Denso Earnings: Expecting Further Top-Line Growth in 2023; Guidance Is Conservative

We believe Denso’s 6902 fiscal 2023 (ending March 2024) revenue guidance of JPY 6.3 trillion, which implies a 1.6% year-on-year decline, is too conservative. While the stronger Japanese yen and declining sales of non-battery electric vehicles, or BEVs, in China will be negative factors, we believe that the recovery in global auto production and increasing sales of BEV components (such as inverters) will continue to drive Denso’s sales growth. Further, Toyota’s plan to produce 10.1 million vehicles this fiscal year, which is a 10.6% year-on-year increase and in line with our expectations, is another reason we believe Denso’s guidance is conservative. As a result, we maintain our 2023 revenue forecast of JPY 6.6 trillion, up 3.8% year on year, and our fair value estimate of JPY 9,100. We believe Denso’s shares are currently fairly valued.

The company’s revenue growth of 17% year on year in the March quarter was better than our forecast by about 15 percentage points, which we mainly attribute to stronger than expected CASE-related product sales. Mobility electronics and electrification system sales for the quarter grew 27% and 21% year on year, respectively, while powertrain systems sales—which have higher proportion to internal combustion engine, or ICE, cars—only grew 7% in the March quarter. Further, Toyota’s production recovery was better than expected, with March quarter production up 5% year on year, compared with our previous estimate of a 1% decline and a 13% decline in the December quarter.