Casio Computer Earnings: Rich Dividends Support Shares Amid Weak Fundamentals

We lower Casio Computer’s 6952 fair value estimate to JPY 1,500 from JPY 1,650, as we believe Casio’s fundamentals will take longer than expected to recover. In fiscal 2022 (ending March 2023), the music instrument business posted an operating loss for the first time in four years, due to the economic slowdown and soaring raw material prices, and sales of the system equipment business were also sluggish. In addition, the operating margin of Casio’s mainstay timepieces segment fell to 15.0% from 18.3% in fiscal 2021, due to the slowing sales in Japan and China, where profitability has been relatively high. As we believe the challenging environment will continue throughout this year, we have lowered our operating margin forecasts for fiscal 2023 and 2024 to 6.8% and 9.0% from 9.7% and 10.2%, respectively. Although Casio’s shares lack near-term catalysts, we believe the downside is limited, supported by the dividend yield of 3.6%, which is the highest in its historical range.

Yuichi Masuda became Casio’s new president in April. Although this is the first time a nonfounder family member has become a president, Masuda has a proven track record of establishing G-Shock as a global business. While the previous president made some progress in divesting or restructuring unprofitable businesses, expanding sales of new businesses and restoring profit margins in the watch business will be the challenges for the new president. Although Casio has tried to collaborate with partner companies to develop businesses, the company has not been successful in monetizing them. Looking ahead, Casio will need to be more disciplined in project management. For the watch business, we believe that Casio will focus on improving the brand image of G-Shock in order to raise the average pricing, so that the company can maintain the operating margin for the business in the mid to high teens amid intense competition.