Nabtesco Earnings: Lowering Margin Estimates, but Reduction Gear Outlook Remains Firm
We lowered our fair value estimate for Nabtesco 6268 to JPY 4,200 from JPY 4,500 as we have a lower operating-margin outlook because of a worse-than-expected product mix. Reduction gears for mass-produced robots have lower margins as they are standardized products compared with those used in factory automation equipment like machine tools. As we expect revenue growth on reduction gears for robots to be higher than other products, we are increasingly concerned that margins for the component solutions business, or CMP, which includes reduction gears and hydraulic equipment for construction machinery, will not be as high as we had anticipated. However, we continue to believe that Nabtesco’s shares are undervalued as the market is underestimating the recovery of CMP.
March quarter orders for reduction gears were up 4% sequentially, and we expect at least another quarter of order recovery, as management confirmed orders related to a large-scale electric vehicle project in China. While we expect orders from foreign manufacturers to weaken compared with last year, we expect robust demand from domestic robot manufacturers, such as Fanuc and Yaskawa, to remain strong because of the expanding applications of robots. On the other hand, we forecast that demand for hydraulic equipment will remain low this year but then pick up in 2024, supported by the recovery of construction activities for real estate/infrastructure development in China and the United States. Overall, we believe that the recovery will be faster than market concerns.
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