheet for fiscal year 2023 shows total assets of ¥66,004 million, representing an increase from the previous year. This growth reflects increases in both current and non-current assets. Current assets include cash and cash equivalents of ¥10,750 million, trade receivables of ¥6,623 million, and inventories of ¥14,439 million, indicating a healthy asset composition. The increase in inventories, in particular, can be seen as evidence of effective inventory management. The current ratio remains stable at 113%, suggesting no issues with short-term liquidity.

On the other hand, non-current assets amount to ¥32,016 million, reflecting investments made to strengthen manufacturing capacity. Borrowings remain at a high level of ¥25,229 million; however, the equity ratio has risen to 53%, indicating a solid financial structure. That said, the increase in interest-bearing debt is a point that warrants caution.

In light of this situation, investors need to assess whether DKK is maintaining an appropriate balance between assets and liabilities that supports sustainable growth. Maintaining this balance will also be important when considering future investments.

4. Analysis of the Cash Flow Statement

An analysis of DKK’s cash flow statement shows operating cash flow of ¥3,893 million and investing cash flow of −¥4,423 million. These investments were directed toward the start-up of new plants and capital expenditures, which have placed short-term pressure on cash flow but are important from the perspective of the company’s long-term growth strategy. Overall cash generation capacity has been maintained, and the stability of operating cash flow remains a key point of attention.

Financing cash flow amounted to ¥5,909 million, indicating that the company has secured the necessary funding. However, as investment plans progress, careful management of working capital will be required, making a flexible approach to cash flow management essential.

Under these circumstances, investors should confirm whether sustainable cash flows are being secured as a source of earnings and whether funding plans for future strategic investments are being appropriately structured.

5. Analysis of Performance Indicators

DKK’s performance indicators include ROE of 11.2%, ROA of 6.1%, and EBITDA of ¥8,108 million, demonstrating the company’s financial soundness and profitability. These figures are relatively high compared with industry standards, indicating efficient use of capital and providing a sense of reassurance for investors.

However, it must also be taken into account that these indicators are expected to decline in the future. In particular, forecasts point to decreases in operating profit and net profit, raising concerns about potential deterioration in these metrics. The formulation and execution of appropriate strategies will have a significant impact on future performance, making this an area that investors should monitor closely.

Overall, while DKK’s performance indicators are currently favorable, it is clear that flexible responses to changes in the business environment and strategies that lead to sustainable growth will be essential going forward.

Looking ahead, attention will focus on how the company responds to changes in market conditions and regulations, as well as how the promotion of new businesses will affect overall performance. Accordingly, investors are required to closely monitor the progress of business strategies and market trends in order to make well-informed decisions.

Medium-Term Management Plan “DK-One Next” and Growth Strategy

1. Management Environment and Recognition of Challenges

Daiichi Rare Element Chemical Industry has formulated the medium-term management plan “DK-One Next” covering the period from fiscal year 2023 through fiscal year 2032, with the aim of achieving sustainable growth. This plan is part of the company’s efforts to leverage its expertise in rare elements—specialized materials—while responding to changes in the environment and the market. In particular, addressing electrification and decarbonization in the modern automotive industry is recognized as a key management challenge. As a result, diversification of the earnings base and the development of new markets have become essential.

The competitive environment and societal demands facing the company are increasingly complex, requiring flexible strategies that do not rely solely on past successes. From an expert perspective, it is critical for companies to be highly sensitive to new technological innovations and evolving market needs, and to establish decision-making structures that enable swift action. Such flexibility is indispensable for sustainable growth, and diversification of successful business models is expected to form the core of long-term corporate strategy. Investors should closely examine whether the company’s recognition of challenges is aligned with the strategies proposed to address them.

 2. Overall Framework of the Medium-Term Management Plan

The medium-term management plan “DK-One Next” is designed with a view toward 2032 and aims to achieve sustained growth. It places particular emphasis on expanding three strategic fields—semiconductors, energy, and healthcare—and targets increasing the revenue contribution of these areas to 30% by 2029 and to more than 50% by 2032. These goals are intended to reduce dependence on conventional automotive-related businesses and to help establish new business models.

Business diversification is essential for achieving stable earnings growth and enhancing corporate value. In particular, by introducing ROE and DOE as new management indicators, the company aims to build a management framework that aligns shareholder interests with corporate performance. For investors, key considerations include whether the plan is feasible and whether sufficient transparency regarding progress will be provided.

