Denso Earnings: Near-Term Revenue Growth To Be Driven by Production Recovery of Toyota

We raise Denso’s fair value estimate to JPY 9,500 from 9,100, after increasing our near-term revenue assumptions based on a stronger outlook of automobile production by its OEM customers. The company’s June quarter revenue was better than expected across all regions, growing 21% year on year. This was mainly supported by the production volume recovery of its largest customer, Toyota, which grew 20% year on year in the same period, up from 4.6% in the March quarter. Although we expect weaker automobile production by Japanese OEMs in China in the near term, we expect continued recovery in other regions as well as further electric vehicle component sales, such as inverters and electronic control units. As such, we raise Denso’s fiscal 2023 (ending March) revenue growth assumption to 8.3% year on year, up from 3.8% previously. We believe Denso’s shares are fairly valued.