Robust Demand for Sensors and Passive Components Mitigates the Margin Contraction in Batteries

We revise TDK’s fair value estimate to JPY 5,900 from JPY 5,833 (which was originally JPY 17,500 before the 1-to-3 stock split in September). While we slightly cut TDK’s operating income forecasts as its rechargeable battery business is likely to require more costs to pursue the growth in non-IT applications, we raised our operating margin assumptions for all the other three segments. In our old forecast, we had expected that profit from rechargeable batteries will be approximately twice as much as that of the non-battery businesses, but now we forecast that profit from batteries and non-batteries will be broadly balanced in fiscal 2025 (financial year ending March 2026). While TDK’s share price fell on concerns about the sustainability of profitability of rechargeable batteries, we are more confident about its solid profit growth, due to TDK’s more diversified and resilient product portfolio. Our new fair value estimate of JPY 5,900 corresponds to 16.3 times 2022 price to earnings, and we believe TDK’s shares are currently undervalued.