Murata Mfg. 1Q exceeded market expectations; Goldman Sachs raises target price and maintains Buy (CL)

Overview

This report reviews Murata Mfg.'s (6981.T) 1Q results from Goldman Sachs. Murata's 1Q operating profit exceeded market expectations, and the company raised its full-year operating profit guidance. Based on the results and management commentary, Goldman Sachs raised its operating profit forecasts for FY3/27 through FY3/29 and increased its 12-month target price to ¥12,900, while maintaining its Buy rating and CL status.

Core views

The core view is that Murata is favorably positioned in the high-end AI/DC MLCC cycle. AI/DC-related MLCC sales growth exceeded expectations, while the book-to-bill ratio and capacity utilization indicate tight supply and demand. The company has been unable to build inventory because output is shipped almost immediately. Goldman Sachs believes that further strengthening of AI/DC demand, potential pricing strategy, and the significant prior share price pullback make current levels attractive for long-term accumulation.

Analysis framework

The report is based on 1Q actual results, revisions to the company's full-year guidance, management commentary at the results briefing, and adjustments to Goldman Sachs' earnings forecasts. It focuses on MLCC orders, capacity utilization, inventory, AI/DC sales growth, pricing strategy, and Devices/modules performance, and derives the target price using the EV/GCI and CROCI/WACC frameworks.

Methodology notes

• Valuation methodologyFY3/29E EV/GCI vs. CROCI/WACC

  Values the company using FY3/29E EV/GCI relative to CROCI/WACC and applies a premium to the industry multiple.

  Goldman Sachs' ¥12,900 target price is based on FY3/29E EV/GCI vs. CROCI/WACC, applying an 80% premium to the 10x industry multiple, implying FY3/29E P/E of approximately 30x.

• Factor frameworkGS Factor Profile

  Compares stocks cross-sectionally based on growth, financial returns, valuation multiples, and composite percentiles.

  This framework uses Goldman Sachs' forecasts to standardize and rank metrics including sales growth, EBITDA growth, EPS growth, ROE, ROCE, CROCI, P/E, P/B, and EV/EBITDA.

• M&A scenarioM&A Rank

  Goldman Sachs assesses the probability of a company becoming an acquisition target on a scale of 1 to 3.

  Murata's M&A Rank is 3, indicating a low probability, and is typically not incorporated into the target price.

Asset mapping & comparison

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

• Murata Mfg. (6981.T)

  A Japanese electronic components and semiconductor-related stock, with core businesses including MLCCs, RF modules, and MetroCirc.

  Strengths

  MLCCs account for approximately 50% of sales; small, high-capacity AI/DC MLCCs have high technical requirements and higher ASPs; estimated global share in AI/DC applications exceeds 50%; the company has decided to invest ¥80.0bn in dedicated AI/DC capacity expansion.

  Weaknesses

  RF devices profitability remains under pressure, while the Devices/modules segment posted a 1Q loss; the company expects only to reach breakeven for the full year.

  Comparison

  Compared with general MLCC applications, AI/DC MLCCs have higher technical barriers because they must handle sharply increasing power consumption within limited board space, making them more likely to benefit from increased content per device and price improvement.

  Risks

  Declining smartphone production, deterioration in MLCC supply and demand, and yen appreciation could weaken earnings and valuation.

Key data

• 12-month target price¥12,900Raised from ¥12,600.
• RatingBuy (on CL)Buy rating maintained and included on the Conviction List.
• 1Q operating profit¥98.5bnClose to Goldman Sachs' estimate of ¥99.5bn and above the Bloomberg consensus of ¥89.5bn.
• Company full-year operating profit guidance¥430bnRaised from ¥380bn, with the foreign exchange assumption adjusted to ¥155/USD from 2Q onward.
• 1Q MLCC book-to-bill ratio1.47x4Q was 1.36x, while capacity utilization was slightly below 95%.
• 1Q sales growth of AI/DC MLCCs+35%-40% qoq, +75%-80% yoyFull-year sales target raised to more than +100%.
• Full-year total MLCC revenue growth plan+24%The original plan was +13%, driven by strong AI/DC demand and a weaker yen.
• Goldman Sachs FY3/27-FY3/29 operating profit forecast revisions+6% / +6% / +4%Raised based on 1Q results and management commentary.
• Goldman Sachs' new FY3/27-FY3/29 operating profit forecasts¥485.0bn / ¥700.0bn / ¥895.0bnPrevious forecasts were ¥458.0bn / ¥663.0bn / ¥864.0bn.
• Market capitalization and enterprise valueMarket cap ¥15.0tr; enterprise value ¥14.2trDisclosed in the report's Key Data.

Impact & implications

From an investment perspective, the report positions Murata as a core beneficiary of tightening supply and demand in the high-end AI/DC MLCC cycle. If AI server and data center demand continues to expand, alongside a recovery in consumer electronics, an increase in long-term agreements, and greater penetration of edge devices, the MLCC upcycle could be extended. Successful implementation of the pricing strategy would provide additional upside to earnings forecasts.

Risks

• Decline in smartphone production.
• Deterioration in MLCC supply and demand.
• Yen appreciation putting pressure on earnings and valuation.
• Continued challenging conditions in the RF devices business, potentially weighing on Devices/modules segment profitability.
• AI/DC demand or long-term agreements falling short of expectations, potentially weakening Goldman Sachs' view that the cycle will be extended.

What to watch

• Whether AI/DC MLCC sales continue to exceed the full-year target of +100%.
• Whether the MLCC book-to-bill ratio, capacity utilization, and inventory can remain tight.
• Progress in the company's pricing negotiations with distributors and OEM customers.
• Increase in long-term agreements in FY3/28.
• Whether a recovery in consumer electronics further tightens MLCC supply and demand.
• Whether the RF devices segment can reach full-year breakeven as expected by the company.
• Changes in the yen-dollar exchange rate relative to the ¥155/USD assumption.