Goldman Sachs Raises Murata Manufacturing Target Price to 5,400 Yen, Bullish on Doubling Growth in AI Server MLCCs

Overview

This report is Goldman Sachs' earnings commentary on Murata Manufacturing (6981.T), a Japanese electronic components giant. The report notes that the company's operating profit for fiscal year 2026 (FY3/26) exceeded market expectations, while guidance for the next fiscal year was largely in line with expectations. The core highlight is the company's extremely optimistic outlook for demand for Multilayer Ceramic Capacitors (MLCCs) used in AI servers; it has significantly raised its sales volume CAGR forecast and predicts that sales in this segment will continue to double over the next 2-3 years. Based on this, Goldman Sachs has raised its earnings forecasts and target price, maintaining a 'Buy' rating.

Core views

Regarding earnings and guidance, Murata Manufacturing's FY3/26 operating profit reached 281.8 billion yen, higher than Goldman Sachs' expectation of 275 billion yen and the company's previous guidance of 270 billion yen. The company's full-year operating profit guidance for FY3/27 is 380 billion yen (assuming an exchange rate of 150 yen per USD), slightly below Goldman Sachs' previous expectation of 405 billion yen based on a 155 yen exchange rate. However, considering the impact of exchange rate fluctuations (approximately 4.5 billion yen per 1 yen change), the actual guidance effectively meets expectations. The explosion in demand for AI server MLCCs is the core logic of this report. Murata has significantly raised its sales volume Compound Annual Growth Rate (CAGR) expectation for this business from 30% to 80%. Management stated that the sales trend for AI server MLCCs will maintain a doubling pace annually over the next 2-3 years. As these products involve high technical difficulty, this helps further consolidate Murata's competitive advantages. Additionally, regarding the AI power supply business, although the first-generation products were discontinued due to firmware issues, the second-generation large-scale products for the same customer will launch in June, with sales in this segment expected to increase by 25 billion yen year-over-year in FY3/27. In terms of capacity and pricing strategy, the company's capacity utilization rate in the fourth quarter was close to 95% and is expected to remain at the 95% level in FY3/27. Consequently, the company decided to add 40 billion yen in capital expenditure in both FY3/27 and FY3/28, resulting in a cumulative capacity expansion of over 20% across the two years (previously, only less than 10% expansion was expected for FY3/27). Regarding prices, Murata currently has no serious plans for price hikes, relying primarily on product mix optimization to improve Average Selling Prices (ASP), and will only consider price increases if it cannot absorb rising material and energy costs. Regarding shareholder returns, the company announced a 150 billion yen share buyback plan, representing approximately 4.12% of outstanding shares, and committed to continuing flexible buybacks starting from FY3/28.

Analysis framework

Goldman Sachs' analytical approach primarily revolves around 'structural changes in demand' and 'supply constraints.' First, by comparing actual performance against expectations, it confirms the robustness of the company's fundamentals. Second, it deeply dissects specific sub-sectors, particularly isolating AI server MLCCs from the overall MLCC business for separate analysis, capturing their growth rate (80% CAGR vs. the traditional 30% expectation) which is far above the industry average; this is the core driver for the valuation upgrade. Third, combining capacity utilization rates (95%) and expansion plans (+20%), it judges that the supply-demand balance will remain tight, thereby supporting profit margins. Finally, in terms of valuation methodology, it employs a model linking EV/GCI with CROCI/WACC and, responding to market sentiment and growth certainty, has increased the valuation premium multiple, thereby deriving a higher target price.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  EV/DACF Premium Adjustment

  The research report uses the Enterprise Value to Debt-Adjusted Cash Flow (EV/DACF) ratio for valuation. Reflecting the market's recognition of growth potential, the premium relative to industry multiples has been raised from 20% to 50%, reflecting the logic that the market is willing to assign higher valuation multiples under high growth expectations.

• Industry/Sector Analysis FrameworkSupply and Demand Framework

  Capacity Utilization and Expansion Cycle

  By analyzing capacity utilization rates (approaching the 95% warning line) and future capital expenditure plans (20% expansion over two years), the report assesses the tightness of the industry's supply side. High utilization rates typically indicate a seller's market, which is conducive to maintaining prices and profit margins.

• Industry/Sector Analysis FrameworkVolume-Price Split

  ASP Improvement Driven by Product Mix Optimization Rather Than Direct Price Hikes

  Distinguishes between 'direct price increases' and 'Average Selling Price (ASP) improvements driven by product structure upgrades.' The report notes that Murata currently does not intend to raise prices directly but aims to boost overall ASP by increasing the proportion of high-value AI server MLCCs. This is a more sustainable and less resistant way to drive profitability.

Asset mapping & comparison

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

• Murata Manufacturing (6981.T)

  Direct beneficiary, core supplier of AI server MLCCs

  Strengths

  High technical barriers, surge in AI server MLCC sales volume expectations (80% CAGR), high capacity utilization, ample cash flow supporting buybacks

  Weaknesses

  No direct price hike plans in the short term; reliance on product mix optimization to improve ASP

  Comparison

  In areas such as automotive applications, Japanese manufacturers have greater leverage advantages and lower risks of price/mix deterioration compared to competitors in other regions

  Risks

  Decline in smartphone production volumes, deterioration in MLCC supply-demand balance, appreciation of the yen

Key data

• FY3/26 Operating Profit281.8 billion yenExceeded expectations (Goldman Sachs expectation: 275 billion yen; Company guidance: 270 billion yen)
• FY3/27 Operating Profit Guidance380 billion yenAssuming an exchange rate of 150 yen per USD
• AI Server MLCC Sales Volume CAGR Expectation80%Significantly raised from the previous 30%
• AI Server MLCC Sales TrendDoubling annually over the next 2-3 yearsLatest management outlook
• FY3/27 AI Power Supply Sales Increment+25 billion yenYear-over-year increment; second-generation products launch in June
• Share Buyback Scale150 billion yenRepresents 4.12% of outstanding shares
• Target Price5,400 yenRaised from 4,200 yen; implies 23x FY3/28 P/E

Impact & implications

The research report believes that although there is no news of direct MLCC price hikes recently, the company's guidance on significant sales volume growth (+80%) and doubling sales is very positive. Against the backdrop of stabilizing MLCC prices, an increasing proportion of high value-added products, and sustained high capacity utilization, the company's operating leverage effect should not be underestimated. Coupled with large-scale share buybacks, this provides strong support for the stock price. Goldman Sachs has therefore significantly raised its target price, believing that while the current valuation is higher than the historical average (21x P/E), it remains reasonable compared to historical peaks (above 25x).

Risks

• Decline in smartphone production volumes
• Deterioration in MLCC supply-demand balance
• Appreciation of the yen

What to watch

• Whether AI server MLCC sales achieve the expected annual doubling
• Sales ramp-up of second-generation AI power supply products following the June launch
• Whether rising raw material and energy costs force the company to initiate direct price hikes
• Execution progress of capacity expansion plans for FY3/27 and FY3/28