Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Sumitomo- SumitomoElectric (5802.T)Electric (5802.T)

Earnings driven by CPO products

PRICE TARGET ¥3,625 EQUAL-WEIGHT THESIS

We use a residual income model, with assumptions including 8.7% capital cost (2.0% risk-free ▪We assign an EW rating from a relative

rate, 6.2% equity risk premium, 1.07 beta), 50% payout ratio, mid-term growth rate of ~13.8%, perspective in the industry.

terminal growth rate of 3.0%. Our PT equates to P/E of 27.5x on F3/28e EPS of ¥132. ▪The firm’s biggest earnings drivers are

multicore fiberoptic cable, optical ¥3,287

connectors and optical devices.

Consensus Price Target Distribution ¥1,000.00 ¥4,125.00 harness business is firm but unlikely MS PT ▪Wire

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates to see sizeable improvement in margins.

▪The market wants to see management

paying attention to capital efficiency.

RISK REWARD CHART

Consensus Rating Distribution

¥4,600¥4,600(+72.67%)¥4,600(+72.67%)(+72.67%)

JPY 92% Overweight

8% Equal-weight

0% Underweight

4000 MS Rating

¥3,625¥3,625(+36.07%)¥3,625(+36.07%)(+36.07%)

Source: Refinitiv, Morgan Stanley Research

¥2,664¥2,664¥2,664

Risk Reward Themes

¥2,200¥2,200(-17.42%)¥2,200(-17.42%)(-17.42%) Renewable Energy: Positive

View descriptions of Risk Rewards Themes here

JUL '25 JAN '26 JUL '26 JUL '27

Key: Historical Stock Performance Current Stock Price Price Target

BULL CASE ¥4,600 BASE CASE ¥3,625 BEAR CASE ¥2,200

Share price aligned to residual income Share price aligned to residual income Share price aligned to residual income

model model model

Optical devices, optical connectors and We forecast gradual recovery for Earnings deteriorate in the

multicore fiberoptic cables show further Infocommunications.