Nippon Chemi-Con Q1 slightly beat expectations, with growth driven by AI and industrial demand

Overview

The report compares the Q1 operating performance of Nippon Chemi-Con and Nichicon, focusing on aluminum electrolytic capacitor sales, end-application mix, and order trends. Nippon Chemi-Con's sales and operating profit were solid, with operating profit slightly exceeding expectations; strong sales, cost reductions, and yen depreciation offset a larger-than-expected increase in material costs. Both companies achieved quarter-over-quarter growth in aluminum electrolytic capacitor sales, but the growth directions across different end applications differed significantly.

Core views

Nippon Chemi-Con's Q1 performance was slightly positive: earnings exceeded expectations, progress toward the first-half target was over 50%, and the order-to-shipment ratio rose to 1.4. Growth mainly came from AI server, automotive, industrial equipment, and new energy applications, while home appliances and non-AI information and communications technology applications were under pressure. The report speculates that the company may be prioritizing the supply of elongated capacitors to AI applications. Nichicon's growth was more concentrated in information technology and home appliance applications, while its automotive, electrical and industrial equipment, and power supply applications declined quarter over quarter. As a result, the two companies' operating momentum in automotive and industrial demand diverged markedly.

Analysis framework

The report uses comparisons of actual results with institutional forecasts and market consensus expectations, year-over-year and quarter-over-quarter growth analysis, end-application breakdowns, and order-to-shipment ratio tracking to assess earnings quality, demand structure, and short-term order momentum, while horizontally comparing changes in the application mix of Nippon Chemi-Con and Nichicon.

Methodology notes

• Performance analysisActual-versus-expectations variance analysis

  Compare actual operating profit with institutional forecasts and market consensus expectations

  Nippon Chemi-Con's Q1 operating profit was ¥1.67 billion, above JPMorgan's forecast of ¥1.48 billion and the Bloomberg consensus estimate of ¥1.49 billion, supporting the judgment that results slightly exceeded expectations.

• Trend analysisYear-over-year and quarter-over-quarter growth analysis

  Measure medium-term growth and short-term operating momentum separately

  The report breaks down overall aluminum electrolytic capacitor sales and sales by end application on a year-over-year and quarter-over-quarter basis to identify sources of growth and demand divergence.

• Order analysisOrder-to-shipment ratio analysis

  Assess near-term demand strength through the relationship between orders and shipments

  Nippon Chemi-Con's aluminum electrolytic capacitor order-to-shipment ratio rose from 1.3 in the previous quarter to 1.4, indicating that new orders remain strong relative to shipments.

• Peer comparisonEnd-application mix comparison

  Compare the sales momentum of the two companies across different application fields

  The report finds that the two companies' total aluminum electrolytic capacitor sales grew by similar amounts quarter over quarter, but trends in sub-applications such as automobiles, industrial equipment, home appliances, and information technology differed markedly.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nippon Chemi-Con (6997.T)

  Core research company

  Strengths

  Q1 operating profit slightly exceeded expectations; AI server, automotive, industrial equipment, and new energy applications grew strongly; the order-to-shipment ratio rose to 1.4; cost reductions and yen depreciation offset some cost pressure.

  Weaknesses

  Home appliance sales declined 35% quarter over quarter, non-AI information and communications technology sales declined 5% quarter over quarter, and material cost increases were higher than expected.

  Comparison

  Aluminum electrolytic capacitor sales grew 5% quarter over quarter, slightly above Nichicon's 4%; automotive and industrial equipment applications were significantly stronger than Nichicon's.

  Risks

  Continued increases in material costs, weak demand in traditional applications, customer and end-market concentration risks from supply tilting toward AI applications, and failure to maintain current order momentum in subsequent quarters.

• Nichicon (6996.T)

  Peer comparison company

  Strengths

  Aluminum electrolytic capacitor sales grew 4% quarter over quarter, information technology applications grew 38% quarter over quarter, and home appliance applications grew 17% quarter over quarter.

