Inventory Correction Progress Offers Entry Point for Yageo; FVE Decreased to TWD 720

Although we cut Yageo’s earnings forecasts by incorporating the longer-than-expected inventory correction, we are encouraged that major multilayer ceramic capacitors, or MLCC, suppliers are lowering their utilization rate to digest inventories in the supply chain. As a result, we believe the end of the September quarter will be the peak of the inventory level, which is a positive sign, suggesting that we are at the bottom of the cycle. We note that the MLCC price erosion has been much smaller than in the past downturns as demand for premium MLCCs—which are used for autos, servers, and base stations—has been quite solid, supporting the blended average selling price to remain stable. In addition, Yageo did not follow the price competition this time as the company no longer depends on commoditized passive components. Therefore, we think that MLCC suppliers will maintain a relatively healthy margin and we remain confident about the long-term growth opportunities in 5G communication, increasing data traffic, and auto digitalization.