Yageo’s Resilient Product Portfolio Offsets Impact of Inventory Correction; Maintaining TWD 640 FVE

Based on solid June-quarter earnings results, we reiterate our view that Yageo’s product portfolio is much more resilient than in the past. Due to the weaker demand outlook for both smartphones and PCs, we estimate that the utilization rate for commoditized components has dropped month by month to digest excess inventories in the supply chain. However, Yageo’s June-quarter gross margin came in at 38.8%, down from 41.0% in the previous year, but better than 38.1% in the previous quarter. Despite the lower utilization rate of commoditized passive components and lower sales of tantalum capacitors due to the lockdown, we estimate that Yageo has more than offset the shortfall by improving the productivity of the acquired Chilisin business. We also assume that the demand for specialized components remained solid throughout the quarter.