In 2012, we wrote that Murata Manufacturing Co. (6981.T) was coming under pressure from one of its biggest customers, Apple Inc. (AAPL.O). Murata makes ceramic capacitors, tiny parts that control the flow of electricity in electronic devices, including smartphones. Fast forward to 2015 and let’s see whether things have turned around for the Kyoto-based company.
One good sign is that other phone manufacturers, including those based in China, are now using the specialized components that Murata makes. That has alleviated some of the pressures of depending on a single customer, while at the same time the surge in demand for mobile devices globally is still driving revenues well into the double digits.
Murata’s components are also used in industrial equipment, tablets and cars. The strong dollar is icing on the cake as its products appear cheaper for international companies. Analysts have been quick to raise expectations throughout the year, but the positive StarMine Predicted Surprise of 2.4% leads us to believe that the company could overhaul those expectations.
Source: Eikon/StarMine
Credit where it’s due
Murata has performed well on almost every StarMine model, with strong analyst revisions momentum and price momentum. In fact, the company has outperformed the TOPIX (Tokyo Stock Exchange Price Index) over the past three months (26% VS. 11%). The company seems to have robust earnings quality which is a sign that strong earnings could be sustainable in the coming quarters. The company has a stable balance sheet and good financials, too, based on our credit models.
Source: Eikon/StarMine
Lighting up circuits
Since 2012, we can see that operating profit margins have been on the rise. In the last quarter, they reached a peak of 19% — five year highs and far above the industry median. It looks like the margin pressures they faced in 2012 have eased considerably. That’s the reason the company has also seen return on net operating assets reach five year highs of 24%, an indication that management is doing a good job utilizing its assets to generate returns. It’s why we think these strong earnings could be sustainable going forward.
Source: Eikon/StarMine
The consensus is calling
The chart above shows that analysts have raised operating profit estimates over the past year to ¥205 billion from ¥150 billion a year ago. There is even a Bold Estimate of ¥211 billion from a 5-star rated analyst that’s far above the consensus. Given the analyst’s track record, this is worthy of attention.
The demand for smartphones doesn’t seem to be letting up any time soon and even lower-end phones have features that were not available just a few years ago. Given these trends, it looks like Murata is settled into a nice groove and is likely to coast past estimates when it reports earnings at the end of April.
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