3. Key Initiatives (Domestic, Overseas, and by Business Segment)

The company is implementing concrete initiatives to strengthen its diverse business portfolio. Domestically, it is promoting enhanced research and development and capital investment as part of efforts to strengthen the competitiveness of existing businesses. Overseas, plans are underway to establish a new zirconium compound plant in Vietnam, which is expected to contribute to stable raw material supply and improvements in cost structure.

In addition, the company is focusing on the development of new businesses, particularly targeting automotive-related and new energy fields. These initiatives are directly linked to improvements in profitability and are indispensable for stabilizing business performance. Experts note that clearly identifying growth areas and proceeding in a phased manner enables effective risk management while generating results. For investors, it is important to assess how these specific initiatives translate into earnings and to closely monitor their outcomes.

4. Investment Policy (Capital Expenditure, R&D, etc.)

Daiichi Rare Element Chemical Industry plans cash flow of approximately ¥35.5 billion, which it intends to allocate to capital expenditure and research and development. In particular, the company plans to allocate ¥8.0 billion to R&D investment aimed at developing new products in the semiconductor and energy fields, with the goal of creating high value-added products.

In addition to renewing aging facilities and promoting DX (digital transformation), the introduction of energy-saving technologies is also positioned as an important initiative. These investment policies are expected to contribute to improved productivity and the maintenance of product quality. Experts point out that a clear investment policy enhances corporate competitiveness while requiring careful consideration of the balance with shareholder returns. For investors, the allocation of resources to achieve both growth investment and stable dividends represents a key point of focus.

5. Results, Expected Effects, and KPIs

Key performance indicators used to measure results include net sales, operating profit, EBITDA, and ROIC. In particular, for fiscal year 2026, a sales target of ¥34.0 billion to ¥41.0 billion has been set, along with a requirement to achieve operating profit of at least ¥3.0 billion. These targets are expected to lead to overall performance improvement across the company.

Improvement in ROIC is also closely linked to the company’s cash allocation policy, which aims to balance growth investment with stable dividends. By setting clear and specific KPIs, the company can demonstrate results quantitatively and establish a framework in which progress is monitored together with investors. According to expert opinions, the use of diverse KPIs enhances corporate transparency and fosters trust. Investors should track these numerical targets closely in order to assess the company’s execution capability.

6. Approach to Risk Factors

Risk factors facing Daiichi Rare Element Chemical Industry include intensifying competition, fluctuations in raw material prices, and stricter environmental regulations. In particular, entry into new businesses involves many uncertainties and may give rise to unforeseen developments. The company is formulating strategies to address these risks through advance market research and competitive analysis.

In addition, the company places emphasis on fostering a corporate culture that promotes innovation and flexible organizational management, enabling rapid responses to risks. Experts note that effective risk management can enhance corporate sustainability. From an investor’s perspective, it is important to evaluate how the company addresses risks and evolves its strategies in response.

7. Strengthening the Execution Framework

To advance “DK-One Next,” strengthening the execution framework is essential. By promoting interdepartmental cooperation and ensuring thorough information sharing, smoother execution of each initiative is expected. Improvements to the working environment and enhanced human resource development are also key elements in strengthening the company’s competitiveness.

Forming teams staffed by individuals with specialized expertise in each targeted business field will help foster a culture of innovation. Experts anticipate that a more decentralized organizational management approach can enhance agility at the operational level and ultimately improve overall corporate performance. Investors should also value the company’s commitment to effective talent utilization and teamwork, incorporating these factors into their investment assessments.

Through “DK-One Next,” Daiichi Rare Element Chemical Industry is steadily establishing a path toward sustainable growth. Investors are encouraged to closely monitor the company’s group-wide initiatives under this medium-term management plan and to make informed judgments based on their progress.

News & Topics

1. Overview of the Medium-Term Management Plan “DK-One Next”

Daiichi Rare Element Chemical Industry (hereinafter “DKK”) is advancing initiatives to enhance corporate value through its medium-term management plan, “DK-One Next.” This plan looks ahead over a ten-year period from fiscal year 2023 through fiscal year 2032 and centers on strategies aimed at improving ROIC (Return on Invested Capital). Specifically, DKK targets an operating profit margin of 13% and aims to increase net sales from ¥28.0 billion to ¥41.0 billion. The success of this plan will be a critical factor influencing future shareholder returns and the company’s long-term growth.

