Kyocera Earnings: Lifting Our Midterm Growth Forecasts On Aggressive Capital Expenditure Plan

We lift Kyocera’s 6971 fair value estimate to JPY 8,200 per share from JPY 7,900, as we raise our revenue growth assumption due to the company’s aggressive investment strategy. Meanwhile, we lower our fair value estimate per ADR to $59 from $62 due to the weaker Japanese yen. Although we believe the financial targets in the newly announced midterm plan seem too aggressive, we are impressed by Kyocera’s aggressive investment strategy in growth areas. In the past, Kyocera often invested at the peak of the cycle and suffered from overcapacity when demand cooled. However, in this midterm plan, investment plans are determined based on a long-term outlook amid the weak demand, giving the impression that management decisions are being made more quickly than before. Kyocera’s share price has risen 23% since the beginning of the year, and we believe shares are currently fairly valued.

We forecast Kyocera’s fiscal 2023 (ending March 2024) operating income to be JPY 145 billion, up 12.8% from the previous year, driven by the improvement in the solutions business segment. In the previous year, Kyocera recorded restructuring charges of JPY 8 billion for the segment and announced strategic changes in the telecommunications equipment and smart energy businesses. In particular, the withdrawal from the consumer handset business should help reduce fixed costs and improve profitability.

Kyocera has spent JPY 440 billion on capital expenditure over the past three years and plans to increase this to JPY 850 billion over the next three years in the new midterm plan, aiming to expand production capacity for fine ceramics for semiconductor manufacturing equipment, semiconductor packaging, multilayer ceramic capacitors, and tantalum capacitors, based on the long-term growth outlook for semiconductor demand. We believe that these products, in which Kyocera has a relatively high market share and profitability, will support the company’s growth in the medium term.