EUR 850.00 For Business Accounts Only

Morningstar | Kyocera’s Diversified Portfolio and Better Use of Cash Enable Steady Cash Flow Growth

While Kyocera’s June quarter total operating income of JPY 37 billion was generally in line with our forecasts, the segments were somewhat mixed, as follows: 1) Electronic components and devices came in above our forecast, driven by robust demand from autos, semiconductors, and industrials; 2) ceramic packages were weaker than expected because of the inventory adjustment; and 3) despite the restructuring progress, handsets and solar panels recorded an operating loss, as demand was weaker than anticipated. Overall, we believe that the June quarter results demonstrate how Kyocera can generate solid and steady cash flow from its diversified business portfolio. Meanwhile, we are impressed with the business decisions made by the current management team, including the effective use of its rich cash, such as for mergers and acquisitions, or M&A, and share buybacks, both of which the company had been reluctant to undertake in the past. We thus think the market is ignoring the value of its assets, and thus view shares as slightly undervalued at the current share price. We have made minor revisions to our earnings forecast, which do not lead to material changes to our fair value estimate of JPY 7,500 per share and $67 per U.S. ADR.

At the earnings conference call, Kyocera mentioned its plan to increase production capacity for multilayer ceramic capacitors for smartphones, fine ceramic components for semiconductors, and camera modules for automobiles, which shows its confidence in robust demand. Meanwhile, we are concerned that the contraction in the domestic solar panel market is happening more quickly than anticipated because of the price cut on feed-in tariffs. However, we believe that robust demand for electronic components and devices will compensate for the shortfall from solar panels. Therefore, we raise our operating profit forecast for this year from JPY 149 billion to JPY 157 billion, exceeding Kyocera’s guidance of JPY 154 billion.