Experts at DKK emphasize that, in formulating “DK-One Next,” it is essential for the company to maximize the use of its internal resources and to develop high value-added products that respond to market needs. Flexible responses based on new marketing strategies are also required. For investors, the clearly defined targets set by the company enhance expectations for growth and profitability, supporting confidence in stable earnings growth from a long-term perspective.

2. Initiatives Toward the Creation of New Businesses

Under “DK-One Next,” DKK places strong emphasis on the creation of new businesses. In particular, entry into fields such as semiconductor polishing materials and biomaterials is anticipated, with the aim of addressing a wider range of customer needs. The expansion of new businesses in these strategic fields is expected to become a major driver for strengthening the company’s revenue base.

However, entry into new markets involves risks. Amid intense competition, maintaining an acquired customer base will be essential. Investors need to carefully observe how DKK is deploying its strategies in new markets and evaluate the actual contribution of new businesses to revenue growth. While success is anticipated, it is also important to consider the potential impact should these initiatives fail to deliver the expected results.

3. Progress and Challenges of the Vietnam Business

Taking geopolitical risks into account, DKK is expanding its operations in Vietnam. In particular, the establishment of VREC (its Vietnamese subsidiary) is positioned as a key initiative to secure stable supply and reduce dependence on China. This subsidiary aims to internalize the production of zirconium compounds and improve production efficiency, which is expected to lead to cost reductions.

However, challenges remain for VREC at this stage. Additional investment is required to reduce production costs and ensure stable operations, and this carries the risk of negatively affecting profit margins. Investors should continue to monitor whether the Vietnam business, despite short-term challenges, can generate stable profits over the medium to long term.

4. Response to Environmental Regulations and Sustainability

DKK must address increasingly stringent environmental regulations. In particular, long-term challenges aimed at reducing greenhouse gas emissions are directly linked to corporate sustainability, necessitating reductions in energy consumption and the adoption of renewable energy. Environmentally conscious management contributes to enhanced corporate image and greater customer trust, but it also requires upfront investment, making clear allocation of management resources essential.

For investors, how DKK’s environmental initiatives affect corporate value is an important consideration. As awareness of sustainability continues to grow, the company’s ability to respond to environmental regulations will directly influence its growth potential and market competitiveness, making this a key factor in investment decision-making.

5. Financial Condition and Shareholder Return Policies

DKK’s financial condition is also an important point of focus. The company expects cumulative operating cash flow of ¥35.5 billion by fiscal year 2024 and plans to allocate this cash flow to strategic investments and shareholder returns. In particular, DKK has set targets to increase ROE (Return on Equity) to 5% by fiscal year 2029 and to more than 11% by fiscal year 2032, with the aim of strengthening shareholder confidence.

In addition, a new dividend policy based on a minimum DOE (Dividend on Equity) has been adopted, with the goal of maintaining stable dividends. These shareholder return measures signal to investors that sustainable growth can be expected over the long term.

6. Earnings Forecasts and the Impact of the Market Environment

According to the latest earnings report, net sales for fiscal year 2024 are forecast to decline by 4.5% year on year. In particular, fluctuations in supply and demand for electric vehicles are having an impact, prompting the need to reassess growth strategies. In the automotive exhaust gas purification catalyst market, expanding market share by overseas manufacturers is a cause for concern; however, strong sales to the North American market have also been observed, underscoring the pursuit of balanced growth.

As a result, DKK must continue to implement new strategies and strengthen existing businesses while responding flexibly to changes in the market environment. Investors are required to make informed judgments that take into account short-term performance fluctuations while carefully assessing medium- to long-term growth potential.

DKK is currently moving forward with initiatives aimed at sustainable growth while overcoming a range of challenges. Close attention should be paid to how the company adapts to these challenges, enhances corporate value, and fulfills its responsibilities to shareholders in the period ahead.

 Company Overview

1. Basic Corporate Information

Established in 1956, Daiichi Rare Element Chemical Industry Co., Ltd. is a Japanese chemical company engaged in the manufacture and sale of a wide range of chemical products, including zirconium compounds. The company is headquartered in Kitahama, Chuo-ku, Osaka, and is listed on the Prime Market of the Tokyo Stock Exchange.

