Japan electronic components / MLCC: Goldman Sachs sees August MLCC trade weakness as seasonal and expects momentum to strengthen from September

Overview

Goldman Sachs reviews Japan’s August MLCC trade data and argues that the month-on-month decline in export volume and value was seasonal rather than a sign of weakening underlying demand. It expects momentum to improve from September and remains constructive on Murata Mfg., Taiyo Yuden and TDK.

Core views

Ministry of Finance data released on September 29 showed that August MLCC average export prices increased 3% month on month, while export volume declined 16% and export value declined 14%. Year on year, the respective changes were +33%, -6% and +24%. Goldman Sachs views the monthly volume and value declines as normal summer-holiday seasonality and expects momentum to strengthen again from September onward. The firm highlights that average selling prices rose both month on month and year on year. It attributes this, in its view, to a growing contribution from AI/data-center applications, which carry higher average unit prices. This mix shift is central to its constructive interpretation of the trade figures despite the August shipment decline. Goldman Sachs maintains Buy ratings on Murata Mfg., Taiyo Yuden and TDK. For Murata, it expects investor views to improve further following first-half results, supported by second-quarter earnings exceeding guidance, an upward revision to full-year guidance, higher MLCC production and capacity utilization, better product mix, and a favorable second-half outlook. The firm remains bullish even as investor valuation has already risen again. For Taiyo Yuden, Goldman Sachs expects potential share-price catch-up at first-half results. It argues that the market may be underestimating the benefits of MLCC demand from AI/data-center applications and operating leverage as utilization rises. Company-wide second-quarter operating profit margin above 10%, in line with guidance, could be a catalyst for improved valuation. For TDK, the firm believes underlying earnings capability may also be underestimated. It expects valuation to improve as a substantial upward revision to full-year guidance becomes visible, alongside FY3/27 onward growth from HDD-related products, medium-sized batteries for data centers, and improving passive-component earnings.

Analysis framework

The report uses Ministry of Finance MLCC export statistics to separate seasonal shipment movements from underlying pricing and mix trends. It then links higher MLCC prices and anticipated utilization gains to company-specific earnings, operating leverage and valuation catalysts for the three covered manufacturers.

Methodology notes

• Industry AnalysisSupply-demand framework

  Assessment of MLCC export volume, export value, average selling price and seasonal demand patterns.

  The report interprets the August shipment decline against summer-holiday seasonality while using rising prices to assess underlying demand and product-mix conditions.

• Industry AnalysisVolume-price decomposition

  Separate analysis of MLCC export volume, value and average selling price.

  By comparing shipment volume with value and pricing, the report argues that a higher-value AI/data-center mix supported ASPs despite lower August volumes.

• Corporate Fundamentals and FinanceOperating and Financial Leverage Analysis

  Operating leverage from improving capacity-utilization rates at Taiyo Yuden.

  The report identifies rising utilization as a mechanism that could lift profitability and prompt a valuation re-rating.

• Valuation methods

  EV/GCI versus CROCI/WACC valuation framework used for the companies' target prices.

  Goldman Sachs bases targets on forecast EV/GCI multiples relative to CROCI/WACC and applies premiums to sector multiples.

Asset mapping & comparison

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

• Murata Mfg. (6981.T)

  Covered MLCC manufacturer expected to benefit from stronger MLCC momentum, improved mix and higher utilization.

  Strengths

  Second-quarter earnings beat guidance; expected upward revision to full-year guidance; increased MLCC production and capacity utilization; improved product mix; favorable second-half outlook.

  Comparison

  Goldman Sachs expects positive views to strengthen across profitability, growth potential and competitiveness.

  Risks

  Decline in smartphone production volume, deterioration in MLCC supply/demand, and yen appreciation.

• Taiyo Yuden (6976.T)

  Covered MLCC manufacturer for which the firm expects potential share-price catch-up at first-half results.

  Strengths

  Potential benefit from AI/data-center MLCC applications and operating leverage as utilization rises.

  Weaknesses

  The equity market may be underestimating its AI/data-center MLCC benefits and operating leverage.

  Comparison

  A company-wide second-quarter operating profit margin above 10% could improve valuation.

  Risks

  Weaker-than-expected smartphone demand, deterioration in MLCC supply/demand, and yen appreciation.

• TDK

  Covered electronic-components manufacturer whose earnings capability and valuation are viewed as underestimated.

  Strengths

  Potential full-year guidance upgrade; FY3/27 onward growth from HDD-related products, medium-sized data-center batteries and improved passive-component earnings.

  Weaknesses

  Its true earnings capability may not yet be fully reflected in valuation.

  Comparison

  Goldman Sachs expects valuation improvement as earnings visibility increases.

  Risks

  Decline in smartphone production volume, higher input costs, and yen appreciation.

Key data

• August MLCC average export price+3% mom; +33% yoyGoldman Sachs links the increase to a higher contribution from AI/data-center applications.
• August MLCC export volume-16% mom; -6% yoyThe firm attributes the monthly decline to usual summer-holiday seasonality.
• August MLCC export value-14% mom; +24% yoyValue declined sequentially but remained higher than a year earlier.
• Murata Mfg. target price¥12,90012-month target; based on FY3/29E EV/GCI versus CROCI/WACC, with an 80% premium to the 10x sector multiple; implies FY3/29E P/E of 30x.
• Taiyo Yuden target price¥21,30012-month target; based on FY3/29E EV/GCI versus CROCI/WACC, with an 80% premium to the 10x sector multiple; implies FY3/29E P/E of 31x.
• TDK target price¥4,900Based on FY3/29E EV/GCI versus CROCI/WACC, with a 10% premium to the 10x sector-average EV/DACF multiple; implies FY3/28E P/E of 27x.
• Taiyo Yuden 2Q operating profit margin thresholdAbove 10%Meeting or exceeding guidance could catalyze improved valuation, according to the report.

Impact & implications

The report argues that a September recovery in MLCC momentum, together with higher-value AI/data-center demand, could support earnings and valuations across the covered component makers. Murata is positioned around execution and mix improvement, Taiyo Yuden around utilization-driven operating leverage, and TDK around fuller recognition of its earnings and FY3/27 growth potential.

Risks

• For Murata Mfg., risks are lower smartphone production, worsening MLCC supply-demand conditions and yen appreciation.
• For Taiyo Yuden, risks are weaker-than-expected smartphone demand, worsening MLCC supply-demand conditions and yen appreciation.
• For TDK, risks are lower smartphone production, higher input costs and yen appreciation.

What to watch

• Whether MLCC export momentum strengthens from September after the seasonal August slowdown.
• Murata’s first-half results, including second-quarter performance, full-year guidance, MLCC production and capacity utilization.
• Whether Taiyo Yuden’s company-wide second-quarter operating profit margin exceeds 10%.
• Whether TDK delivers a substantial full-year guidance upgrade and improves visibility on FY3/27 growth drivers.