Tightening MLCC Supply-Demand Driven by Auto Is Underestimated; MLCC Suppliers Undervalued

We have updated our earnings forecasts for four passive components suppliers--Murata Manufacturing, Taiyo Yuden, TDK, and Kyocera--and retain our view that supply-demand for multi-layer ceramic capacitors, or MLCCs, will remain tight throughout 2022, due to robust auto demand. Despite the weak orders in the December quarter because of the inventory correction for Chinese smartphones, MLCC pricing remained quite solid. In addition, MLCC suppliers decided to maintain a relatively high utilization rate to build up enough inventory to prepare for high auto demand. As the production of high-capacity, high-voltage MLCCs used for auto places a heavy load on capacity, robust auto demand underpinned by the content growth will contribute to tightening the supply-demand, which we believe is underestimated by the market. We retain our view that orders from Chinese smartphones will bottom out in the March quarter although the recovery may be somewhat weaker than expected, and auto production will recover quarter by quarter along with easing of the chip shortage. Hence, we expect that MLCC orders will continue to improve toward the end of this year and believe the recent dip in share price is offering good opportunities to accumulate.