Condensed Transcript of Q&A Session at MGC’s FY2024 1Q Results Briefing
Date/time: August 7, 2024 (Wednesday) 18:00-19:00 am (webcast)
Presenter:
Motoyasu Kitagawa, Director, Managing Executive Officer, responsible for Corporate Planning and in
charge of CSR & IR Division(Note about this transcript)
This document has been translated from the Japanese original for reference purpose only. In the event of any discrepancy between
this translated document and the Japanese original, the original shall prevail.
This transcript was edited for clarity and brevity at the Company’s discretion. Additionally, forward-looking statements, including
plans and targets, contained herein, like those in the briefing’s presentation materials, are judgments based on information in theCompany’s possession as of the briefing’s date and certain assumptions deemed reasonable by the Company. Forward-looking
statements involve uncertainty. Actual outcomes may differ substantially from such forward-looking statements as a result of variousfactors.

Q1: With regard to quarterly trends in segment profit, Specialty Chemicals has reported a dramaticimprovement, increasing by \4.5 billion from 4Q of last fiscal year to 1Q of this fiscal year. On the other
hand, from 1Q to 2Q you are forecasting a decrease of \3.0 billion. Could you explain trends for the main
products and businesses?
A1: From 4Q to 1Q, sales of optical polymer increased, and sales of electronic chemicals, polyacetal(POM), and others increased due to a general recovery in demand. BT materials were level with 4Q due
to a delay in demand recovery for certain applications. From 1Q to 2Q, we expect to see a deterioration inprofitability of polycarbonate (PC) and POM, as well as a difference due to regular maintenance, resulting
in a decrease in operating profit. On the other hand, for BT materials and OPE, we expect an increase inprofit due to a continued increase in sales.
Q2: I would like to ask about the three ICT businesses that are expected to grow under the medium-term
management plan: electronic chemicals, optical materials, and electronic materials. I understand that thetrend in BT materials and OPE for AI servers and demand for electronic materials have yet to fully
recover. Can you provide any supplementary information about regional strength and weakness and soforth, such as the effect of the mix and the effect of the price increase of hybrid chemicals for highbandwidth memory (HBM)?
A2: We saw a recovery in BT materials from 1Q, but expectations within the industry were for a fullrecovery from July onward. In the end, 1Q results were about level with 4Q. There has not been a majordecline from 4Q. For 2Q and 2H, we see the newly revised 1H forecast as being highly probable basedon the status of orders. For electronic chemicals, in 1Q we were able to confirm a recovery undertone forthe overall semiconductor market. Led by fields such as smartphones and AI servers, overall profit
increased from 4Q. In South Korea, especially, we saw brisk shipments of chemicals for HBM, used in AI
servers, as you pointed out. In Japan, a new fab started up in Kyushu, and shipments of super-purehydrogen peroxide from the Company have been proceeding smoothly. On the other hand, our subsidiaryin the United States continues to experience a slump, and we haven’t seen many signs that customers’
activity is increasing.
Q3: The profit base for electronic chemicals appears to have risen substantially. Can we take it that thislevel can be sustained with price revisions and product mix improvements? OPE does not seem to havechanged much QoQ. Will it achieve high growth YoY?
A3: For electronic chemicals, more than price revision, the causal factors are an increase in sales of what
we call hybrid chemicals for HBM and other applications in South Korea, and an improvement in theproduct mix compared to our previous mix based on super-pure hydrogen peroxide. For OPE, weexplained last time that our initial forecast was somewhat conservative, and it has performed well in 1Q
also.
Q4: In that case, can we assume that OPE has been revised upward?
1A4: It was not a major forecast revision, but yes.
Q5: Regarding unprofitable businesses, particularly the xylene separators and derivatives business,
which is classified as a business requiring intensive management under the medium-term management
plan, I don’t think the situation had changed yet in 1Q, but at the foreign exchange rate level in 1Q, even if
the market conditions for purified isophthalic acid (PIA) were that bad, xylene separators and derivatives
were not performing so badly. Can we take that as the reason why the aromatic chemicals segment
achieved the same level of operating profit year on year, despite the deconsolidation of JSP? Also, if thisis sustainable, then I think we can expect the ordinary profit margin against net sales to exceed 10%
consistently in the aromatic chemicals segment in three years’ time due to the reduction in meta-xylene
used for PIA and so forth following an improvement in market conditions and diversification of its
applications. What do you think?
