Goldman Sachs maintains Nichicon Neutral rating, AI server capacitor expansion is fast but overall profitability remains low

Overview

This is a Goldman Sachs company research note on Nichicon (6996.T), centered on the earnings briefing after the May 15 close. The report acknowledges a significant upward revision to sales targets for aluminum electrolytic capacitors used in AI servers and a clearer improvement path for xEV film capacitors, but it believes overall profitability at the company level remains low and keeps a Neutral rating.

Core views

Positive factors include: the AI server capacitor product line is expanding and sales trends are stronger than previously expected; the probability that xEV film capacitors return to profitability has increased. Constraints include: management did not clearly explain the company's medium- to long-term overall profitability level, the contribution of the above product groups, or the margin profile of the AI server business; the company's FY3/27 operating margin guidance is only 4.7%, so it still needs to deliver profit expansion that exceeds market expectations.

Analysis framework

The report judges the company based on management commentary from the earnings briefing, updated sales targets, cost-inflation assumptions, product-line expansion plans, and Goldman Sachs' valuation framework. The target price is based on the FY3/28E EV/GCI relative to CROCI/WACC framework and implies an FY3/27E P/B of 1.3x.

Methodology notes

• Valuation methodFY3/28E EV/GCI vs. CROCI/WACC

  A framework that evaluates target price by relating enterprise value to gross capital invested and combining cash return on invested capital with weighted average cost of capital.

  Goldman Sachs said Nichicon's 12-month target price of ¥2,200 is based on FY3/28E EV/GCI relative to CROCI/WACC and implies an FY3/27E P/B of 1.3x.

• Factor frameworkGS Factor Profile

  A framework that compares a stock's growth, financial return, valuation multiples, and composite characteristics versus the market and industry peers.

  Growth uses forward sales, EBITDA, and EPS growth; financial return uses ROE, ROCE, and CROCI; valuation multiples use P/E, P/B, dividend-related metrics, EV/EBITDA, EV/FCF, and others; the composite percentile is the average of growth, financial return, and inverse valuation multiples.

• M&A frameworkM&A Rank

  A 1-to-3 rating system that scores covered companies by their potential acquisition probability.

  1 indicates a relatively high acquisition probability, 2 indicates a medium probability, and 3 indicates a low probability; for companies rated 1 or 2, Goldman Sachs may incorporate M&A factors into the target price.

• Research data toolQuantum

  Goldman Sachs' proprietary financial database.

  Quantum provides access to historical financial statements, forecasts, and ratios, and can be used for deep single-company analysis or cross-industry and cross-market comparison.

Asset mapping & comparison

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

• Nichicon (6996.T)

  Research coverage

  Strengths

  Sales targets for AI server capacitors were raised, the probability of profitability improvement for xEV film capacitors has increased, and the product line is expanding into applications such as CPU/GPU boards.

  Weaknesses

  Overall operating margin remains low, and management has not clearly stated the medium- to long-term overall profitability level or the margin contribution from the AI server business.

  Comparison

  The rating is relative to Japanese electronic components peers within Goldman Sachs' coverage, including Murata Mfg., TDK, Rohm, Nidec, and Taiyo Yuden.

  Risks

  Exchange-rate volatility, demand changes, material costs, electricity costs, EV market sales volatility, and subsidy effects.

• AI server aluminum electrolytic capacitor business

  Key growth driver

  Strengths

  Sales targets for FY3/27-FY3/29 were raised significantly, the target market share increases to 30%, and large long-can products account for most of the incremental sales.

  Weaknesses

  The report does not see clear disclosure of margin contribution, and company-wide profitability remains low.

  Comparison

  Sales targets are higher than prior forecasts, with FY3/27 raised from ¥10.0bn to ¥13.0bn and FY3/28 raised from ¥15.0bn to ¥18.0bn.

  Risks

  AI server demand, price pass-through capability, material costs, and execution risk in capacity expansion.

