Kioxia earnings and guidance beat expectations, but Goldman Sachs keeps a Neutral rating

Overview

This report is Goldman Sachs' earnings review of Kioxia Holdings (285A.T). The core conclusion is that both 4Q results and 1Q FY3/27 guidance materially exceeded expectations, mainly driven by a sharp quarter-on-quarter increase in NAND ASP, and that tight supply-demand conditions are likely to continue. However, due to NAND industry cyclicality and historical valuation constraints, Goldman Sachs still does not expect a meaningful expansion in the company's valuation multiple.

Core views

Goldman Sachs recognizes Kioxia's cost competitiveness, relatively high profitability, and progress in data-center-oriented products. It also believes enterprise SSD demand, tight HDD supply, and export-control concerns together support NAND price increases. However, the report emphasizes that NAND industry concentration and cycle structure have not fundamentally changed, and Kioxia's P/E multiple at cycle peaks has historically been in the mid-to-high single digits. Therefore, even after earnings forecasts are raised, the rating remains Neutral.

Analysis framework

The report uses the gaps between results and guidance, ASP versus bit growth, long-term agreements, capex, shareholder returns, NAND industry supply-demand conditions, and relative valuation as its main analytical threads, and derives the target price through a valuation framework based on revised FY3/27-FY3/29 earnings forecasts and the correlation between P/B and ROE.

Methodology notes

• Valuation methodsP/B and ROE correlation valuation

  The 12-month target price is based on the correlation between P/B and average FY3/27E-FY3/28E ROE.

  Goldman Sachs' ¥48,000 target price implies a FY3/27E P/E of about 5.7x and a P/B of about 4.7x, reflecting a higher valuation base after earnings upgrades, but not assuming any significant multiple expansion.

• factor_profileGS Factor Profile

  Compares individual stocks with the market and industry peers across four attributes: Growth, Financial Returns, Multiple, and Integrated.

  This framework uses Goldman Sachs forecasts for sales, EBITDA, EPS, ROE, ROCE, CROCI, P/E, P/B, EV/EBITDA and other metrics to produce standardized rankings for investment context.

• event_monitoringIR Day focus items

  Assesses earnings sustainability through management commentary at the company's IR Day.

  The report pays special attention to the details of long-term agreements and the use of funds after the company turns net cash, as these factors will affect the assessment of profitability volatility and sustainability after FY3/27.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kioxia Holdings (285A.T)

  The coverage name, a Japanese NAND flash memory manufacturer, with the report maintaining a Neutral rating.

  Strengths

  Strong cost competitiveness, relatively high profitability, gradual progress in data-center-related products, and enterprise SSD demand plus tight NAND supply-demand conditions supporting ASP.

  Weaknesses

  Business is highly exposed to the NAND cycle, industry structure and concentration have not fundamentally changed, and valuation multiples at cycle peaks remain constrained by historical ranges.

  Comparison

  Goldman Sachs describes Kioxia as the world's third-largest NAND flash memory manufacturer and compares its rating within the Japanese semiconductor, SPE, and precision equipment coverage universe.

  Risks

  NAND industry cyclicality, dependence on specific customers, changes in capacity utilization, and the rise of Chinese NAND manufacturers.

Key data

• 4Q operating profit¥596.8bnAbove Goldman Sachs' estimate of ¥530bn, Bloomberg consensus of slightly below ¥520bn, and the company's guidance of ¥440-¥530bn.
• 1Q FY3/27 operating profit guidance¥1,298bnAbove Goldman Sachs' prior estimate of about ¥1.01tn and Bloomberg consensus of slightly above ¥870bn.
• 1Q USD-denominated sales guidanceabout +70% qoqThe company expects shipments to rise slightly and ASP to increase sharply.
• FY3/27-FY3/29 operating profit forecast revision+32% / +32% / +33%The upgrades mainly reflect stronger-than-expected ASP growth.
• Target price¥48,000Raised from ¥36,000 to ¥48,000.
• Implied upside8.0%Based on the report-disclosed target price and current price.
• FY3/27 capex planabout ¥450bnOn a gross basis, mainly directed toward BiCS8 production equipment, with clean rooms already prepared.
• M&A Rank3In Goldman Sachs' framework, this indicates a low probability of being acquired and is usually not included in the target price.

Impact & implications

The report is mildly positive for the stock in the short term because both results and guidance beat market expectations, and both earnings forecasts and the target price were raised. However, the investment conclusion remains restrained because Goldman Sachs believes the upper bound of valuation multiples at the NAND cycle peak is clearly limited, and supply-demand improvement will be reflected more in earnings upgrades than in a re-rating of the valuation framework.

Risks

• NAND industry cyclicality may cause significant volatility in earnings and valuation.
• The company has relatively high dependence on specific customers.
• Changes in capacity utilization may affect margins.
• The rise of Chinese NAND manufacturers may intensify competition.
• If long-term agreement terms fall short of expectations, earnings sustainability may be weaker than the market expects.
• Geopolitical tensions in the Middle East, helium supply issues, and semiconductor equipment export controls may still affect the supply chain or industry expectations.

What to watch

• Management's explanation of the details of long-term agreements at the IR Day in the first half of June.
• The use of funds after the company turns net cash, including dividend priority and possible future share buybacks.
• Whether NAND ASP can continue rising, and whether CY26-CY27 demand will continue to outpace supply.
• The boost to NAND bit demand from enterprise SSD and data center demand.
• The potential impact of the spread of compression algorithms on storage demand, especially cost changes brought by technologies such as Google TurboQuant.
• Progress in BiCS8 equipment investment and execution of FY3/27 capex.