铠侠投资者日：22%的位元复合年增长率是否足够？

KIOXIA Investor Day: 22% bit CAGR good enough? KIOXIA suggested the favorable environment to continue into CY27.Referring to aTechInsights forecast (Exhibit 1), KIOXIA suggested supply to stay tight throughout CY27.Also with the reference to “research firms”, NAND market revenue is projected to be c.4x larger in CY26 vs. CY25, & the trend to continue into CY27. The TechInsights forecasthowever expects shortage to narrow substantially in CY27. We also wonder short-termbehaviors (e.g. double order) will create a temporary price peak & correction in CY27. Mark Li+852 2123 2645mark.li@bernsteinsg.com Edward Hou, CFA+852 2123 2623edward.hou@bernsteinsg.com LTAs cover roughly 50% of demand at the moment.Despite multiple questions, KIOXIAalluded to NDA & didn’t share much on LTAs, except that LTAs now cover c. 50% of bitshipment, & KIOXIA is working with customers to increase the coverage. No details onprepayments/financial guarantees either, and not finding any signs of that in KIOXIA’sdisclosures also makes us wonder if they are financially material. Yipin Cai, CFA+852 2123 2669yipin.cai@bernsteinsg.com More capex to support AI demand growth.KIOXIA raises industry bit demand growthto 22% CAGR from CY25 to CY28, from 20% previously. Increase is mainly from eSSDesp. for inference, while PC & mobile growth is expected to slow down (Exhibit 2). AndKIOXIA aims to grow its capacity in line with that & target its eSSD revenue contribution toreach >60% of the total by FY28 (vs. ~35% in FY25) (Exhibit 3). KIOXIA plans to increasecapex to JPY470B/year on average from FY26 to FY28, & R&D to JPY230B/year (up vs.JPY130B in FY25) (Exhibit 4-Exhibit 5). JPY470B is however below the current consensusof ~JPY520B, despite KIOXIA has enough fab space in K2 and Y7 now & is discussinginternally for K3 fab construction. No upgrade to margin target.Given better demand prospects, KIOXIA sees structurallyhigher revenue & margins and reduced earnings volatility (Exhibit 6), but did not upgradeits OPM target of mid 20s% set previously. Perhaps KIOXIA also struggles to estimate thethrough-cycle margins? KIOXIA to pay dividend starting 2HFY26 at the earliest.KIOXIA is actively consideringshareholder return, mostly likely dividend based, & should start that in FY27 or as earlyas 2HFY26. No specifics on the size or other details though. Also, on top of capex, R&D,deleveraging & operational needs, cash will also be reserved for potential inorganicinvestments (i.e. M&A). We thus will assume KIOXIA will not return all the “excess” FCF(Exhibit 7). BiCS10 is coming next year.BiCS8 is ramping and will be 80% of bit output by the endof FY26. 332L based BiCS10 is in development and first product, a TLC eSSD, will beginsampling this summer, and mass production 1 year later if successfully qualified. BiCS10boasts better cost, performance and power efficiency than competitors’ 400L products,according to KIOXIA, through better lateral shrink and use of CBA (Exhibit 8-Exhibit 9). Overall, we welcome the upward revision but wonder if some find 22% and JPY470Bcapex/year underwhelming. Very scant details on LTAs also makes it difficult toquantify earnings duration & valuation. We agree solid near-term momentum inNAND but still caution investors on cyclicality and threat from China. EXHIBIT 4:To support higher demand growth, KIOXIAplans to spend JPY470B capex per year on average in thenext 3 years. EXHIBIT 5:It will also increase R&D spending for nodemigration and also novel SSD products for AI inference. EXHIBIT 6:KIOXIA sees higher base for revenue and margins and reduced volatility with LTAs, but did not officiallyupgrade its operating margin target of mid 20s%. EXHIBIT 7:Shareholder return is being planned, but needs to be weighed against need for M&A, and hence not allexcess FCF may be distributed to shareholders. Source: KIOXIA EXHIBIT 8:KIOXIA believes its 332L based BiCS 10 has better cost structure and power efficiency and reliability vscompetitiors’ >400L NAND, by utilizing better lateral shrink & CBA. EXHIBIT 11:… targeted for different needs in AI data centers. INVESTMENT IMPLICATIONS KIOXIA: We rate KIOXIA Underperform with TP=JPY 17,000. BERNSTEIN TICKER TABLE I. REQUIRED DISCLOSURES References to "Bernstein" or the “Firm” in these disclosures relate to the following entities: Bernstein Institutional Services LLC(April 1, 2024 onwards), Sanford C. Bernstein & Co., LLC (pre April 1, 2024), Bernstein Autonomous LLP, BSG France S.A. (April 1,2024 onwards), Sanford C. Bernstein (Hong Kong) Limited盛博香港有限公司,Sanford C. Bernstein (Canada) Limited, SanfordC. Bernstein (India) Private Limited (SEBI registration no. INH000006378), Sanford C. Bernstein (Singapore) Private Limited,Sanford C. Bernstein Japan KK(サンフォード・C・バーンスタイン株式会社)and analysts employed by Société GénéraleAfrica Technologies & Services to produce Bernstein research under a Global Services Agreement in place between Bernsteinand Société Générale. Bernstein is part of a j