Kyocera Earnings: Weak Demand for Automobiles and Servers Offset by Weaker Japanese Yen

Kyocera’s June-quarter operating income of JPY 21 billion was down 18% from the previous year and broadly in line with our expectations. However, given the weaker Japanese yen, it was actually lower than we had expected on a constant-currency basis due to sluggish demand for electronic components, while solution businesses such as copiers and industrial tools were relatively resilient. However, we maintain our earnings forecasts and our fair value estimate for Kyocera at JPY 2,050 per share and USD 14.50 per US ADR, as component demand is stagnating only in limited areas such as passive components for automobiles in Europe and circuit board components for servers, and we believe that server demand will pick up soon. Kyocera’s current share price is below book value, and we believe the market underestimates the solid profitability and healthy balance sheet provided by Kyocera’s well-diversified business portfolio.