  Weaknesses

  Automotive applications declined 9% quarter over quarter, electrical and industrial equipment applications declined 12%, and power supply applications declined 15%.

  Comparison

  The total sales quarter-over-quarter trend was close to Nippon Chemi-Con's, but automotive and industrial equipment momentum was weaker, and growth was more dependent on information technology and home appliance applications.

  Risks

  Continued weakness in automotive, industrial equipment, and power supply demand, as well as changes in the application mix causing growth and earnings performance to lag peers.

Key data

• Nippon Chemi-Con Q1 sales¥37.99 billionCompany-wide sales.
• Nippon Chemi-Con Q1 operating profit¥1.67 billionAbove JPMorgan's forecast of ¥1.48 billion and the Bloomberg consensus estimate of ¥1.49 billion.
• First-half operating profit target¥3.0 billionQ1 progress has already exceeded 50%, and the company maintained its full-year guidance.
• Nippon Chemi-Con aluminum electrolytic capacitor sales¥33.6 billionUp 23% year over year and 5% quarter over quarter.
• Aluminum electrolytic capacitor order-to-shipment ratio1.4It was 1.3 in the previous quarter.
• Nippon Chemi-Con AI server application salesUp 8% quarter over quarterPerformance was broadly in line with company guidance.
• Nippon Chemi-Con automotive application salesUp 20% quarter over quarterContrasts with Nichicon's 9% quarter-over-quarter decline in automotive applications.
• Nippon Chemi-Con industrial equipment application salesUp 22% quarter over quarterContrasts with Nichicon's 12% quarter-over-quarter decline in electrical and industrial equipment applications.
• Nippon Chemi-Con new energy application salesUp 44% quarter over quarterThe field with the highest quarter-over-quarter growth among the major applications.
• Nippon Chemi-Con home appliance application salesDown 35% quarter over quarterThe report speculates that the company may be prioritizing supply of elongated capacitors needed for AI applications.
• Nichicon aluminum electrolytic capacitor salesUp 4% quarter over quarterThe overall trend was close to Nippon Chemi-Con's 5% quarter-over-quarter growth.
• Nichicon information technology application salesUp 38% quarter over quarterOne of Nichicon's strongest-performing major applications.

Impact & implications

Demand from AI servers, industrial equipment, and new energy is becoming an important growth driver for Nippon Chemi-Con's aluminum electrolytic capacitor business, and the rise in the order-to-shipment ratio also supports near-term revenue momentum. If products and capacity continue to tilt toward high-growth AI applications, the product mix may improve further, but demand for traditional home appliances and non-AI information and communications technology may remain under pressure. The two companies have different end-application mixes, meaning that even if overall industry sales trends are similar, their earnings elasticity and cycle sensitivity may differ significantly.

Risks

• Raw material cost increases continue to exceed company expectations, eroding room for profit improvement.
• Demand for home appliances and non-AI information and communications technology remains weak, dragging on the sales mix.
• AI server demand or order growth may slow, reducing the contribution from current high-growth applications.
• Adverse movements in the yen exchange rate may weaken the profit support provided by foreign exchange in the current period.
• Although the company maintained its full-year guidance, if orders, shipments, or cost reductions fall short of expectations in subsequent quarters, execution risk remains for achieving the full-year target.
• The two companies' end-application mixes differ substantially, so improvement in industry-wide volumes may not necessarily translate into earnings growth for individual stocks at the same pace.

What to watch

• Whether Nippon Chemi-Con's aluminum electrolytic capacitor order-to-shipment ratio can remain at 1.4 or rise further.
• Orders, capacity allocation, and sales growth for elongated capacitors used in AI servers.
• Whether quarter-over-quarter growth in automotive, industrial equipment, and new energy applications can continue.
• When home appliance and non-AI information and communications technology applications will stabilize.
• The net impact of material costs, cost-reduction measures, and the yen exchange rate on the operating margin.
• Progress toward the first-half operating profit target of ¥3.0 billion and full-year earnings guidance.
• Whether demand recovery emerges in Nichicon's automotive, electrical and industrial equipment, and power supply applications.