Nippon Pillar Packing : Notice of Issuance of a Sponsored Research Report

	June 21, 2022
Company:	Nippon Pillar Packing Co., Ltd.
Representative:	Yoshinobu Iwanami, President
	(Securities code: 6490;
	Prime Market of the Tokyo
	Stock Exchange)
Contact	Katsuhiko Shukunami, Director
	and Senior Executive Officer
	(Telephone: [phone])

Notice of Issuance of a Sponsored Research Report

Nippon Pillar Packing Co., Ltd. (the "Company") is pleased to announce that the Company has released a sponsored research report in order to facilitate communication with our shareholders and investors, and to help deepen their understanding of the Company.

The research report was written by Capital Goods Research & Advisory Co., Ltd. The report does not carry any investment recommendation - it is solely prepared to provide an easy-to-understand explanation of the Company's business model, industry trends, performance trends, long-term business strategy, and other information that has already been made public. For details, please refer to the attached document.

	Corporate Report
	Prime Market-Machinery		Analyst in charge
	June 20, 2022
	Nippon Pillar Packing (6490)		Shinji Kuroda
				Hidehiko Hoshino CMA
				Capital Goods Research &
				Advisory

With semiconductors and decarbonization as the two main themes, there is great long-term growth potential

• Nippon Pillar Packing (hereinafter, the Company) has been mainly engaged in the electronic equipment business, which deals with fittings and bellows pumps made of fluororesin for semiconductor manufacturing equipment manufacturers and device manufacturers, and the industrial equipment business, which deals with mechanical seals, gland packing, gaskets, etc. that are built into pumps and valves, etc.
• In the fiscal year ended March 2022, both sales and profits increased significantly from a year earlier. Operating profit margin and ROE reached 28.0% and 16.8% respectively, hitting record highs for the first time in the past three years. In the fiscal year ending March 2023, the Company is expected to post a record operating profit as it did last year, despite concerns over soaring prices of parts and materials and procurement difficulties.
• The Company boasts a global market share of more than 90% in the market of fittings for semiconductor cleaning equipment, a bread-and-butter product of the Company's electronic equipment business, which accounts for 75% of its sales. In this segment, the Company achieved a high sales growth rate that is equivalent to those of major global manufacturers of semiconductor manufacturing equipment. At the same time, its operating profit margin reached 32% in the fiscal year ended March 2022, far exceeding the results of competitors: 24.0% of Entegris, a U.S. competitor; 29.9% of Tokyo Electron; and 31.3% of SMC, a company representing the machinery sector.
• In the industrial equipment business, in addition to the increase in sales of rotary joints for chemical mechanical polishing (CMP), sales in the repair business (excluding rotary joints), which are expected to produce stable revenue, account for almost half of the sales, and the operating profit margin was restored to 15.7% in the fiscal year ended March 2022. Furthermore, we are seeing new demand emerging toward decarbonization, such as an increase in ammonia co-firing- related transactions with power generation and energy businesses.
• The global semiconductor market is expected to double in 2030 compared with 2020, and the Ministry of Economy, Trade and Industry estimates that domestic investment related to decarbonization will reach 17 trillion yen per year in 2030. With its business performance in recent years having moved on to the next growth stage, the Company announced the construction of Fukuchiyama Plant #2 for the electronic equipment business to grow further. The 1st Building will start manufacturing in October 2023, and the production capacity is estimated to increase from the current level of about 36 billion yen to 65 billion yen. Furthermore, sites for the 2nd through 4th Buildings are also secured, and the production capacity is estimated to reach around 150 billion yen in the end. Backed by the augmented ESG management as well as semiconductors and decarbonization, the Company seems to have a large margin of growth in the long run.
• Before its 100th anniversary in 2024, the Company is planning to announce the three-yearmedium-term business plan for the next term in May 2023. Capital Goods research & Advisory (CGRA) expects that shareholder returns will be boosted and that the Company's stock valuation, which has remained relatively low, will be corrected going forward.

(Consolidated financial results and stock market data of Nippon Pillar Packing: 1 billion yen, JPY, %)

Trading data			Performance	18/3	19/3	20/3	21/3	22/3	23/3CoE
Stock price（June/17/2022）	JPY 2,717		Sales	29.5	31.0	29.2	30.2	40.7	44.0
52-weeks range	JPY 2,377~3,850		Operating profit	5.2	5.1	3.7	4.8	11.4	11.8
Market cap	JPY 68 billion		Ordinary profit	5.2	5.2	3.7	5.1	11.8	11.8
Number of outstanding shares	25.0 million shares		Net profit	3.4	3.7	2.6	3.4	8.3	8.3
Avarage trading value(20 days)	JPY 280 million		EPS	140.0	152.1	108.6	144.7	350.5	351.1
Company forecast PER	7.7 times		ROE	8.9	9.1	6.2	7.8	16.8	-
PBR(As of March 2022)	1.2 times		DPS	36.0	45.0	40.0	50.0	106.0	108.0
Company forecast DPS	JPY 108		Dividend payout ratio	25.7	29.6	36.8	34.6	30.3	30.8
Company forecast Dividend yield	4.0%		FCF	5	11	11	20	104	-
ROIC（March 2022）	15.9%		NetCash	115	118	115	117	209	-

June 20, 2022

- Table of Contents -

1. Three Noteworthy Points Regarding Nippon Pillar Packing: Pages 3 to 4
2. Changes from Previous Report: Pages 5 to 6
3. Highlights from the Results of the FY Ended March 2022: Pages 7 to 13
4. Forecast for the FY Ending March 2023 and Medium-term Business Plan:
   Pages 14 to 17
5. Comparison with Competitors and Analysis of Growth Potential and Profitability:
   Pages 18 to 20
6. Augmentation of ESG Management: Pages 21 to 22
7. Shareholder Returns and Stock Valuation: Pages 23 to 24
8. Consolidated Balance Sheet, Cash Flow Statement, Profit and Loss Statement:
   Pages 25 to 26

