Morningstar | Auto Digitalization, 5G Diffusion Offset Taiyo Yuden's Weak Handset Shipments; Shares Undervalued
Taiyo Yuden’s December-quarter operating income was JPY 11.8 billion, above our forecast of JPY 9 billion. While we had been concerned about weak smartphone demand, Taiyo Yuden compensated for declining sales from handsets with robust demand from autos and cellular base stations. We believe the price hike for multilayer ceramic capacitors, or MLCCs, was the main driver improving the operating margin from 11.8% in the September quarter to 15.9% in the December quarter. MLCC suppliers--including Taiyo Yuden--have been asking customers to accept price hikes not only because of the tight supply/demand balance, but also to finance heavy capital expenditures so suppliers can expand capacity at a faster pace to fulfill massive demand. Overall, we believe Taiyo Yuden’s robust results are in line with our view that MLCC content growth will mitigate the negative impact of weak handset shipment, and we believe the company's shares are currently undervalued. We plan to meet with the company in mid-February but do not expect to make a material change to our fair value estimate of JPY 3,000.Against the usual seasonality, we estimate that Taiyo Yuden’s revenue from handsets declined 11% from the September quarter because of weak smartphone demand in China. An 11% revenue increase from autos and cellular base stations made up for the decline, which kept Taiyo Yuden’s overall revenue flat with the previous quarter. While the company plans to cut the utilization rate for smaller MLCCs in the March quarter, it considers that inventories for larger MLCCs necessary for autos and cellular base stations are still not enough to meet demand and thus will maintain a 100% utilization rate. As a result, we retain our view that increasing electronic content per auto, and increasing investment in cellular base stations necessary for 5G diffusion, will continue to drive MLCC demand in the longer term.
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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