Kyocera’s Diversified Product Portfolio Mitigates Economic Slowdown; Shares Undervalued

Kyocera’s September quarter operating income of JPY 35 billion was 15.2% down sequentially and below our expectation. The core components business was the least affected by the ongoing headwinds and broadly in line with our expectations, due to robust demand from the auto and semiconductor industries. The electronic components business, which is also less exposed to the Chinese smartphone market, had steady revenue growth. On the other hand, the solution business was below our forecasts due to much weaker shipments of its smartphone solutions, and increasing materials costs damaged the profitability of its copiers. In addition, a one-time litigation cost of JPY 7 billion impaired the company’s profitability. Based on the weaker-than-expected results and economic outlook, we cut Kyocera’s fair value estimate to JPY 8,400 per share and USD 58 per U.S. ADR, from JPY 8,800 per share and USD 65 per U.S. ADR, respectively. We continue to believe Kyocera’s shares are undervalued as its diversified business portfolio should deliver solid profitability.