AI demand and improving orders drove Nippon Chemi-Con's first-quarter results slightly above expectations

Overview

This report compares the first-quarter operating performance of Nippon Chemi-Con (6997) and Nichicon (6996), focusing on aluminum electrolytic capacitor sales, end-application mix, and order momentum. Nippon Chemi-Con achieved solid growth in revenue and operating profit, with profit slightly exceeding expectations, and high-growth applications such as AI servers becoming the main drivers; Nichicon's overall sales also increased quarter on quarter, but trends across end applications differed markedly from Nippon Chemi-Con.

Core views

Nippon Chemi-Con's first-quarter results represented a solid start. Although material cost increases were higher than expected, sales growth, cost reductions, and yen depreciation offset the negative impact, with operating profit reaching ¥1.67bn and already achieving more than half of the first-half operating profit target of ¥3.0bn. Its AI server, automotive, industrial equipment, and new energy businesses grew quarter on quarter, while home appliances and non-AI server information and communications businesses declined, suggesting that the company may be prioritizing supply of longer capacitors required for AI applications. By contrast, Nichicon's information technology and home appliance applications grew faster, but automotive, industrial equipment, and power supply applications weakened, indicating that current demand improvement reflects differences by company and application mix more than a broad synchronized recovery.

Analysis framework

The report assesses the two companies' earnings quality, demand strength, and changes in product allocation by comparing quarterly results with institutional forecasts and market consensus, breaking down year-on-year and quarter-on-quarter growth, comparing end-application mix, and tracking the book-to-bill ratio.

Methodology notes

• Earnings analysisExpectation gap analysis

  Compare actual operating profit with institutional forecasts and market consensus

  Nippon Chemi-Con's first-quarter operating profit was ¥1.67bn, above J.P. Morgan's forecast of ¥1.48bn and market consensus of ¥1.49bn, so the report gives a slightly positive assessment of the results.

• Growth analysisYear-on-year and quarter-on-quarter breakdown

  Identify sources of growth by combining year-on-year trends and quarterly momentum

  The report compares the year-on-year and quarter-on-quarter growth rates of overall aluminum electrolytic capacitor sales and major application areas to distinguish industry growth, seasonal factors, and changes in product mix.

• Demand analysisBook-to-bill ratio

  Assess subsequent demand momentum through the ratio of orders to shipments

  Nippon Chemi-Con's book-to-bill ratio for aluminum electrolytic capacitors rose from 1.3 to 1.4, meaning new orders continued to exceed current-period shipments and demand visibility improved.

• Peer comparisonEnd-application mix comparison

  Compare sales changes for the two companies in the same application markets

  The report highlights that the two companies showed opposite quarter-on-quarter directions in automotive and industrial equipment applications, suggesting differences in product mix, customer structure, and supply allocation.

Asset mapping & comparison

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

• Nippon Chemi-Con (6997)

  Core covered company, first-quarter results slightly exceeded expectations

  Strengths

  Strong growth in AI server, automotive, industrial equipment, and new energy applications; book-to-bill ratio rose to 1.4; sales growth, cost reductions, and yen depreciation offset material cost pressure.

  Weaknesses

  Sales in home appliances and non-AI server information and communications applications declined significantly, and material cost increases were higher than expected.

  Comparison

  Aluminum electrolytic capacitor sales increased 5% quarter on quarter, slightly higher than Nichicon's 4%; momentum in automotive and industrial equipment applications was significantly stronger than Nichicon's.

  Risks

  Continued rise in material costs, yen appreciation weakening FX benefits, changes in AI demand or supply priority, and sustained weakness in traditional application demand.

• Nichicon (6996)

  Peer comparison company, aluminum electrolytic capacitor sales grew moderately

  Strengths

  Information technology applications grew 38% quarter on quarter, home appliance applications grew 17% quarter on quarter, and overall aluminum electrolytic capacitor sales increased 4% quarter on quarter.

  Weaknesses

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

  Comparison

  Overall sales momentum was close to Nippon Chemi-Con's, but the end-market structure was opposite, with automotive and industrial equipment applications clearly lagging.

  Risks

  Continued weakness in automotive and industrial demand, unfavorable product mix, and excessive reliance on information technology and home appliance applications for growth.

Key data

• Nippon Chemi-Con first-quarter sales¥37.99bnThe report described sales performance as strong.
• Nippon Chemi-Con first-quarter operating profit¥1.67bnAbove J.P. Morgan's forecast of ¥1.48bn and market consensus of ¥1.49bn.
• Progress toward first-half operating profit targetMore than 50%The company maintained its first-half operating profit target of ¥3.0bn and full-year guidance.
• Nippon Chemi-Con aluminum electrolytic capacitor sales¥33.6bnUp 23% year on year and 5% quarter on quarter.
• Nippon Chemi-Con book-to-bill ratio1.4It was 1.3 in the previous quarter.
• Nippon Chemi-Con major applications quarter-on-quarter changesAI servers +8%, automobiles +20%, industrial equipment +22%, new energy +44%Home appliances declined 35%, and non-AI server information and communications applications declined 5%.
• Nichicon aluminum electrolytic capacitor sales quarter-on-quarter change+4%Broadly close to Nippon Chemi-Con's 5% quarter-on-quarter growth.
• Nichicon major applications quarter-on-quarter changesInformation technology +38%, home appliances +17%Automobiles declined 9%, electrical and industrial equipment declined 12%, and power supplies declined 15%.

Impact & implications

The results reinforced the pull from AI server demand for high-specification aluminum electrolytic capacitors, and Nippon Chemi-Con may benefit from this trend through prioritized capacity and supply allocation. The rise in the book-to-bill ratio is also favorable for subsequent revenue visibility. However, traditional home appliances, non-AI information and communications, and some of Nichicon's industrial applications remain weak, so investors should not directly interpret improvement at a single company as a comprehensive industry-wide recovery. Differences in application mix between companies may continue to drive divergence in revenue growth and margin performance.

Risks

• Raw material costs may continue to rise more than expected, potentially compressing operating margins.
• Adverse movements in the yen exchange rate may weaken the FX support reflected this quarter.
• AI server demand, customer capital expenditure, or supply priority for related capacitors may change.
• Home appliance and non-AI information and communications applications may remain weak, dragging down overall industry growth.
• Divergence in end-application trends between the two companies suggests the industry recovery may be weaker than suggested by headline sales growth.
• The report did not provide new stock ratings, target prices, or complete valuation conclusions.

What to watch

• Whether Nippon Chemi-Con can achieve its first-half operating profit target of ¥3.0bn and full-year guidance.
• Whether the book-to-bill ratio for aluminum electrolytic capacitors can remain at 1.4 or rise further.
• Demand, capacity allocation, and supply pace for elongated capacitors used in AI servers.
• The net impact of raw material costs, cost-reduction efforts, and the yen exchange rate on margins.
• Subsequent quarterly sales changes in automotive, industrial equipment, new energy, and home appliance applications.
• Whether Nichicon's automotive, industrial equipment, and power supply applications can resume growth.