Morningstar | Demand of Auto MLCC and Polymer Batteries Enables Solid Revenue Growth; TDK’s Shares Undervalued
TDK’s new operating income guidance of JPY 120 billion is 11% above the previous year’s number and in line with our expectation. We forecast that profits in the first half will be weaker than usual, as ongoing inventory adjustment, owing to the economic slowdown, will drag down its profitability. However, we believe that 1) robust demand of passive components for auto; 2) increasing market share for the polymer rechargeable battery; and 3) new adoption of its sensors for autos and handsets, will drive the margin expansion in the second half. Overall, we view that TDK’s solid guidance will encourage the market. We will revise our earnings forecasts after visiting the company in early May but do not expect to change our fair value estimate of JPY 12,000.The company forecasts approximately 10% revenue growth for multilayer ceramic capacitors, or MLCC. While we are concerned about the excess inventories in the supply chain, the company believes that demand from auto is still tight, owing to the contents growth per auto. We estimate that more than half of MLCC revenue comes from the auto industry, and the exposure is the largest among major MLCC suppliers, which enables TDK steady revenue growth.
Meanwhile, 6% to 9% revenue growth guidance for the polymer rechargeable battery is slightly above our expectation, as TDK forecasts to expand market share by initiating the business with a new handset manufacturer, and it expects more order of small-cell batteries for wearable devices. TDK is the top supplier of polymer rechargeable batteries, which is suitable for smaller digital devices, as it has advantage on weight and flexibility. We thus consider that the new guidance is reasonable.
On the other hand, we somewhat doubt 30% revenue growth guidance on sensors. TDK explained that half of the growth comes from auto and the rest comes from handsets. We believe that revenue from auto is more reliable, as TDK has already established a relationship with auto manufacturers and tier-1 suppliers. Meanwhile, we are concerned about the intense competition on sensors for handsets, and thus, it would take a longer time for TDK to achieve its target to make the sensor application products segment profitable within this fiscal year.
TDK is a manufacturer of recording media, ferrite products and recording device products, and a producer of inductor, ceramic capacitor, magnet, HDD head and other components. Co.'s principal business segments are passive components, sensor application products, magnetic application products, film application products and others. Co.'s principal products include ceramic capacitors, aluminum electrolytic capacitors, film capacitors, inductive devices, high-frequency components, piezoelectric materials and circuit protection components, sensors, HDD head suspension, recording devices, power supplies and magnets, and mechatronics.
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