A5: For PIA, we are taking a breather for a short while. The competitive environment is as harsh as ever,
and we have to admit that in the final analysis, PIA is not sustainable. We still plan to follow the direction
explained in the medium-term management plan of growing the derivatives business and downsizing thePIA business when we deem that its role has finished. We are not yet able to project the timeline for this,but we are firmly committed to evolving the aromatic chemicals into high-value-added chemicals.
Q6: I am sure you are staying firmly in line with your policy. But is it correct to understand that at theforeign exchange rate level seen in 1Q PIA is not performing so badly? We are also expecting to see
expansion of derivative products and expansion of external sales of meta-xylene, and so forth.
A6: Unfortunately, that is not the case, and even with the exchange rate levels seen in 1Q, PIA was notable to eliminate its losses. Although the losses have narrowed to the verge of profitability, they areexpected to remain for the whole year when we consider the burden of periodic maintenance costs andother factors.
Q7: Could you please provide some details on the background to the sharp increase in 1Q profit for theformer Specialty Chemicals segment, and the 2Q forecast for a QoQ decrease in profit?
A7: 1Q results were an increase of \4.2 billion from 4Q of the previous fiscal year, mainly reflecting theeffect of an increase in profit of about the same amount in optical polymer and POM in Thailand. In otherbusinesses, there was virtually no deterioration. For example, our PC subsidiary in China continued to befirmly profitable. On the other hand, one of the factors for the decrease in profits from 1Q to 2Q is adifference due to regular maintenance. Also, for the optical polymer, we received an extremely large
amount of orders in 1Q, but this is expected to subside in 2Q. For POM in Thailand, we also expect adecrease in profits due to increases in fixed costs and high transport costs, coupled with a fall in prices
and other factors. In addition, Our PC subsidiary, Mitsubishi Engineering-Plastics Corporation, is also
expected to see a decrease as profits are weighed down by several factors.
Q8: Are shipments of optical polymer already beginning to soften?
A8: For the time being, we believe they can maintain their briskness. It is a product that hascomparatively high variance in monthly volume, and while we think that 2Q will probably not reach thelevel of 1Q, we would want you to understand that our forecast is made amid stable orders with none of
the massive inventory stockpiling activities of the kind that we have seen in the past.
Q9: 2Q profit for inorganic chemicals is also forecast to decrease from 1Q. Is this due to increase in fixedcosts and so forth?
A9: Part of the reason for the forecast decrease is the overlap of regular maintenance at our three plants
in Japan associated with inorganic chemicals (Kashima, Yamakita, Yokkaichi). However, on the sale front
we are actually expecting a recovery in 2Q and 2H, so we are not overly concerned.

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Q10. With regard to electronic chemicals, you mentioned that hybrid chemicals have performed well in
1Q, and that regular maintenance will be concentrated in 2Q, but could you please provide an outlook for2H? With regard to the timing of regular maintenance at large plants in the United States and South
Korea, and the improvement in the sales mix, is this only due to hybrid chemicals, or are there otherproducts that are expected to have a beneficial effect? Please explain in more detail about your forecast
for 2H.
A10: Compared to our previous forecast, we expect an increase in profit for electronic chemicals in 2H.
There is some regional variation in demand, with weak demand expected in the United States, but strong
demand in South Korea. With regard to regular maintenance, at plants that manufacture only super-purehydrogen peroxide, super-pure ammonium hydroxide, and hybrid chemicals, the cost burden is not large.
But at Kashima and Yokkaichi, there is a certain cost burden for regular maintenance as they also
manufacture other products. For the improvement in the product mix, the change in weighting for hybrid
chemicals and super-pure hydrogen peroxide is significant.
Q11: Could you please explain about the growth in optical polymer in 1Q?
A11: Optical polymer increased both YoY and QoQ. With the YoY result in particular, due to a sharp dropin the previous fiscal year, the growth on a volume basis has been almost double. The factors behind thisbrisk sales performance were increasing functionality of cameras with higher resolution and increased
size of CMOS sensors, which led to an increase in orders for grades with higher functionality.
