Solid Results Delivered by Robust EV Demand and Alleviating Material Costs; TDK’s Shares Undervalued

TDK’s December-quarter operating income of JPY 68.4 billion exceeded our forecast of JPY 56.7 billion, with the energy application products segment and the sensor application products segment beating our numbers and more than offsetting the worse-than-expected loss in the magnetic application products segment caused by the inventory correction of near-line hard disk drives, or HDDs. The passive components segment performed largely in line with our expectations, supported by the solid demand from autos. Although the company anticipates a slowdown in internal combustion engine, or ICE, auto demand, we maintain our view that TDK’s fundamentals will remain better than those of its peers, driven by the robust components demand for electric vehicles. We will update our earnings forecasts and our fair value estimate after meeting with the company, but continue to believe that TDK’s shares are undervalued.