全球存储行业：铠侠投资评级下调为“表现不及大盘”，目标价上调至40000日元

Mark Li+852 2123 2645mark.li@bernsteinsg.com Edward Hou, CFA+852 2123 2623edward.hou@bernsteinsg.com RatingUnderperform Yipin Cai, CFA+852 2123 2669yipin.cai@bernsteinsg.com Price Target 285A.JP 40,000 JPY(17,000OLD) KIOXIA: All parties come to an end - Underperform Near-term momentum will support the stock.The price is still rising, albeit with a showerpace in 2HCY26. Earnings growth thus will be notable. It’s difficult to forecast inflection, butwe still believe NAND price will peak in CY2027 and normalize to mid-30s% gross marginexiting CY2028. Our detailed valuation finds the stock overvalued by 50%.Our SOTP valuation(excel available upon request) gives 20x on EPS covered by LTAs, 10x on the remainder &additionally models financial guarantees forgone by customers & capacity return to investors.The valuation sets price target near ¥40,000, i.e. 50% downside to the current stock price,unless KIOXIA’s long-term gross margin (GM) is 65%, or financial guarantee is 80% of LTAcontract value, or shortage lasts till CY2032. Will memory turn into an advance for China in AI?Aggressive price hikes allow China togrow strong and give even non-Chinese customers reasons to use Chinese supply. Exportcontrol on semiconductors slows China down in AI but will rising domestic and cheapermemory supply make memory a structural advantage for China? Memory suppliers deservehealthy returns but should consider tilting the balance to make memory more affordable andAI adoption bigger. Investment Implications KIOXIA: We raise price target to¥40,000, driven by better near-term price, but a detailedSOTP valuation finds the stock expensive as China makes the unexpected long-term marginsunrealistic. We now target4.1x1-year forward P/E (vs. 1x 2-year forward P/B previously)and reiterateUnderperform. DETAILS Please feel free download our NAND industry model (NAND) and KIOXIA company models (KIOXIA). The SOTP (sum-of-the-parts) valuation model discussed below is available in excel format upon request. ALL PARTIES COME TO AN END ARE LTAS REALLY EFFECTIVE? A QUANTITATIVE ASSESSMENT Customers will be financially rewarded to break the LTAs when prices fall likely by 16-30% below floor price. LTAs &financial guarantees may convince suppliers to expand, but insufficient to avoid earnings & stock price volatility. There have been many media reports (for example here, here, & here), but neither Samsung, SK hynix, Micron, nor KIOXIA hasthus far officially released details sufficient for investors to dimension the effectiveness of LTAs. How to decide prices is mostimportant but none has given anything quantitative on that. No comments on the size of any financial guarantees either. As forKIOXIA, the only disclosure thus far is LTAs cover halt of its bit shipment in CY27. SanDisk shared more on LTAs and we summarize the disclosure below. Without better data available, we assume KIOXIA’s LTAswill be similar to what SanDisk disclosed. •Duration: 3-5 years•% of bit shipment covered by LTAs: over 1/3 of FY2027 shipment (but we will use 50% given by KIOXIA for KIOXIA’svaluation)•Minimal contract value committed in three deals: US$41.6B•Financial guarantees as % of LTA minimal contractual value: US$11B As SanDisk’s disclosure suggests that the floor price set in its LTAs is 10% lower than its June-quarter price (Exhibit 1), weassume KIOXIA’s LTAs also have a floor price at10% below KIOXIA’s June-quarter price. Additionally, a simple estimate shown in (Exhibit 2) suggests the financial guarantees is 16% of the minimal contractual valueagreed by customers for SanDisk. Should KIOXIA’s financial guarantees also be 16%, NAND price falling 16% below the floorprice (24% below the June-quarter price) will trigger customers to walk away from LTAs & forgo the guarantees, as buyingfrom open market will save more. In our valuation below, we generously assume KIOXIA has financial guarantees as 30% of theminimal purchase agreed in LTAs, implying customers walking away from LTAs when price drops 30% below the floor price (or37% below the June-quarter price). This means LTAs, based on the current disclosure, offer a guaranteed earnings boost in downturns as suppliers can take overfinancial guarantees. The size of the boost will make earnings trough more palatable, possibly enough to cover cost & avoidloss so that suppliers are willing to invest & expand capacity, but is far smaller than the huge profits today & hence can’t keepKIOXIA’s earnings to stay close to the current peak. This is good for semicap investors, but memory investors still need to bemindful that LTAs & financial guarantees are insufficient to avoid earnings & stock price volatility. WHAT IS KIOXIA'S LONG-TERM VALUE? A detailed, sum-of-the-parts (SOTP), valuation based on its long-term profitability guidance finds KIOXIA is over-valued by 50%. Many argue the current valuation is cheap, citing KIOXIA’s 1-year P/E ratio is merely 8.6x. This however clearly ignores thepossibility th