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Materials

AGC's profit seen surging 340% on Southeast Asian construction

Infrastructure boom propels Japanese company's recovery from COVID-19

An AGC plant in Thailand: demand for PVC is growing in Southeast Asia amid a flurry of infrastructure projects.

TOKYO -- Materials maker AGC is expected to have earned roughly 90 billion yen ($822 million) in group operating profit in the January-June half, logging around a 340% jump on the year largely driven by a rush of infrastructure projects in Southeast Asia.

Sales likely rose 24% to about 810 billion yen. The Tokyo-based company would outperform its profit and sales forecast, which was just upgraded in April, by 5 billion yen and 10 billion yen, as well as its performance in the first half of 2019, before the coronavirus spread across the world.

Much of the boost came from its chemicals segment, which accounts for a third of total sales. Demand for polyvinyl chloride, commonly used in such applications as water pipes and power cable coatings, grew thanks to Southeast Asian infrastructure development.

PVC prices have also surged up to about 30% in Southeast Asia since the start of 2021, providing further tailwinds to AGC. Key producers in the American South were forced to halt output in February by widespread power outages in Texas, squeezing supply.

The price of ethylene, a petrochemical used to make PVC, also rose as a global economic recovery from COVID-19 lifted oil prices. But PVC prices rose faster, expanding profits for AGC.

Prices of polypropylene glycol, used to make resin for construction and automobiles, were raised by 40 yen per kilogram, or more than 20%, in April. Demand for caustic soda, which is used to denitrate factory emissions, has also recovered as manufacturers ramp up their operations.

Overall, AGC has widened its operating profit margin in its chemicals segment from the 11% of 2020.

In addition, the company has since 2016 been making inroads into contract development and manufacturing of pharmaceuticals, which it sees potentially replacing display glass substrates as a growth driver. It has experienced a rise in coronavirus-related orders, including for materials used to produce the Pfizer vaccine, just as it had increased capacity through acquisitions and capital investments in Italy and Belgium.

In its electronics segment, AGC has enjoyed a roughly 50% year-on-year increase in sales of mask blanks for semiconductors made with cutting-edge extreme-ultraviolet technology.

Looking forward, automotive glass will likely be key to AGC's continued success. The company is one of the few capable of producing large, bendable pieces of glass for digital instrument panels. Trends in auto production and AGC's ability to win contracts for these types of profitable glass will impact its future earnings.

AGC's official January-June results are due out Aug. 2. The 25 billion yen in profit from the sale of a North American architectural glass unit, announced in June, will be booked in July-September results.

The company is expected to beat its full-year net profit forecast of 83 billion yen in 2021. Analysts see net profit jumping about 190% to 96.1 billion yen as sales increase 16% to 1.64 trillion yen, according to the QUICK Consensus survey.

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