Company Reports

Although Nidec’s operating income guidance for the new fiscal year 2024 (ending March 2025) of JPY 230 billion was lower than expected, we believe that the new CEO Mitsuya Kishida, appointed in April, has taken a conservative approach, as the company failed to meet its full-year guidance for the past three consecutive years (due to the struggling electric vehicle, or EV, traction motor business). In fact, despite the full-year contribution of the acquired businesses and the consolidation of NPe, a joint venture with the Stellantis Group, the company guides only 2% revenue growth for fiscal 2024, indicating the new management’s strong commitment to achieving this year’s guidance numbers by setting the minimum target. New management said that the company will present a new midterm plan on the June quarter's earnings call to replace the current plan, which has become difficult to achieve. We are encouraged by the actions taken in recent quarters to retreat from the EV traction motor business in the highly competitive Chinese market. We expect the new midterm plan to disclose more realistic targets and various growth opportunities other than the EV traction motor business, which would be a catalyst for Nidec’s shares.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in energy efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

Nidec revised its operating income guidance for fiscal 2023 (ending March 2024) from JPY 220 billion to JPY 180 billion, due to the JPY 45 billion restructuring charge related to its electric vehicle traction motor business, most of which is for the impairment of facilities and inventories for the China EV business. We believe it makes sense to withdraw its expansion strategy in the very price-competitive Chinese EV market and to focus on the business through the joint venture with Stellantis Group. This will ensure sufficient profitability and the company’s plan to make the business profitable in the second half of next fiscal year through the launch of Gen-3 motors and productivity improvement is reasonable.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in energy efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

Although Nidec’s September quarter results were in line with our expectations, we lower our fair value estimate for Nidec to JPY 8,000 from JPY 9,000 due to the lower outlook for its EV traction motor business. Nidec lowered its EV traction motor shipment assumption for fiscal 2023 (ending March 2024) to 350,000 from 949,000 at the beginning of this fiscal year and withdrew its ambitious target for the traction motor business to turn profitable this fiscal year, instead guiding an operating loss of JPY 15 billion. Noting that all motor suppliers to Chinese EV manufacturers are currently making losses from the business due to intensifying price competition, Nidec announced that it will be more selective in placing orders to protect profitability for the time being and will increase R&D spending to accelerate the development of new products. This change in strategy supports our concern expressed in our previous report that Nidec may not be able to keep up with the intensifying competition in the Chinese market. Based on this, we are lowering our operating income assumptions for the traction motor business and lowering our long-term growth rate assumption.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in energy efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

We raise Nidec’s fair value estimate to JPY 9,000 from JPY 8,400 based on the better-than-expected June-quarter results. Nidec’s operating income of JPY 60.2 billion was up 35% from the previous year, exceeding our expectation. In addition to the lower fixed costs due to the restructuring implemented in the March quarter, a better-than-expected product mix in the appliance, commercial, and industrial products segment and the automotive products segment contributed to the highest operating profit on a quarterly basis. While we are impressed with the rapid margin recovery, we note that the outlook for electric vehicle traction motor shipments has been lowered for two consecutive quarters, and the revenue growth may temporarily slow down following the appointment of a new president next year. This increases the uncertainty in the longer term, and therefore, we believe Nidec’s shares are fairly valued.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in energy efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

We are lowering our fair value estimate for Nidec to JPY 8,400 from JPY 10,500, as we have lowered our earnings forecasts due to the economic slowdown and have also taken into account the increasingly competitive environment for electric vehicle traction motors. We estimate that Nidec has lost some orders for the EV traction motors in the March quarter as a result of its focus on improving profitability, suggesting that tough competition from in-house production and local motor suppliers is intensifying. However, we believe that Nidec will be able to take market share and reignite the business by leveraging 1) its production capability of energy-efficient motors; 2) the peripheral technologies that Nidec has acquired through mergers and acquisitions; and 3) the cost competitiveness of being the world’s largest independent motor supplier. Although we have lowered our shipment and profit forecasts for the EV traction motors, we believe that the market is underestimating Nidec’s capabilities and commitment to the EV business.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in energy efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

Nidec announced that its nomination committee has appointed five executive vice presidents effective from April 1, as part of its succession plan. One of the five executive vice presidents will be selected to serve as president of the company effective April 2024, and the term of the president is expected to be four years. After the term, the president will be appointed as chairman for another four years. Shigenobu Nagamori, the 78-year-old founder and chairman of the company, will become a representative of the board of directors in April 2024. Since it has taken Nidec more than 10 years to select a successor, the succession issue has been a risk factor for the company for a long time. Therefore, the path laid out for the selection of a new president should help alleviate some of the market’s concerns. However, the previous two presidents were forced to step down within three years, and thus it remains unclear whether the new president will be able to meet chairman Nagamori’s strict requirements. Although we believe that Nidec’s shares are undervalued, stability in the management structure is necessary for the shares to be rerated, in our view.

