Murata Earnings: MLCC Utilization to Pick Up Toward the End of 2024; Raise Fair Value by 9%

The earnings results of four passive component suppliers indicate that the recovery of demand for multilayer ceramic capacitors, or MLCCs, is underway as expected. In the December quarter, Murata Manufacturing’s book/bill ratio for MLCCs exceeded 1 for the first time in seven quarters, while Taiyo Yuden’s book/bill ratio improved to 1.07 from 1.01 in the previous quarter, when it exceeded 1 for the first time in nine quarters. While demand for PCs, servers, and industrials remains weak, demand for smartphones and automobiles—where inventory adjustment is largely complete—drove the order growth. We are particularly relieved to hear from companies that inventory adjustment for automotive MLCCs does not seem to last, which we had feared. Although electric vehicle demand is uncertain in China, strong demand for hybrid vehicles is expected to drive content growth per car, supporting solid MLCC demand. In addition, demand for PCs and servers is likely to pick up soon, followed by a recovery in industrial demand in late 2024. With suppliers’ inventories already at appropriate levels, we expect margin expansion to continue in the following quarters as the utilization rate increases. We revise our earnings forecasts and fair value estimates for four passive component suppliers, and believe that Murata and Taiyo Yuden’s shares are undervalued, while TDK and Kyocera’s are fairly valued.