Nippon Pillar Packing (6490)

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(1) Three Noteworthy Points Regarding

Nippon Pillar Packing

Point 1: Semiconductor market to double in 2030 compared with 2020

A report issued by CGRA on November 17, 2021 mentioned WSTS's estimation that the global semiconductor market is expected to expand from about 400 billion U.S. dollars in 2020 to 1 trillion U.S. dollars in 2030. This is expected as the data processing volume will increase associated with the spread of CASE (Connected, Autonomous, Shared and Electric) in the automotive industry and IoT/ICT, and the progress of 5G, post-5G, and DX. That means the market size which has doubled over the last 20 years will double in the next 10 years. In addition, the report stated that Bloomberg NEF and other research providers made a prediction that investments in energy-related facilities would increase worldwide (from the current level of 1.7 trillion dollars to 3.3 to 5.8 trillion dollars) toward decarbonization as fuels will be shifted to hydrogen to achieve carbon neutrality by 2050. This time, the Company stated, in the documents for the briefing of financial results of the fiscal year ended March 2022, which were issued on May 26, that the global market of semiconductors and semiconductor manufacturing equipment would double in 2030 compared with 2020 and that new demand, such as ammonia- related demand, was likely to be created as the power source composition in Japan would change.

Point 2: Business size and profitability likely to shift

The Company is rolling out businesses in two segments: the electronic equipment business in which the mainstay is fittings for semiconductor manufacturing equipment, which account for over 90% in the world market share; and the industrial equipment business in which the main product is mechanical seals. Although about 75% of consolidated sales are dependent on capital investments made by semiconductor manufacturing equipment manufacturers and device manufacturers, the Company can also benefit from an increase in capital investment associated with energy transitions to hydrogen, ammonia, etc. As stated above, the market for semiconductors and their manufacturing equipment has doubled over the last 20 years, and is predicted to double over the 10 years to 2030. Under such circumstances, the Company has seen its sales double and operating profit grow about 3 times in the past 10 years, with profit levels and profit margins rising steadily while achieving record operating profit every 5 years. In the fiscal year ended March 2022, the Company hit record high financial results with sales of 40 billion yen, operating profit of more than 10 billion yen and an operating profit margin of 28%. CGRA considers that the expansion of the semiconductor market, development of new customers, introduction of new products, creation of new markets for decarbonization such as seals for the hydrogen and ammonia-related businesses, and the augmentation of ESG management will stimulate the Company's earnings performance. The performance may grow at a pace faster than the growth of the market, and this might cause a significant shift in its business size and profitability.

Point 3: Boost in shareholder returns expected ahead of the 100th anniversary

The numerical targets set in the three-yearmedium-term business plan "BTvision22" (fiscal year ended March 2021 to fiscal year ending March 2023), which is currently in progress, were achieved one year ahead of schedule. Therefore, the earnings estimated for the fiscal year ending March 2023 were set as the earnings target for the final year of the medium-term business plan. A new medium-term business plan for the next three years is planned to be announced in May 2023. The Company will celebrate its 100th anniversary in 2024. At present, the pledged dividend payout ratio is 30% or more, but the total payout, including stock repurchases, has increased for six consecutive years in real terms, including the forecast for the fiscal year ending March 2023. In addition, the average capitalization yield over the past three years, including stock repurchases, is an attractive one, marking 4.1%, and the dividend per share for the fiscal year end March 2023 is expected to be 108 yen (a dividend payout ratio of 30.8%), up 2 yen from last fiscal year. Going forward, earnings are expected to grow and ROE is likely to increase as capital policies such as stock repurchases will be taken. CGRA expects that shareholder returns will be boosted and that the stock valuation, which has remained relatively low, will be corrected during the period before and after the 100th anniversary in 2024.

June 20, 2022

"Semiconductors" and "decarbonization" are keywords over the medium to long term.

Performance is expected to grow faster than the growth rate of the market.

Continuous improvement in shareholder returns can be expected.

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June 20, 2022

Figure 1: Spur in capital investment in decarbonization field and high growth of semiconductor market can be expected

Prospects for capital investment in the decarbonization field in the global semiconductor market and energy field

Prospects for capital investment in the global energy field toward a decarbonized society

To between 3.3 trillion and 5.8 trillion dollars

The size of the semiconductor market has doubled in the past 20 years and is expected to double in the next 10 years.

To 1 trillion dollars

(100 million dollars)

Figure 2: Growth in the semiconductor market drives the Company's performance up

(Million yen)	Trend in semiconductor market and consolidated sales and	(100 million dollars)
	operating profit of Nippon Pillar Packing
	Semiconductor market prospects	Sales	Operating profit
	(right axis)

Figure 3: Continuous improvement in shareholder returns expected

(yen) Dividend per share, stock repurchase, dividend payout ratio and total payout ratio

Treasury stock acquisition	Dividend per share
amount per share
Dividend payout ratio	Total payout ratio
(right axis)	(right axis)

March	March	March	March	March	March	March	March	March	March	March	March 2023
2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	(Company forecast)

Source: Created by CGRA based on company materials

Semiconductor market to double in 2030 compared with 2020

The company has potential for growth over the long term with the semiconductor market as a leading indicator.

Expectations are placed on continuous increase in shareholder returns including stock repurchases.

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