EUR 850.00 For Business Accounts Only

Morningstar | Trimming Kyocera’s FVE to JPY 7,000 Owing to Weaker Handsets Demand; Shares Slightly Undervalued. See Updated Analyst Note from 15 Feb 2019

We trim Kyocera’s fair value estimate from JPY 7,500 to JPY 7,000 per share, and from $67 to $64 per U.S. ADR, as we incorporate weaker smartphone shipment and memory demand into our forecast. While we view that memory demand will pick up in late 2019, revenue growth of ceramic and organic packages for smartphones may be weaker than our original forecast in the longer term because of the prolonging replacement cycle and intensifying competition. As a result, we lowered our operating margin assumption for the semiconductors segment from 13.8% to 11.5% on fiscal 2023 (financial year ending March 2023), which is the reason to revise our fair value estimate. Meanwhile, we acknowledge the progress of restructuring on unprofitable businesses, such as handsets and solar panels, which have been exposed to tough competition. Overall, we will retain our view that its diversified business portfolio will enable Kyocera to achieve steady profit growth over the next five years. Unlike other electric components companies, Kyocera’s share price has been relatively stable because of its solid fundamentals and healthy balance sheet. We consider that the current share price is slightly undervalued and recommend taking a larger margin of safety to invest.

Kyocera lowered its operating income guidance for fiscal 2019 from JPY 99 billion to JPY 76 billion, owing to JPY 16.2 billion impairment loss on organic package and JPY 6.8 billion decline on weaker demand of handsets, memories, and copiers. The company had already recorded another loss of JPY 52.3 billion within this fiscal year regarding the settlement of the long-term purchase agreements of polysilicon material for solar panels, which had been depressing the profitability of the business. Kyocera’s operating income will jump to JPY 170 billion on fiscal 2020 from JPY 80 billion on fiscal 2019, as these onetime losses will disappear, and we expect that components demands will pick up in the second half of fiscal 2020.