Kioxia 1Q broadly in line with expectations; better-than-expected buyback reinforces confidence in earnings and cash flow

Overview

This report reviews Kioxia Holdings' 1Q results from Goldman Sachs. The company's 1Q non-GAAP operating profit was approximately ¥1.33 trillion, slightly below Goldman Sachs' estimate of ¥1.42 trillion and Bloomberg consensus of ¥1.37 trillion, but was still considered broadly in line with expectations, mainly due to employee bonus provisions, some quarter-end shipment deferrals, litigation losses, and equity incentive expenses. 2Q profit guidance of approximately ¥1.9 trillion was close to market expectations. More importantly, after a sharp share-price pullback, the company announced a large-scale share buyback and stock split. Goldman Sachs believes this demonstrates management's confidence in future earnings growth and cash-flow generation.

Core views

Goldman Sachs' core view is that Kioxia's earnings cycle may differ from previous NAND cycles. Although the NAND industry remains cyclical, factors including AI-related storage demand, enterprise SSD demand, tight HDD supply, and major memory manufacturers prioritizing DRAM investment will allow tight NAND supply and demand to persist through 2027 and potentially into 2028. The company has strong cost competitiveness and relatively high margins, while progress in data center products is also a long-term positive. Goldman Sachs therefore maintains its Buy rating and ¥116,000 target price.

Analysis framework

The report analyzes quarterly results and guidance, key points from management's earnings call, supply-and-demand and pricing expectations, long-term agreement coverage, capital expenditure discipline, shareholder return policy, and valuation. Valuation is primarily based on the correlation between P/B and average FY3/27E-FY3/28E ROE, with reference to an implied FY3/28E P/E of 7.8x and P/B of 4.6x.

Methodology notes

• Valuation methodP/B and ROE correlation valuation

  Book-value multiples driven by profitability

  Goldman Sachs sets its 12-month target price of ¥116,000 based on the correlation between P/B and average FY3/27E-FY3/28E ROE, implying an FY3/28E P/E of 7.8x and P/B of 4.6x.

• Fundamental frameworkSupply-and-demand cycle analysis

  Tight NAND supply and demand and rising prices

  The report focuses on assessing the impact of AI, enterprise SSDs, HDD substitution, and major manufacturers' capital expenditure direction on NAND prices and margins, concluding that tightening supply and demand could persist through CY27.

• Goldman Sachs internal toolGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite factors

  GS Factor Profile compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and composite indicators to provide additional investment context.

Asset mapping & comparison

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

• Kioxia Holdings (285A.T)

  Research subject; Japanese NAND flash memory company stock

  Strengths

  The world's third-largest NAND flash memory manufacturer, with strong cost competitiveness, relatively high margins, growth opportunities from data center product development, and proactive management capital-return actions.

  Weaknesses

  The NAND industry remains cyclical, with more competitors than the HDD and DRAM markets; earnings are sensitive to prices, utilization, and exchange rates.

  Comparison

  Goldman Sachs believes that, compared with previous NAND cycles, AI demand, eSSD demand, and limited supply additions could enable the company to sustain higher profit levels in this cycle.

  Risks

  A slowdown in AI investment, the rise of Chinese NAND manufacturers, rising costs or fluctuations in capacity utilization, substantial appreciation of the yen against the U.S. dollar, and slowing NAND demand from non-AI applications.

Key data

• 12-month target price¥116,000Maintained by Goldman Sachs.
• RatingBuyGoldman Sachs reiterates its Buy rating.
• 1Q non-GAAP operating profitApproximately ¥1.33 trillionSlightly below Goldman Sachs' estimate of ¥1.42 trillion and Bloomberg consensus of ¥1.37 trillion, but broadly within expectations.
• 2Q non-GAAP operating profit guidanceApproximately ¥1.9 trillionClose to Goldman Sachs' estimate of approximately ¥1.97 trillion and Bloomberg consensus of approximately ¥1.95 trillion.
• 2Q dollar-denominated revenue guidance34% quarter-over-quarter growthManagement expects pricing to contribute more than volume.
• Share buybackUp to ¥800 billion/30 million sharesApproximately 5.5% of outstanding shares.
• Stock split1-for-3Record date is September 30, 2026.
• FY3/27 operating profit forecast adjustmentDown 1%Mainly reflects various provisions.
• FY3/28-FY3/29 operating profit forecast adjustmentUp 3%/4%Mainly due to the USD/JPY assumption being adjusted from 155 to 160.
• FY3/28 valuationP/E of approximately 3xGoldman Sachs believes this valuation does not fully reflect the sustainability of higher future profits.

Impact & implications

The report's investment implications are positive. In the short term, 2Q guidance should ease concerns about rising NAND prices and earnings momentum. In the medium term, the share buyback and potential further dividends indicate more proactive capital allocation, helping enhance management's credibility in the capital markets. In the long term, if AI and data center storage demand remains strong, Kioxia's profit levels could exceed those of past cycles and drive a valuation re-rating.

Risks

• A slowdown in AI investment led by hyperscale cloud providers.
• The rise of Chinese NAND manufacturers intensifying competition.
• Declining margins due to rising costs or fluctuations in capacity utilization.
• A substantial appreciation of the yen against the U.S. dollar weighing on earnings.
• Slowing NAND demand from non-AI applications.
• If NAND supply increases faster than expected, price increases and profit sustainability could come under pressure.

What to watch

• Whether actual 2Q shipments, pricing negotiations, and non-GAAP operating profit reach guidance.
• The realization of pricing for approximately 50% of 2Q sales volume that remains under negotiation.
• Whether tight NAND supply and demand persists from CY27 through CY28.
• Whether long-term agreement coverage can progress toward the target of covering 50% of CY28 shipment volume.
• The progress of share buyback execution and any additional shareholder returns or dividends.
• The actual strength of NAND demand driven by AI inference and agent applications.
• The impact of USD/JPY exchange-rate movements on earnings forecasts.