Demand Expansion for High Value-Added AI/Data Center Products, Valuation Discipline

Research evidence excerpt

Demand Expansion for High Value-Added AI/Data Center Products, Valuation Discipline

IdeaM

Industry view still In-Line, Murata Mfg. now our Top Pick

We expect continued demand for high value-added electronic components for AI/data

center applications. From a share price and valuation perspective, we recommend

Murata as our Top Pick, downgrade Taiyo Yuden to UW as we see a widening gap

between its share price and achievable earnings through F3/31, and remain UW on

Ibiden, where earnings expansion continues and we expect F3/27 results to exceed

guidance and market consensus, but view the hurdle for achieving company targets in

F3/28 as high.

Maintain OW rating on Murata Manufacturing, now as our Top Pick; downgrade Taiyo

Yuden to UW: We expect demand for high value-added MLCCs for AI/data center

applications to grow at a near 100% CAGR over the next 3 years. MLCCs account for 51%

of Murata's sales and 71% of Taiyo Yuden’s sales in F3/26, and we expect MLCCs to drive

earnings growth for both companies from F3/27. The key driver of this demand expansion

is small, high-capacity, high value-added MLCCs for AI server/data center applications. We

believe Murata can fully capture the benefits of demand expansion and product mix

improvement, while Taiyo Yuden will see only limited benefits from product mix

improvement driven by miniaturization and higher capacity.

Maintain OW on TDK and Niterra in view of relationship between ROE and P/B: Among

the 7 major electronic component companies, we maintain OW ratings on TDK and Niterra

based on the relationship between ROE and P/B shown in Exhibit 3 Exhibit 3 . We expect

TDK to continue improving ROE by steadily increasing profits in rechargeable batteries for

smartphones and wearable devices, while driving earnings growth in HDD heads/