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An 84-year old Japanese chemical company once known for its fertilisers, is now a key input for cutting-edge sectors. Resonac is expanding in the US as its materials become increasingly important in the chip and electric car industries. Momentum is in its favour.
Resonac, formerly Showa Denko, will set up a research and development centre for advanced chip packaging and materials in Silicon Valley. It bet early on the chip sector, turbocharging production of gases used in semiconductor production a decade ago.
Last year, semiconductor and electronic materials made up three-quarters of the group’s pre-tax operating profits.
Its US expansion timing is good. America has just launched a $3bn programme to stimulate its chip-packaging industry, vital for manufacturing cutting-edge chips. New processes package several chips together in a densely interconnected three-dimensional format, enabling faster and more energy-efficient semiconductors.
Resonac is a world leader in the making of etching gas, required to wash out foreign substances in the manufacturing process. It is also a key supplier of materials used in power chips — which control the electricity sent through electric cars. Resonac’s materials, which help extend driving distance by as much as a tenth, account for a quarter of the global market.
Shares are up a third this year reflecting their growing importance in the chip sector. Though not cheap on earnings measures, Resonac trades on a lowly multiple of one times forward sales on an enterprise value basis. Compare that with local peer Shin-Etsu Chemical, which makes silicon wafers, on three times that figure.
Resonac’s products may lack the glamour of other areas of the industry. But its growth is notable. Chip chemicals sales are expected to double over the next five years. Even then, at just $22bn, it would make up a small fraction of the entire chip industry. Demand for Resonac’s products should only expand long term.
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