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 FY3/26, assume an expected growth rate of 0% and a risk-free rate of 1.0%, and calculate an equity-risk premium of 5.5% from the recent TOPIX earnings yield.
Our ¥1,600 target price is derived from theoretical shareholder value (=FY3/26E adjusted NOPAT x future business value multiplier + FY3/26E net cash [after deducting an amount equivalent to 5% of annual sales, including book value of investment securities] - end-FY3/26E minority interest) / (1 + WACC)^(# of months to end of base FY/12).

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.