DKK’s principal product portfolio includes automotive exhaust gas purification catalysts centered on zirconium oxide, fine ceramics, and materials for the semiconductor and energy sectors, all of which are used across a broad range of industries. In particular, the company is a top manufacturer with an approximately 40% share of the global market for zirconium compounds, and its technological capabilities and product reliability are highly regarded within the industry.

The corporate philosophy of “continuing to supply products of value to society” reflects a strong commitment to sustainable management, with business practices that emphasize environmental consideration and social responsibility.

2. Business Activities and Business Structure

DKK’s business focuses primarily on zirconium compounds, manufacturing a broad range of chemical products based on zirconium oxide and its derivatives. These materials, which possess superior properties required in the automotive, electronics, energy, and healthcare fields, are regarded as an integral part of sustainable technologies, particularly in today’s environment where responses to environmental challenges are increasingly demanded.

Specifically, in the automotive sector, the company markets products mainly for exhaust gas purification catalysts, while in the energy sector it supplies materials for secondary battery applications. In addition to zirconium-related products, DKK is also expanding its product portfolio to include cesium and rare earth compounds, aiming to establish a business model that can respond flexibly to environmental changes and evolving market needs. Through these efforts, DKK maintains its competitiveness while establishing a presence in new market segments.

3. Corporate History and Key Milestones

Since its establishment, Daiichi Rare Element Chemical Industry has achieved steady growth over several decades. Founded in 1956, the company began with the sale of zirconium waterproofing materials, expanded its production structure in the 1960s, and entered the automotive market in the 1970s. In the 1990s, the company strengthened its quality assurance framework through the acquisition of ISO certifications.

From the 2000s onward, the company’s growth strategy has emphasized overseas expansion, including the establishment of subsidiaries in Vietnam and the United States, thereby reinforcing its position in international markets. More recently, in 2022, the company was listed on the Prime Market of the Tokyo Stock Exchange, enhancing its credibility while enabling more sophisticated capital raising and investment strategies. Under the medium-term management plan “DK-One Next,” DKK is advancing sustainability-focused product development, with the goal of building systems capable of responding to new market needs by 2032—an approach that is expected to be a key driver of future corporate growth.

4. Geographic Presence and Major Subsidiaries

DKK maintains a broad domestic and international network and is particularly proactive in expanding its global operations. In Japan, the company operates multiple plants and sales offices, with its headquarters in Osaka serving as the foundation of a robust supply chain.

In terms of international expansion, a notable initiative is the establishment of Vietnam Rare Elements Chemical Joint Stock Company (VREC) in Vietnam. Through this subsidiary, DKK has strengthened its stable supply system for zirconium compounds and achieved effective risk hedging against geopolitical risks. In the United States, DKK America Materials, Inc. serves as a key presence in the North American market. These global operations are essential for enabling the company to respond swiftly to market changes and are expected to contribute to enhanced competitiveness going forward.

5. Organizational Structure and Workforce

DKK has developed an organizational structure that emphasizes cross-departmental collaboration, facilitating smooth internal information flow and rapid decision-making. The management team is composed of experts from diverse fields, bringing extensive experience across areas ranging from manufacturing technology to market strategy. Strong leadership enhances overall corporate efficiency and reinforces initiatives related to sustainability.

The company’s corporate culture promotes respect for diversity and fosters an environment that encourages employee initiative. In recent years, DKK has placed particular emphasis on human resource development, focusing on nurturing the next generation of leaders in order to further strengthen the company’s overall competitiveness.

 6. ESG and Sustainability Initiatives

Guided by its corporate philosophy, DKK places strong emphasis on initiatives aimed at realizing a sustainable society. As part of this commitment, the company actively promotes environmental protection, social contribution, and the enhancement of governance, implementing measures designed to increase corporate value from a sustainability perspective.

In particular, DKK is advancing environmentally conscious product development and reviewing production processes, leading to improvements in energy efficiency and waste management. The company also engages in social contribution activities that promote harmony with local communities, underscoring the importance it places on fulfilling its corporate social responsibility (CSR). Through these efforts, DKK aims to strengthen social trust and enhance its attractiveness to investors.

