Investing in Japan: Toray Industries grabs the world market share with its advanced technology

COVID-19 dented Toray’s profit

Toray Industries, Inc. is a manufacturer of fibers and textiles, performance chemicals, carbon fiber composite materials and life science products etc. The company is headquartered in Tokyo, but it also has many business bases in the Chubu region such as Aichi, Ishikawa and Gifu prefectures. 

Due to the spread of the new coronavirus, Toray is in a difficult situation facing a sharp decrease in demand for aircraft-related business whose sales account for a little shy of half of the company’s sales. Toray is the largest player in the global carbon fiber market with almost 50% share. It manufactures both high-performance products and general-purpose products boasting remarkably high competitiveness and technology. 

However, sales for the fiscal year ending March 31, 2020 decreased 7.3% to 2,214.6 billion yen from the previous year. Falling Production and sales of aircrafts and automobiles are the main reasons for the stagnating sales. With the rise of Chinese and Korean manufacturers, competition to cut price and improve quality has intensified. Increasing raw material prices also affected its profits. 

Net income was 55.7 billion yen, a hefty decrease of 30% from the previous year. As for the fiscal year ending March 2021, business profit is expected to fall into the deficit. Production cut by Boeing Co. of its medium-sized aircraft, 787, will have a severe impact on the Toray’s business. 

Toray exclusively supplies carbon fiber composite materials for the main parts of Boing’s aircrafts, including the 787's main wing and fuselage. About 45% of Toray's carbon fiber sales in the fiscal year ended March 2020 were brought by aerospace applications. The carbon fiber composite material used in 787 is more than three times as much as the large passenger aircraft 777, occupying the majority of company’s aerospace applications.

Toray diversifies growth strategy besides aerospace business

To cope with the latest economic conjuncture, Toray intends to pursue new growth fields such as wind power plants and fuel cell vehicles. Electricity generated by wind power plants is expected to grow by 8% per year to 2028, with successive offshore developments planned in several countries. Demand for carbon fiber used for wind turbine blades is expected to increase about 40% by 2022 compared to 2019. 

Toray will also preferentially invest development resources for hydrogen storage tanks used in fuel cell vehicles. Demand for carbon fibers used in fuel cell vehicles is expected to increase more than double in 2022 compared to 2019. The company aims to utilize resources spared amid sharp decrease in aircraft production to promote new growth strategies.  

Although its carbon fiber business is facing tough business condition at the moment, Toray has an optimistic outlook for medium- to long-term growth. Demand for carbon fiber as a whole is expected to grow at an annual rate of 8% to 2030, doubling the demand compared to that of 2019. 

With regard to recent business results, there is a silver lining expected in the second half of October 2020 to March 2021 with profit reduction rate curtailed to about 17%. Toray expects its functional chemical products division, which produces organic EL-related materials and semiconductor materials, will increase profits and the progress of the next generation communication network “5G” will also be tail wind for the company. 

Although Toray's stock price has fallen sharply in the Tokyo stock market since March 2020, investors believe that will eventually recover thanks to Toray's competitiveness and outstanding technology. Japanese media have reported some investors’ view forecasting the stock price may rise to around 700 yen if economic activity recovers from COVID-19 malaise.