DIC stock rating downgraded to Neutral by Nomura on pigment inventory concerns

Nomura/Instinet downgraded DIC Corp (TYO:4631) from Buy to Neutral, maintaining its JPY3,700 price target, despite the stock's 15% rally following strong April-June results and an increased dividend. The downgrade reflects concerns over prolonged inventory adjustments in overseas pigment operations, projected to begin in H2 2025 and potentially continue through 2026. Nomura indicated it would reassess the stock upon seeing growth in DIC's chemitronics business and earnings improvement from ink market realignment.

Analysis

Nomura/Instinet has downgraded DIC Corp (TYO:4631) to Neutral from a Buy rating, signaling that the recent positive catalysts may now be fully priced into the stock. The downgrade follows a significant 15% increase in DIC's share price, which was propelled by strong April-June financial results and an enhancement to its minimum dividend per share. Despite the downgrade, the price target is maintained at JPY3,700, a valuation derived by applying a price-to-earnings multiple of approximately 10.5x to Nomura's 2026 earnings per share forecast of JPY347. The primary driver for the cautious stance is a forward-looking risk related to inventory adjustments within the company's overseas pigment operations, which are projected to begin in the second half of 2025 and could persist through 2026. Nomura has outlined a clear path for a potential re-evaluation, contingent on tangible growth in DIC's chemitronics business, particularly its epoxy resin operations, and earnings improvement stemming from strategic realignment in the ink market.

Key Decisions for Investors

• Given the stock's recent 15% rally and the downgrade to Neutral, investors may consider the stock fairly valued, suggesting limited near-term upside potential.
• Monitor company guidance and industry channel checks for early signs of the inventory adjustments in the overseas pigment business, which Nomura flags as a key risk starting in H2 2025.
• Investors seeking a catalyst for a potential upgrade should track performance metrics within the chemitronics segment and look for evidence of improved earnings from the ink market realignment.