THK (6481.T): Remain OW On Stronger F12/27 Earnings Outlook

Morgan Stanley reiterates Overweight on THK (6481.T) and raises its price target to ¥8,300 from ¥7,900. Although the stock saw profit-taking after the large upward revision to F12/26 guidance at 2Q results, we see further upside: F12/27 earnings should accelerate on capacity expansion and restructuring benefits, ROE could exceed 10% this year, potentially prompting a higher ROE target and enhanced shareholder returns, and valuation looks attractive after the 2-3 month share price correction. We raise F12/26 OP to ¥50bn from ¥42bn and F12/27 OP to ¥70bn from ¥57bn. F12/26 earnings should stay broadly flat on production capacity constraints, with 2H sales growth limited and higher costs (including bonus provisions) pushing 3Q and 4Q OP slightly below 2Q. F12/27 OP is forecast to grow about 40% YoY as capacity expansion fully contributes. The new PT is based on F12/27 BPS of ¥2,596 and a target P/B of 3.2x (cut from 3.4x on capacity expansion execution risk), implying about 50% upside;