Renesas Electronics (6723.T): Q3 negative - little to boost the outlook

Citi's take: Q3 non-GAAP OP was ¥150.5bn (+13% QoQ), narrowly beating VA consensus of ¥146.8bn. The non-automotive segment delivered strong earnings. Q4 non-GAAP OP guidance of ¥145bn (-4% QoQ) is in line with VA consensus. Management indicated that elevated SG&A expenses, averaging over ¥110bn per quarter in H2, is not a one-off. Management also decided on ¥111.2bn of capex in Q3, expanding capacity centered on digital power (DP), and stated that it will ultimately expand total DP production capacity to c2.0-2.5x current levels, versus c2x previously. On shareholder returns, management reiterated its traditional policy of prioritizing growth investments (capex, M&A, etc.), debt repayment, and shareholder returns in that order, while suggesting any decision would be made at Q4 results, typically in early February. Implications: We see the results as negative. The announcement contained little that would further lift the business outlook, and we expect the stock market to react pessimis