7. Future Outlook

Daiichi Rare Element Chemical Industry Co., Ltd. continues to advance strategies aimed at achieving sustainable growth while responding flexibly to future market trends. In particular, the company is expected to promote new product development to address advancements in the energy and healthcare sectors, as well as the growing demand for sustainability.

Amid intensifying competition in global markets, DKK must leverage its technological strengths to further expand its market share. At the same time, it is expected to establish a more robust risk management framework to address a wide range of risks, including geopolitical risks, thereby reinforcing its position as a company capable of sustaining long-term growth.

DKK remains committed to responding sensitively to market changes and continuously enhancing corporate value. As the company continues to take on challenges in pursuit of a sustainable future, it is expected to attract continued attention.

Based on these points, how Daiichi Rare Element Chemical Industry Co., Ltd.’s growth strategy and vision will evolve remains a topic of strong interest for investors. In the next chapter, the company’s financial indicators and performance trends will be analyzed in greater detail to further deepen understanding.

Shareholder Returns

1. Basic Dividend Policy and Its Historical Development

Daiichi Rare Element Chemical Industry Co., Ltd. (hereinafter referred to as “the Company”) has adopted a basic policy of providing stable dividends on a continuous basis, with a strategy that integrates long-term corporate growth and shareholder returns. Specifically, the Company sets a payout ratio of approximately 30% as a guideline and has established a dividend on equity (DOE) of 1.8%. Through this approach, the Company aims to achieve both stable dividend payments and sustainable growth.

Underlying this policy is the responsibility to maintain market competitiveness while enhancing trust from shareholders. In the past, dividends increased significantly between fiscal years 2021 and 2023, with the payout ratio reaching an exceptionally high level of 217.4% in fiscal year 2022. This contributed to an improvement in EPS (earnings per share) and clearly demonstrated the Company’s commitment to strengthening shareholder returns. In this way, the Company’s dividend policy—characterized by flexibility in response to market conditions and performance—serves as a foundation for building a strong relationship of trust with shareholders.

From an investor’s perspective, such a stable dividend policy creates an environment conducive to long-term investment and enhances expectations for the Company’s growth. Furthermore, transparent decision-making by management is expected to further strengthen shareholder confidence. Accordingly, the Company’s emphasis on shar

2. Changes in Dividend Performance and Their Impact

The Company’s dividend performance has shown remarkable growth, particularly the sharp increase from fiscal years 2021 to 2023, reflecting the Company’s stable business performance. In fiscal year 2021, dividends amounted to ¥65.64 per share, representing a 149.7% increase compared with the previous year. This growth continued in fiscal year 2022, with dividends rising to ¥76.10 per share and the dividend increase rate reaching 217.4%, making these figures highly attractive to investors.

These dividend results not only reflect improved profitability but also underscore the Company’s strong commitment to shareholder returns. In particular, a sustainable dividend policy based on anticipated future earnings growth is supported by strategic management decisions and enhances the Company’s credibility.

For investors, these dividend records provide deeper insight into the Company’s competitiveness and growth potential, reinforcing confidence in the Company. For long-term shareholders especially, dividend stability can be a decisive factor in investment decisions. Therefore, continued attention to the Company’s shareholder return policy is expected to contribute positively to its growth.

3. Strengthening Shareholder Returns Through Share Repurchases

Share repurchases are positioned as an effective means for Daiichi Rare Element Chemical Industry to enhance shareholder returns while improving financial soundness and aiming to increase EPS. In August 2024, the Company resolved to acquire 150,000 shares for ¥113,100 thousand, a move that attracted attention as a demonstration of its strong commitment to shareholder returns.

Share buybacks reduce the number of outstanding shares, thereby increasing earnings per share. They also send a strong signal to the market and enhance investor confidence. In particular, a company’s willingness to repurchase its own shares indicates management’s confidence in the Company’s intrinsic value, conveying a positive message to shareholders.

Considering past successful cases and the effectiveness of such measures, share repurchases occupy an important position in the Company’s overall strategy. For investors, this policy reflects the Company’s stance and raises expectations for stable shareholder returns. Accordingly, the Company’s share repurchase initiatives are evaluated as a key measure to enhance shareholder value while sustaining future growth.

