TDK’s FVE Up to JPY 6,900; MLCC Demand Is Solid and Sensors' Margin Expansion Drives Profit Growth

After speaking with the company, we fine-tuned TDK’s earnings forecasts and lift our fair value estimate to JPY 6,900 from JPY 6,500. In the short term, we lift our operating margin assumptions for the energy application products segment as the company seems to succeed in passing over the increasing material costs, more than offsetting the negative impact of weak hard disk drive, or HDD, head shipment due to the inventory correction for servers. In the longer term, we believe solid demand for auto MLCC and margin expansion of sensors will drive TDK’s profit growth. TDK’s new fair value estimate of JPY 6,900 corresponds to 5.9 times 2023 EV/EBITDA. We reiterate our view that TDK’s business portfolio is more resilient than in the past as a result of focusing its resources on the growth area, which is underestimated by the market.