Japan electronic parts sector: Sector update: We raise our forecasts

Research evidence excerpt

Japan electronic parts sector: Sector update: We raise our forecasts

have returned forward P/Es to their historical ranges

at almost all sector companies. The only two companies with 24-month forward P/Es

above their Jan 2020–Dec 2025 peaks as of the close on 29 July were Kyocera [6971]

(Neutral) (30% higher) and Taiyo Yuden [6976] (Neutral) (10% higher). The stock with the

lowest P/E versus peak was Hirose Electric [6806] (Buy) (40% lower). We are presently in

the initial stages of a recovery in demand for electronic parts, and we see plenty of upside

versus consensus EPS forecasts (our 28/3 operating profit forecasts for all 10 companies

are higher than consensus; Figure 1), on which basis we see potential for stocks that post

results that are significantly better than consensus forecasts to look attractive in terms of

valuation multiples. Electronic parts for AI data centers constitute a dynamic market

undergoing major technological changes, and we think this is a business domain where

corporate initiatives can give rise to earnings disparities. Our attention in Q1 results will

not just be on companies' pricing strategies for commodity products, but also on adoption

trends for both existing products and new products, as well as where companies are at in

terms of increasing production capacity for these products.

Recommendations: TDK, Ibiden, Murata Manufacturing, Hirose Electric, Niterra

In view of the above we recommend the following stocks. TDK [6762] (Buy): We look to

profit growth from high-voltage parts for data centers (passive parts and LFP batteries for

800V DC systems. Ibiden [4062] (Buy): Our focus is on increased uptake of EMIB-T.

Murata Manufacturing [6981] (Buy): We see good growth prospects for next-generation

MLCCs used in AI servers.