4. Alignment Between Financial Soundness and Shareholder Returns

The Company’s shareholder return policy is not limited to dividends and share repurchases alone; its alignment with the underlying financial strategy is equally important. Companies with a sound financial foundation are better positioned to secure sustainable profits and provide stable shareholder returns. Recent financial indicators suggest that the Company’s equity ratio is expected to reach 61.1%, confirming the maintenance of a stable capital structure.

In a highly competitive market environment, maintaining sufficient financial soundness is essential for the sustainable implementation of shareholder return measures. Management must deliberately secure cash flow and profits in order to fulfill its responsibility of maintaining stable dividends. This strategic approach is a key factor in building shareholder trust and is closely linked to the Company’s growth strategy.

From an investor’s perspective, companies with strong financial soundness are perceived as lower risk and more capable of delivering stable dividends, making them attractive long-term investments. Conversely, weakened financial soundness could lead to shareholder returns becoming dependent on short-term profits. For these reasons, carefully observing the alignment between the Company’s financial strategy and shareholder returns is essential for informed investment decisions.

5. Strategies for Medium- to Long-Term Shareholder Returns

In its medium-term management plan, “DK-One Next,” Daiichi Rare Element Chemical Industry presents clear guidelines for sustaining shareholder returns. In particular, ROE (return on equity) and DOE (dividend on equity) are adopted as key performance indicators, with profit allocation based on these metrics. This strategy strengthens a framework that allows for the smooth coexistence of corporate growth and shareholder returns.

At the same time, as the Company considers new businesses and capital investments to drive future growth, ensuring transparency in shareholder returns presents a significant challenge. By clearly communicating these plans to investors and demonstrating how the Company intends to grow, trust can be further strengthened. Especially in a changing market environment, flexible investment strategies are required.

Accordingly, the Company must clearly define the nature of its sustainable growth while emphasizing its responsibility to shareholders. Maintaining long-term growth while deepening trust with shareholders will remain a top priority going forward.

The performance trends and dividend policy of Daiichi Rare Element Chemical Industry Co., Ltd. represent a vital link between healthy corporate growth and shareholder expectations. The Company is expected to continue focusing on shareholder-oriented management and to realize sustainable growth. This is a necessary step in establishing itself as an attractive investment opportunity and an essential element in building a win–win relationship between the Company and its shareholders.

Looking ahead, the Company remains committed to enhancing shareholder returns, maintaining stable growth, and continuing to meet shareholder expectations. It is essential for the Company to appropriately evaluate management options and advance its growth strategy while maintaining dynamic communication with shareholders.

In the future, achieving a balance between sustainable growth and shareholder returns will remain critical, and the strategies designed to achieve this balance can become a source of competitive advantage. For investors, it is equally important to observe how these efforts translate into returns. The Company’s approach to shareholder returns thus provides a roadmap for future value creation.

In light of these points, the Company’s initiatives regarding shareholder returns should be reaffirmed as a key element of its growth and sustainability. Investors are encouraged to understand this stance and make prudent investment decisions while closely monitoring the Company’s progress.

Business Risks

1. Factors Affecting Business Performance

The business performance of Daiichi Rare Element Chemical Industry Co., Ltd. (hereinafter “DKK”) is influenced by a variety of external and internal factors and is particularly dependent on demand for products related to zirconium compounds. Fluctuations in demand in the automotive exhaust gas purification catalyst market, the semiconductor market, as well as the energy and healthcare sectors, can have a significant impact on the Company’s earnings structure. Recently, as environmental awareness has increased and the adoption of electric vehicles has accelerated, the risk of declining demand in markets related to internal combustion engine vehicles has emerged. In addition, the stability of raw material procurement and changes in the external environment have become increasingly important factors affecting performance.

For example, DKK relies heavily on China as a major supplier of zirconium, and geopolitical instability has heightened the risk of supply disruptions. Exchange rate fluctuations are another critical factor; in particular, appreciation of the Japanese yen could compress profits for the Company as an export-oriented business. Under such conditions, a sensitive and timely response to performance-related risk factors is required. Investors need to fully understand these factors and strengthen their awareness of risk management.

Responding swiftly to changes in the market environment and considering a shift toward new growth areas are key to maintaining DKK’s sustainable competitiveness. In particular, capturing demand in the semiconductor and energy sectors is critical, making strategic flexibility essential.

