Kyocera Slashes 2022 Guidance Due to Inventory Correction, Rising Energy Costs; FVE Cut to JPY 7,900

Based on the disappointing December-quarter results and the downward revision of full-year guidance, we revise our fair value estimate for Kyocera to JPY 7,900 from JPY 8,400. Weak smartphone shipments were initially seen in low-to midrange models, but the impact has now spread to flagship models, which have been relatively resilient. As a result, inventory adjustment in semiconductor packaging started later than in other devices, such as semiconductor memory and passive components, and is expected to continue through the second half of this year. In addition, an unexpectedly sharp decline in sales of Kyocera’s smartphones prompted the company to restructure its handsets business. Mainly for these reasons, we lower Kyocera’s fiscal 2022 (ending March 2023) and 2023 (ending March 2024) operating income forecasts to JPY 120 billion and JPY 155 billion, from JPY 175 billion and JPY 195 billion, respectively. Meanwhile, Kyocera’s fair value estimate per U.S. ADR rises to USD 61 from USD 58 due to the weakening U.S. dollar. We believe Kyocera’s shares are undervalued, but they lack near-term catalysts.