Company Reports

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a century” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

Denso reported fiscal 2026 (ending March 2027) first-quarter sales of JPY 1.91 trillion, up 9.1% year on year, and operating profit of JPY 84.2 billion, down 21.5%. It raised full-year sales guidance to JPY 7.75 trillion, maintained JPY 500 billion operating profit guidance, and shares fell 10.5%.

Denso marked fiscal 2025 (ended March 2026) with record sales of JPY 7.54 trillion and JPY 552 billion operating profit, while fiscal 2026 (ending March 2027) guidance calls for JPY 7.67 trillion sales, up 1.7% year on year, and JPY 500 billion operating profit. Shares fell 6% the following day.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

Denso's December-quarter sales and operating profit rose 5.1% and 9.4% year on year, respectively. Denso raised fiscal 2025 (ending March 2026) sales guidance by 3% to JPY 7.42 trillion but cut operating profit by 18% to JPY 535 billion, citing a warranty-reserve provision recorded this quarter.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

Denso's September-quarter sales rose 6.7% while operating profit fell 20.2% year on year. The company raised fiscal 2025 (ending March 2026) sales guidance by 3% to JPY 7.42 trillion but trimmed operating profit by 4% to JPY 651 billion, citing a warranty-reserve provision recorded this quarter.

Denso's June-quarter operating profit declined 11.1% year on year, due to a stronger yen and higher US import tariffs. The company raised its sales guidance for fiscal 2025 (ending March 2026) by 2% to reflect price adjustments due to tariffs, while maintaining its profit guidance.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

Narrow-moat Denso reported fiscal 2024 revenue of JPY 7.16 trillion, or 0.2% year-on-year growth, which aligns with our previous estimate. Operating margin marked 7.2% in fiscal 2024, lower than our estimate of 7.8%. The deficit is mainly due to quality-related costs of JPY 65 billion recognized this year. The adjusted operating margin, excluding the one-off impact, is 8.2%, indicating the company is making faster-than-expected progress on rationalization initiatives and the passing on of costs to customers. As for fiscal 2025, we maintain our companywide sales of JPY 7.49 trillion, or 5% year-on-year growth assumption. However, we lift companywide operating profit by 3% to JPY 660 billion, or an operating margin of 8.8% compared with our previous estimate of 8.5%, as we raise our operating margin estimate for the Japan business to 8% from 7%, due to the absence of quality-related costs, and the utilization rate improvement given the forecast of 2% year-on-year growth in Japanese manufacturers’ vehicle production for 2025 announced by Denso.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

We cut our fair value estimate for narrow-moat Denso to JPY 2,440 from JPY 2,700, based on near-term turmoil due to OEMs’ production halt, as well as a cut on midterm profit margin as dark clouds are gathering over the outlook of the overall vehicle market. The company reported that December-quarter revenue decreased by 1.5% year on year and fell short again of our estimate of a 3.7% increase, dragged by the sluggish European market. Quarterly sales in Europe (including intersegment) dropped by 13.4%, far below our estimate of a 4% increase. According to The European Steel Association, or EUROFER, the European auto sector experienced a 6.5% contraction in output in 2024 due to protracted weakness of the manufacturing sector and lackluster consumer confidence. We see automotive demand in the European market remaining weak until the macroeconomic picture and consumer disposable income substantially improve. As a result, we lower our fiscal 2024 estimate of revenue year-on-year growth in Europe to a 6% decrease from a 1% increase. Over the longer term, we maintain our views on ROIC to gradually improve to 11.2%, above our estimated weighted average cost of capital of 7.8%, supported by increased sales of highly profitable electrification/heat pump components for electric vehicles. We see that the market is overreacting to the near-term predicament, with the share price dropping by more than 6% on the next trading day after the announcement.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.

Narrow-moat Denso’s September-quarter revenue decrease of 4.4% year on year fell short of our estimate of a 2.2% decrease, largely dragged by a sluggish North America market. Quarterly sales from GM, Ford, and Stellantis declined by 3%, 13.7%, and 40% year on year, respectively, as original equipment manufacturers slowed their plans for electric vehicle production, given the weaker-than-expected growth in demand for electric vehicles. Denso lowered its fiscal 2024 Japanese OEMs’ domestic and overseas vehicle production assumption to 4.01 million and 8.52 million units from 4.26 million and 9 million units, respectively.

Denso’s operating income in the June quarter of JPY 121 billion fell short of our estimates as a result of weaker-than-expected sales/capacity utilization in Japan and delays in cost pass-throughs. Although the quarterly companywide revenue increased 2% year on year, sales in Japan declined 4.5% because of weaker automobile production volumes by its largest customer by sales, Toyota Motor. Toyota’s monthly domestic production volume declined 19% year on year in June as it had to cut production as a result of misconduct related to its vehicle certification procedures for certain models. We expect this to affect Denso’s near-term domestic sales, so we cut our operating income estimate for fiscal 2024 (ending March 2025) by 7% to JPY 668 billion, backed by 3% revenue growth and a 9.1% operating margin. However, this does not affect our fair value estimate of JPY 2,700, as our longer-term outlook remains unchanged.

Denso’s fiscal 2023 (ended March 2024) operating income of JPY 381 billion, down 11% year on year, was significantly below our estimate of JPY 432 billion and guidance of JPY 495 billion. This was largely due to temporary factors including quality costs related to past recalls of fuel pumps, delayed cost pass-throughs, and the impact of production cuts by Daihatsu and Toyota Industries (not to be confused with Toyota Motor), which had engaged in misconduct. We do not expect these issues to materially affect Denso going forward and therefore maintain our fiscal 2024 operating income estimate of JPY 712 billion, implying operating margin of 9.6%, in line with the company’s guidance. Denso's largest customer, Toyota Motor, plans to increase production by 3% year on year to 10.3 million vehicles for calendar 2024. In addition, we expect cost pass-throughs and further sales of Denso’s high-margin electrification components like inverters to contribute to margin expansion. Hence, we expect an operating income compound annual growth rate of 6.6% between 2024 and 2028. Despite the better outlook, we believe narrow-moat Denso’s shares are fairly valued now.

As one of the largest global automotive component suppliers, Denso has a diverse product portfolio that ranges from traditional powertrain/thermal components for internal combustion engine vehicles to relatively newer technologies such as electrification and advanced safety/sensing components. To adapt to a “once in a hundred years” transformation in the automotive industry, the company has been spending high amounts on research and development in recent years. In Japan, Denso has been engaging in various projects with its main original equipment manufacturer customer, Toyota Motor, as well as other components supplier companies in the Toyota Group, to jointly develop various technologies, including semiconductors, electrification, and advanced driver-assistance systems. We expect these initiatives will prevent commoditization of its key technologies, thus allowing the company to maintain its narrow moat.