In setting electronic component industry target prices, we employ a RoIC-WACC approach, taking net cash into consideration. We set a base year of FY3/26 for the company as a whole. We assume an expected growth rate of 0%, a risk-free rate of 1.0% and calculate an equity-risk premium of 5.5% from the recent TOPIX earnings yield.
Our ¥3,700 target price is derived as follows. Theoretical shareholder value = FY3/26E adjusted NOPAT x a future business value multiplier + FY3/26E net cash (after deducting an amount equivalent to 5% of annual sales and the book value of investment securities) - end-FY3/26E minority interest)/(1+WACC)^(months remaining in the base year/12).

Risks to our target price include 1) HDD demand upside and downside, 2) a major contraction or expansion in auto shipments, 3) changes in the global macro picture resulting in volatility in industrial equipment capex, 4) dramatic forex volatility, 5) the adroitness or otherwise of the post-merger integration of subsidiaries acquired overseas, and 6) a prolonged impact from the accounting issue.