For TDK, Solid MLCC and Sensors Growth Mitigates Smartphone Weakness; Lift FVE to JPY 6,500

We raise TDK’s fair value estimate to JPY 6,500 from JPY 6,000, although we have cut its multilayer ceramic capacitor, or MLCC, peers’ fair value estimates due to the weaker shipment outlook for smartphones and PCs. We believe that TDK is less affected by the recent macroeconomic headwinds due to its diversified product portfolio and thus can fully benefit from the weaker Japanese yen assumptions. While we lower our shipment forecasts for rechargeable batteries due to the inventory correction for Chinese smartphones, we expect revenue growth of the sensor application products segments will be higher than our previous forecasts, driven by TDK's new magnetic and MEMS sensor customers. Moreover, unlike its peers, TDK’s MLCC business is not affected by the weaker consumer electronics demand, as approximately 70% of its MLCC sales are from the auto industry. We believe TDK’s shares are undervalued, and its new fair value estimate corresponds to 15 times fiscal 2023 (financial year ending March 2024) price/earnings.