TDK: Passive Components Suppliers’ Earnings: Cautious Guidance Amid Uncertainty Over Demand Recovery

Three passive component suppliers, Murata Manufacturing, Kyocera, and TDK announced their earnings results for fiscal 2023 (ending March 2024) Friday, April 26, and each company’s operating income guidance for the new fiscal year fell short of our expectations. We believe that they made conservative assumptions for sales and capacity utilization especially in the second half of the fiscal year, as they were less confident of a full recovery in end demand. Nevertheless, TDK’s guidance may disappoint the market as it is most divergent from our expectations and the market’s. While we maintain our fair value estimates for the three companies, we have lowered our fiscal 2024 operating income forecasts for Murata and Kyocera, reflecting price erosion for automotive passive components and a slower-than-expected recovery in capital spending for industrials and general servers. We plan to revise our TDK earnings forecasts after the company announces its new midterm plan at next month’s investor day. We believe Murata Manufacturing’s shares are undervalued, while Kyocera and TDK are fairly valued.