EUR 850.00 For Business Accounts Only

Morningstar | Kyocera’s Plan to Improve Shareholder Return Is Positive, Raising Our FVE

We are increasing no-moat Kyocera’s fair value estimate to JPY 7,400 from JPY 7,000 per share, and to US$ 68 from US$ 64 per U.S. ADR, because we reflect slightly faster margin expansion than previously forecast. This is driven by the progress Kyocera is making as it  restructures its unprofitable businesses, such as handsets and solar panels. However, since guidance is largely within our expectations, we think Kyocera is fairly valued at the current share price. Meanwhile, we find it encouraging Kyocera will reinforce its shareholders’ return and has set the midterm ROE target at 8%, which is an improvement over 4.5% in fiscal 2019 (financial year ending March 2019). Kyocera had been reluctant to leverage its cash and improve capital efficiency, which was one of the reasons we had assigned the company a Poor stewardship rating. We therefore appreciate the change in its policy, led by the current management team, and will consider raising our stewardship rating to Standard from Poor.

Kyocera’s operating income guidance for fiscal 2020 is JPY 140 billion, which is below our forecast of JPY 165 billion. We are not concerned about the difference, as we believe  the guidance is embedding some risk factors because of near-term uncertainty. Despite the conservative guidance, Kyocera plans to aggressively use JPY 120 billion of capital expenditure for this fiscal year, which is a historical high, suggesting Kyocera’s confidence in long-term demand from autos and 5G is intact.

Kyocera’s target for its dividend payout ratio was 20%-25% until fiscal 2013, and it was raised to 30% in fiscal 2014, to 40% in fiscal 2017, and to 50% in fiscal 2020. At the same time, Kyocera has accelerated its merger and acquisition strategy, which suggests the current management team is more proactive by leveraging its rich cash, which we expect to be positive for the shareholders.