Q12: Can we understand that optical polymer made a substantial contribution to the increase in profits for
the Specialty Chemicals segment in 1Q?
A12: Looking at the YoY result, the former Specialty Chemicals segment recorded an increase in profit of\6.7 billion, and optical polymer in particular contributed substantially. QoQ, brisk performance of POM in
Thailand and inorganic chemicals was a factor, but the contribution of optical polymer was alsosignificant.
Q13: Could you explain the growth of optical polymer in the updated forecast, both for 1H and the fullyear?
A13: The updated 1H forecast includes the 1Q results, and has increased compared to the previousforecast. After adding the amount of this increase, we are expecting higher profits for the full year.
However, the reason why the increase in profit for the Specialty Chemicals segment overall is not solarge is that we expect a negative impact from the PC business. We in the management team are keenly
aware of the gap between the U&P businesses and other businesses.
Q14: With regard to OPE, you had quite a conservative tone until 4Q of the previous fiscal year. With thisupdate, I understood your comments were stronger. Is that because your assumptions were moreconservative in 4Q of the previous fiscal year, or because the actual status of the business in 1Q of thisfiscal year was stronger than you had anticipated? Please summarize the background to this.
A14: Looking only at the results for 1Q, we may have been a little conservative. However, there is anelement of uncertainty in 2Q and 2H, so we have not revised our initial forecast. The performance will
also depend on the competition between motherboard manufacturers who use our materials. OPE also
has a different value chain structure to BT materials, and we are looking carefully at that as well.
Q15: Could you tell us the YoY and QoQ change in OPE’s 1Q net sales for this fiscal year?
A15: YoY, sales were up by around 30%, and QoQ there was not much change.
Q16: I understand that electronic chemicals are expected to continue a recovery trend from 4Q of theprevious fiscal year, through to 1Q and 2Q of this fiscal year. Could you provide more explanation about
how the sales trend appears in each region?
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A16: First, in Japan we have commenced sales for a new fab of a semiconductor manufacturer, and weare also proceeding with discussions including increasing production capacity in preparation for a planned
increase in new fabs going forward, so we believe we can expect further growth. In South Korea, evenunder the poor market conditions for semiconductors to date, we secured a certain level of demand forsuper-pure hydrogen peroxide. However, recently we have also had demand for hybrid chemicals for
HBM, and we expect this firm demand to continue. In North America, our major customers haveexperienced a downturn, but we will compensate for this by diversifying our customers, as we havefielded inquiries from other companies to supply fabs that they are planning in North America.
Q17: With regard to electronic chemicals in South Korea, what is behind the emerging need for yourhybrid chemicals to be used in HBM as opposed to the usual DDR5?
A17: Without going into details, development of advanced packaging materials called WLP has grown
active in post processing as well, and an area is emerging that fuses post processing and pre-processing.
Since we have a previous track record in supplying chemicals for both processes, we see this new
development as a business opportunity.
Q18: You appear to be expecting a significant increase in profit related to inorganic chemicals this fiscal
year. Can we understand that this will have a considerable impact on increasing profits in hybrid
chemicals?
A18: That’s right. Actually, it is making up for a slump in sales for North America, where demand has
remained weak. With a sizable numerical target in the medium-term management plan, we are gratefulthat new demand for South Korea and other areas is growing.
Q19: Doesn’t it see that equity in earnings of affiliates could have been a little higher given the market
conditions for methanol? I think there must be some foreign exchange loss due to the yen’s depreciation
with respect to the JV in Saudi Arabia. Could you tell us the amount of that loss, and describe theoperating status of each plant?
A19: We do not disclose figures by site. However, there is some variation and Japan Saudi Arabia
Methanol Company, Inc., which has invested in AR-RAZI, has recorded foreign exchange losses on
foreign currency-denominated obligations due to the yen’s depreciation, as you have surmised, and thatis the reason for recording a negative impact in equity in earnings of affiliates again this time. I cannot
provide the specific amount of the loss, but for 1Q it is several hundred million yen. We recorded profits in
Venezuela and Brunei, but these were cancelled out across the total for all four JVs, and the final result is
not the level of profit that we have seen in the past.

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