Shares of Toto Ltd. surged 18% on Friday to a five-year high after the company unveiled plans to scale up semiconductor component production and reported record annual profits, underscoring its transformation into an unlikely artificial intelligence play.
The stock closed at ¥6,425 ($40.86), its highest level since 2021, taking gains for the year to over 46%.
Best known globally for its bidet washlets, Toto has quietly built a strong presence in advanced ceramics and is now the world's second-largest producer of electrostatic chucks used in NAND memory chip manufacturing.
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The division has drawn attention from activist investor Palliser Capital, which took a stake in February and has pushed the company to highlight and expand the high-margin business.
Surging demand for semiconductor components, with sales up 34% year-on-year, has driven the unit to contribute more than half of Toto's operating profit. Overall operating profit rose 11% to ¥53.8 billion for the year ended March.
Riding the AI-driven chip boom, the company expects sales from the segment to grow 27% in the coming year. It has committed to investing ¥30 billion to expand mass production capacity and ramp up research and development by the end of FY2028.
Toto's pivot mirrors a broader trend among Japanese manufacturers capitalising on the AI supply chain. Flash memory maker Kioxia Holdings has seen its valuation surge past Sony Group, while Kao Corporation has entered chip-cleaning production and Ajinomoto is investing over ¥25 billion to expand output of insulating films used in motherboards.
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Despite the rally, risks remain. Toto's core bathroom fittings business has been hit by supply disruptions linked to Middle East energy volatility, affecting availability of plastics and adhesives. The company temporarily halted new orders for prefabricated baths in April, and contractors in Japan continue to face shortages.
Toto said it expects geopolitical risks to ease from July, factoring in a ¥7 billion hit from the disruptions.
Analysts, however, remain cautious. “Profit guidance gets a passing grade,” said Citi analyst Masashi Miki.
“Although Middle East assumptions carry some downside risks.”
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