Casio Computer Earnings: Longstanding Issues Overshadowed by a Weaker Yen

Casio Computer’s June quarter operating income was JPY 4.5 billion, up 5% from the previous year and exceeding our expectations. This was due to a better-than-expected operating margin in the timepieces segment, driven by the weaker Japanese yen, overshadowing the operating loss in the music instruments and weaker-than-expected watch sales in China. Overall, we believe the reported numbers are not as good as they look, and there are some signs of weakness in the G-Shock brand and musical instruments. We remain more concerned about the lack of a medium-term strategy than the short-term earnings results. Nevertheless, we have a 4-star rating on Casio’s shares and believe the downside is limited, supported by the dividend yield of around 4%.