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Asahi Kasei forges ahead toward record $1.8bn profit

Tight market for petrochemicals boosts margins

Asahi Kasei is on track to post a record operating profit for the fiscal year ending March 2019.

TOKYO -- Japanese chemical company Asahi Kasei is on track to reap a operating profit of more than 200 billion yen ($1.78 billion) for the first time ever this fiscal year, thanks in large part to the rising price of a key petrochemical used in plastics and fibers.

The profit would mark a 1% increase on the year, a turnaround from the 4% decline to 190 billion yen that the company had predicted. Sales for the year ending March 2019 are expected to rise 8% to just over 2.2 trillion yen, beating projections by about 45 billion yen.

The company is expected to upgrade its full-year guidance when it releases its first-half results on Nov. 2.

Acrylonitrile, used to make acrylic and carbon fibers, is the main driver behind its boost. Demand for the product is brisk, even as stricter environmental regulations in China has reduced supply. The international price of the material jumped 30% on the year to around $2,100 per ton in the April-September half. The supply is not expected to increase much in the second half, making a significant price drop unlikely.

Separators used in lithium-ion batteries for electric vehicles and smartphones also have been selling well. And U.S. medical equipment unit Zoll Medical has been increasing sales of automated external defibrillators.

The softer yen is also helping Asahi Kasei, since it gets a roughly 1 billion yen boost in annual operating profit when the currency weakens 1 yen to the dollar. The company had assumed an exchange rate of 105 yen per dollar for fiscal 2018. But the yen traded for about 110 per dollar in the first half, meaning Asahi Kasei may get a 5 billion yen lift in annual profit if the rate remains at this level for the rest of the year.

Meanwhile, the company's domestic drug business is set to sustain a 500 million yen drop in profit for the year, as the April revision in government-set drug prices takes its toll and as competition erodes margins on generics.

Asahi Kasei's operating profit for the April-September half is expected to have risen 8%, surpassing the 100 billion yen mark for the first time for this six-month period. Sales look to have been in line with the predicted 8% growth to 1.04 trillion yen.

Asahi Kasei's stock is up 2% from the end of 2017, while other big Japanese chemical companies have declined more than 20% on concerns that higher oil prices will boost materials costs. Past business acquisitions like the 2012 purchase of Zoll Medical appear to be assuring investors of future growth potential.

For the time being, the U.S.-China trade friction and worries of a slowdown in the Chinese economy have not had a significant impact on Asahi Kasei's offerings.

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