Murata Earnings: Resilient Demand for Flagship Smartphones Offsets Slower-Than-Expected Recovery

Two passive component suppliers, Murata Manufacturing and Kyocera, reported their earnings results for the June quarter. While Murata’s profit for the quarter was better than expected due to the resilient demand for flagship smartphones, Kyocera’s profit was slightly below our expectations because of sluggish demand for semiconductors and industrial tools. Although the inventory correction for smartphones and PCs appears to be largely complete both companies are concerned that the demand recovery for electronic components is slower than expected and therefore, we expect Kyocera’s operating income for fiscal 2023 to fall short of the company’s guidance. On the other hand, we expect Murata’s operating income to exceed its full-year guidance as the inventory correction for multilayer ceramic capacitors’ has been completed earlier than for other components. After fine-tuning earnings forecasts, we maintain Murata’s fair value estimate of JPY 9,700 and Kyocera’s fair value estimate of JPY 8,200. We view Murata’s shares as undervalued, with market share gains in radio frequency modules from 2024 to 2025 a share-price catalyst.