Murata Earnings: Resilient Demand for Flagship Smartphones Offsets Slower-Than-Expected Recovery

Two passive component suppliers, Murata Manufacturing 6981 and Kyocera, reported their earnings results for the June quarter. While Murata’s profit for the quarter was better than expected due to the resilient demand for flagship smartphones, Kyocera’s profit was slightly below our expectations because of sluggish demand for semiconductors and industrial tools. Although the inventory correction for smartphones and PCs appears to be largely complete both companies are concerned that the demand recovery for electronic components is slower than expected and therefore, we expect Kyocera’s operating income for fiscal 2023 to fall short of the company’s guidance. On the other hand, we expect Murata’s operating income to exceed its full-year guidance as the inventory correction for multilayer ceramic capacitors’ has been completed earlier than for other components. After fine-tuning earnings forecasts, we maintain Murata’s fair value estimate of JPY 9,700 and Kyocera’s fair value estimate of JPY 8,200. We view Murata’s shares as undervalued, with market share gains in radio frequency modules from 2024 to 2025 a share-price catalyst.

Murata Manufacturing’s June-quarter operating income of JPY 50.1 billion exceeded our expectations of JPY 38 billion due to the higher utilization rate based on resilient orders from flagship smartphones, lower fixed costs, and a weaker Japanese yen. The company expects MLCC utilization to reach 90% in the second half of this fiscal year, up from 80% in the June quarter, due to the seasonality of flagship smartphones. We forecast Murata’s operating income to reach JPY 270 billion in fiscal 2023, exceeding the full-year guidance of JPY 220 billion. Over the longer term, we expect Murata to gain market share in RF modules for Apple iPhones and Android phones, which will drive the margin expansion of the devices and modules segment.