2. Industry-Specific Risks

The chemical industry in which DKK operates, especially the zirconium compounds market, is characterized by intense competition. An increase in new market entrants intensifies technological innovation and price competition, making continuous investment in research and development and improvements in production processes essential for maintaining competitiveness. Moreover, amid strengthening environmental regulations and rising demand for sustainable products, companies face inherent risks when pursuing such initiatives, and the long payback periods involved may dampen investment appetite.

Fluctuations in raw material prices also represent a significant risk. Recent geopolitical tensions and economic conditions have increased the difficulty of procuring raw materials. In particular, DKK’s manufacturing costs are strongly influenced by transaction terms with suppliers such as ENEOS and major chemical manufacturers, which may lead to higher production costs and increased pressure to lower prices in order to remain competitive. Under these circumstances, continuous monitoring of industry trends and thorough market analysis are required.

In addition, rapid changes in overseas laws and regulations can also pose risks. Amendments to laws or changes in trade policies in regions where the Company operates may affect business activities, necessitating a flexible and responsive approach.

3. Financial and Management Risks

DKK’s financial and management risks are closely linked to increases in borrowings and the appropriate use of management resources. In recent years, interest-bearing debt has trended upward, facilitating funding for capital investment and new businesses, while simultaneously increasing interest burdens and financial risk. In particular, interest rate trends in the current economic environment are extremely important, as borrowings may become a factor that compresses profits.

Furthermore, if new businesses or investment plans do not progress as scheduled, there is a risk of impairment losses or delays in capital recovery. As long-term, return-conscious management is required, the Company must adopt cautious strategies and promote disciplined financial management. From a governance perspective, this also calls for strengthening management systems to support sustainable growth. In particular, as efficiency in internal communication processes and decision-making flows becomes increasingly important, the appropriate utilization of human resources is essential.

In addition, improvement in ROIC is being emphasized, along with optimization of capital and enhancement of non-financial capital. Investors should recognize that a flexible and proactive approach to these factors is required in pursuing sustainable corporate growth.

4. Overseas Expansion Risks

Overseas expansion is a key component of DKK’s growth strategy, offering significant opportunities while also entailing risks. In particular, in regions such as Vietnam and China where the Company has established operations, changes in laws, policies, or economic conditions may affect business operations and earnings. Delays in the progress of operations in Vietnam or the need for additional investment could place pressure on the Company’s overall cash flow and profit margins.

In addition to such external pressures, changes in trade policies and foreign exchange risks require the strengthening of risk management frameworks. To minimize the negative impact of overseas subsidiaries, it is essential to formulate and execute appropriate local strategies. In particular, strengthening supply chain resilience and diversifying local procurement can contribute to risk mitigation, necessitating thorough evaluation and planning.

Investors must assess how well the Company’s systems for managing overseas risks are developed and consider how these factors may impact overall growth. Sensitivity to changes in overseas markets and timely, appropriate management responses are especially critical.

5. Environmental, Social Awareness, and ESG Risks

In recent years, environmental (E), social (S), and governance (G) considerations have become increasingly important in corporate activities. At DKK, sustainability initiatives and environmental measures are incorporated into corporate strategy, and strengthening environmental regulations in particular can significantly affect investment decisions and production processes. Accordingly, appropriately assessing and managing ESG-related risks is a crucial element of sustainable corporate growth.

As market awareness of environmental issues increases and demand grows for sustainable products and manufacturing processes, there is also a risk of rising costs associated with capital investment and research and development. Achieving commercial success while reducing environmental impact requires an approach that places sustainability at the core of corporate strategy. Investors must understand these changes and make business judgments with an awareness of the relationship between sustainability and corporate value.

By continuously considering environmental and social responsibilities and seeking improved business models, companies can enhance long-term competitiveness—an important perspective for investors as well.

As competition in the business environment intensifies, improving performance requires a clear understanding of these business risks and the implementation of appropriate risk management measures. Closely monitoring changes in the environment and market trends, and assessing how the Company responds to new challenges, will be key to securing future growth strategies.

Investors should place importance on these perspectives and make strategic investment decisions with a long-term growth outlook. In particular, by evaluating the Company’s risk management capabilities and adaptability to market changes, investors can seek sustainable returns. As proactive approaches to improving business operations are increasingly required, the risk analysis presented in this chapter is expected to serve as valuable input for further consideration.