Morningstar | 5G will Drive Digitalization of non-IT Industry, Mitigating the Slowdown of Handset’s Shipment
After reviewing our forecasts and meeting the company, we retain Taiyo Yuden’s fair value estimate of JPY 3,000. Owing to concerns for the trade war and the uncertainty about smartphone demand, Taiyo Yuden’s share price has declined more than 25% since its recent peak in April. However, we view Taiyo Yuden’s business portfolio is better diversified than in the past, and thus its revenue from multilayer ceramic capacitors, or MLCCs, will be supported by the robust demand from autos and telecom base stations. Meanwhile, we estimate that its revenue exposure to Huawei is mid-single percent. Overall, although we recognize that Taiyo Yuden is a high-volatile stock, we believe that the recent decline on its share price is an overreaction, providing a good investment opportunity.We are impressed with how Taiyo Yuden has been changing its business portfolio and has improved its product mix. About 10 years ago, approximate half of Taiyo Yuden’s revenue was from LCD television and note PC, competing with Asian players on commoditized products. The company therefore had decided to improve its product mix to leverage its advantage on large-cap MLCC, and as a result, revenue exposure of handsets increased to 46% in fiscal 2016 from 18% in fiscal 2010. And recently, the company has been benefiting from the robust demand from autos and telecom base stations, compensating for the slowdown on handset shipments. While the revenue proportion from handsets declined to 35% in fiscal 2019 from 46% in fiscal 2016, revenue from autos and information infrastructure increased to 39% from 24% in the corresponding periods. As a result, Taiyo Yuden’s operating margin improved to 12.8% in fiscal 2019 from 9.7% in fiscal 2016 and 2.1% in fiscal 2010. We view that the introduction of 5G will drive the digitalization of non-IT industries such as auto, and the company will continue to be the beneficiary of the changing environment.
TAIYO YUDEN is a manufacturer mainly engaged in the electronic component business. Co. is involved in the manufacture and sale of electronic parts such as ceramic condensers, inductors, ferrite-applied components, ferrite cores, high frequency dielectric components, circuits modules, energy devices and composite ceramic applied components, among others. Co. is also engaged in the temporary staffing services, as well as consultation services for environmental measurement.
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