TDK (6762) FY17 Q1Results Comment – Surprising Resilience After.....

Key Points 

• TDK’s FY17 Q1 OP fell only 5.2% YoY, despite the transfer of radio frequency (RF) assets to the JV with Qualcomm (QCOM US). Furthermore, TDK left full-year OP guidance unchanged, which should reassure those investors who have been worried about larger losses at InvenSense (US). Sales guidance was raised to reflect the inclusion of InvenSense, and stronger than expected demand in several businesses. 
• OP would have grown 16% if not for ¥3.5bn in one-time costs for sensor specialist InvenSense, which was added in May. The expenses being booked are largely inventory valuation losses and costs to retain important personnel. Operating losses at InvenSense appear to be relatively minor, and TDK thinks it can use its customer connections to broaden its sales channels. 
• Strong results by Passive Components for autos and industrial uses helped support earnings. LiBs (Film Application Products) exceeded expectations by a wide margin, supported by strong demand for new tablet products, as well as growing sales to Chinese smartphone makers – often for re-export to emerging economies. 
• TDK guides for sequential sales growth in Q2 of 5%~7% for Passive Components, 16%~18% for Sensors, and 7%~9% for LiBs, implying growth of 5%~7% in total. Exposure to the Euro has declined with the asset carve-out. Gearing remains ¥1.2bn annually for a change of one yen to the dollar; TDK maintains its assumption of ¥108/US$.
  Data below illustrates segment trends. We have revised data from FY16 to include the new Sensor segment.