Nidec lowered its fiscal 2022 (financial year-end March 2023) operating income guidance to JPY 110 billion from JPY 210 billion, with most of the shortfall attributed to a one-time cost in the automotive segment and the rest to the economic slowdown. Although the company did not explain the details, the company plans to record an impairment loss in the European automotive business, and in addition, will work on restructuring this fiscal year to improve its profitability. As a result, Nidec’s operating margin will recover in the next fiscal year, according to management. While we maintain our view that Nidec will benefit from long-term demand for energy-efficient motors, we lower our operating margin assumption for fiscal 2023 from 10.1% to 9.3% due to: 1) lower sales forecasts for the small precision motors segment due to the inventory correction in PCs and data centers; 2) lower sales forecasts for the machinery segment as a result of the global economic slowdown; and 3) lower operating margin expectation for the automotive segment.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in power efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

While we fine-tuned our earnings forecasts and trimmed narrow-moat Nidec’s fair value estimate to JPY 12,000 from JPY 12,500, there were two positives in the automotive segment. First, the segment’s financials improved significantly from the previous quarter. The revenue was 24.4% up from the June quarter as sales of traction motors doubled, and the segment’s operating margin improved to 3.9% from breakeven as the company was able to pass on increasing material costs. Second, the company reiterated its outlook that the shipment of traction motors will more than double, and the business will turn profitable in the next fiscal year, driven by the mass production of the brand-new second-generation, or Gen-2, motors. Management commented that Gen-2 motors can be manufactured at a cost 35% lower than Gen-1 motors, and approximately 70% of its traction motor shipments will be Gen-2 in the next fiscal year. Hence, we have higher visibility of the turnaround of traction motors and retain our view that the market is underestimating Nidec’s margin expansion.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in power efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

Although Nidec’s June quarter numbers were slightly below our expectations, we maintain our fair value estimate of JPY 12,500, as short-term concerns are mostly offset by the improving long-term outlook for its traction motor business. Nidec raised the traction motor shipment outlook for fiscal 2025 (financial year ending March 2026) to 4.0 million from 3.6 million, and the company suggested that the actual order number may be even larger if all the preorders materialize. While we estimate that the business’ operating loss exceeded JPY 20 billion in fiscal 2021 due to the upfront investments, we are encouraged that the company is launching its gen-2 traction motors this September, which is earlier than expected. We therefore slightly lifted our operating margin assumptions for the traction motor business as well as the automotive segment, offsetting the downward revision on the appliance, commercial, and industrial segment, which struggles from the worse-than-expected product mix and increasing material costs. Overall, we retain our view that Nidec’s shares are undervalued, as we think Nidec’s margin expansion led by the turnaround of traction motors is underestimated.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in power efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

We trimmed narrow-moat Nidec’s earnings forecasts to incorporate the increasing materials costs and lower revenue growth outlook, and therefore revised our fair value estimate to JPY 12,500 from JPY 13,000. Meanwhile, we are encouraged that the company is introducing the new version of traction motors for electric vehicles earlier than we had anticipated. Nidec prioritized the introduction of first-generation traction motors to establish a superior position ahead of its competitors, and in fact, Nidec estimates that it currently holds a 27% market share of the external traction motor market in China. On the other hand, the company has been making a loss on the business owing to the heavy capital expenditure and preceding R&D expenses. While Nidec had been expecting the business to turn profitable in fiscal 2023, the earlier-than-expected introduction of the second-generation motors should contribute to an accelerated timing of the turnaround. We believe that the margin expansion led by traction motors is underestimated, and thus Nidec’s shares are undervalued. Our new fair value estimate of JPY 12,500 corresponds to 20 times 2023 EV/EBITDA.

Nidec is a global top supplier of brushless DC motors, which have advantages over other types of motors in power efficiency, silence, and durability. Owing to their efficiency, the majority of demand for brushless DC motors currently comes from IT applications, and Nidec has established top share in various applications, such as hard disk drive motors, optical disk drive motors, vibration motors for handsets, fan motors, and so on. Furthermore, we expect that Nidec could capture demand from new applications and industries. As approximately half of the electricity generated globally is consumed by motors, the adoption of efficient motors will be necessary to meet environmental standards in many other industries in the near future. We believe that Nidec can leverage its expertise in small precision motors for IT applications and will benefit from increasing demand for brushless DC motors in new business opportunities, such as automobiles, robots, and air conditioners.

Our impression of Nidec’s December-quarter results is mixed. On the positive side, quarterly revenue of JPY 497 billion was 14.6% up from the same quarter of the previous year and was ahead of our JPY 473 billion forecast, mainly driven by the machinery segment and the appliance, commercial, and industrial segment. On the negative side, despite the robust revenue growth, its operating income of JPY 44.4 billion was below our expectation of JPY 52.1 billion, and the operating margin dropped to 8.9% from 10.7% in the previous year. The management explained that the company was not able to fully pass on the increasing material cost, which dragged down Nidec’s profits by approximately JPY 9 billion, which explains most of the discrepancy between the reported numbers and our forecasts.