EUR 850.00 For Business Accounts Only

Morningstar | Kyocera’s Diversified Portfolio and M&A Strategy Will Enable Solid Growth Under Uncertainties

Kyocera’s September quarter operating income was JPY 45.5 billion, which was above our forecast of JPY 41 billion. While demand of ceramic package and solar panels were weaker than anticipated, other business segments compensated for the shortfall. In particular, revenue of the components group showed impressive growth of 14.8% from the previous year because of the robust demand from the automotive and machinery industries. Kyocera forecasts that demand from smartphones will slow down in the second half of this fiscal year, but it considers that orders from other industries will remain solid and it will be able to accomplish its operating income guidance of JPY 154 billion. Overall, we view that the earnings results indicate Kyocera’s resilience to economic cycles because of its diversified product portfolio, and, therefore, its current share is undervalued. We retain our operating income forecast of JPY 157 billion and fair value estimate of JPY 7,500 as well as our no-moat rating.

We acknowledge Kyocera’s current management is leveraging its cash much more effectively than in the past. First, Kyocera’s capital expenditure for this fiscal year of JPY 110 billion is its historical high and 27% above the previous year’s number, focusing on the growing demand of semiconductor, copier, ceramic packages, and automotive components. Second, Kyocera has been accelerating acquisitions on the auto, telecom, and machinery industries. And third, Kyocera has improved its shareholder return policy, raising its dividend payout ratio target from 30% to 40% in 2016 and implementing the share buyback in 2018. As the company had been reluctant in leveraging its cash in the past, the market has been ignoring the value of Kyocera’s strong balance sheet, which should be corrected in the future, in our view.