• xEV film capacitor business

  Profitability improvement watchpoint

  Strengths

  The company says the business can become profitable once monthly sales exceed ¥1bn and shows confidence that it can at least break even in FY3/27.

  Weaknesses

  It is still affected by EV market sales and subsidy changes.

  Comparison

  Sales were about ¥9.0bn in FY3/26, the FY3/27 target is ¥13.0bn, and the FY3/30 target is ¥27.5bn.

  Risks

  EV demand volatility, subsidy adjustments, price competition, and insufficient capacity utilization.

Key data

• RatingNeutralGoldman Sachs maintains a Neutral rating on Nichicon.
• 12-month target price¥2,200The target price is based on the FY3/28E EV/GCI vs. CROCI/WACC framework.
• Latest price shown in chart¥2,494The target price history chart shows a closing price of ¥2,494 on 2026-05-08.
• FY3/27 operating margin guidance4.7%The report believes company-level profitability remains low.
• FY3/27 cost increase headwind¥4.3bnThis includes about ¥1.0bn from Middle East/crude-oil-related factors and about ¥2.5bn from aluminum and other material costs.
• FY3/26 sales of aluminum electrolytic capacitors for AI serversslightly above ¥5.0bnThe company then raised its sales targets for subsequent years.
• Sales targets for aluminum electrolytic capacitors for AI serversFY3/27 ¥13.0bn; FY3/28 ¥18.0bn; FY3/29 ¥30.0bnThe FY3/27 and FY3/28 targets were raised from the previous ¥10.0bn and ¥15.0bn, respectively.
• Sales targets for large aluminum electrolytic capacitors related to AI serversFY3/27 ¥9.0bn; FY3/28 ¥13.0bn; FY3/29 ¥23.5bnLong-can products account for the majority of sales.
• Target market share for AI server-related productsFY3/27 30%FY3/26 was below 20%.
• FY3/26 sales of xEV film capacitorsabout ¥9.0bnThe company aims for continued growth in subsequent years.
• Sales targets for xEV film capacitorsFY3/27 ¥13.0bn; FY3/28 above ¥20.0bn; FY3/29 above ¥25.0bn; FY3/30 ¥27.5bnThe company says the business can become profitable once monthly sales exceed ¥1bn.

Impact & implications

The implication for Nichicon is that AI server and xEV-related businesses are building a stronger growth narrative, but the investment case still depends on whether these high-growth businesses can translate into company-wide margin expansion. If cost inflation, price pass-through, AI server margin contribution, and EV demand improvement do not materialize, support for the stock relative to the target price will be limited.

Risks

• Exchange-rate volatility may affect overseas revenue, costs, and valuation.
• Rising aluminum and other material costs, as well as higher electricity costs, may compress margins for aluminum electrolytic capacitors.
• Middle East and crude-oil-related factors have already been included in the cost-increase assumption, but the actual impact may still change.
• If AI server demand or market-share gains fall short of expectations, the contribution from high-growth businesses will weaken.
• Volatility in EV sales and changes in subsidy policy may affect xEV film capacitor sales and profitability improvement.
• Price pass-through is not included in guidance; if execution is weak, cost pressure may continue to weigh on margins.

What to watch

• Whether the company's overall FY3/27 operating margin can exceed the 4.7% guidance.
• Whether sales of aluminum electrolytic capacitors for AI servers progress toward the ¥13.0bn, ¥18.0bn, and ¥30.0bn targets.
• The margin profile of the AI server business and its actual contribution to overall company profit.
• Whether cost pressure from aluminum, crude oil, and electricity is lower than the company's worst-case assumptions.
• The pace of execution and customer acceptance of the price pass-through plan.
• Whether monthly sales of xEV film capacitors exceed ¥1bn and reach at least break-even.
• Whether multilayer conductive polymer aluminum solid electrolytic capacitors can expand from consumer and information-and-communications equipment into AI servers.