In setting our target prices for the electronic component industry, we employ a RoIC-WACC approach, taking net cash into consideration. We set a base year of FY3/27, assume an expected growth rate of 1.0% and a risk-free rate of 1.00%, and calculate an equity-risk premium of 5.6% from the recent TOPIX earnings yield.
Our ¥1,600 target price is derived from theoretical shareholder value of ¥326bn (=FY3/27E adjusted NOPAT of ¥24.5bn x future business value multiplier of 18.4x + FY3/27E net cash of -¥79.1bn [after deducting an amount equivalent to 5% of annual sales] - end-FY3/27E minority interest of ¥2.9bn) / (1 + WACC)^(24/12). In deriving our future business value multiplier of 18.4x = (1-g/RoIC)/(WACC-g), we assume FY3/27E adjusted RoIC of 5% and WACC of 5.3% (adjusted beta of 1.09, tax rate of 28%). Our ¥1,600 target price equates to an FY3/26E PER of 18.2x and an FY3/27E PER of 17x. 

We see the main downside risks to our target price as including the following: 1) a decrease in auto shipment volumes, 2) a decline in demand for tech products as a whole, 3) forex fluctuations, and 4) a lack of results from management restructuring. Conversely, the shares could exceed our target price if 1) there is a rapid increase in the ratio of smartphone cameras equipped with handshake correction functionality via OIS or market share is greater than we expect, 2) strategies are introduced to enhance margins on automotive products, or 3) the firm actively buys back shares.