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Morningstar | While Casio’s New Guidance Looks Optimistic, Solid Cash Flow from Watches and Calculators is Intact

Despite the economic slowdown, Casio Computer’s revenue for the consumer segment in the March quarter was fairly flat from the previous year excluding the exit of digital camera business, which suggests that Casio’s mainstay consumer businesses, such as watches, calculators, and electronic dictionaries are resistant to recessions. We are encouraged with the solid revenue, as Casio’s share is supported by its shareholder return, which is underpinned by the rich cash flow from watches and calculators. Casio mentioned that it will pay at least JPY 45 of dividends per share in its midterm plan, implying 3.5% dividend yield at the current share price, which is at the upper end of Casio’s historical range. We thus believe that the market is overlooking the value of Casio’s rich cash flow, and that the current share price is undervalued.

However, we view that Casio’s earnings guidance for fiscal 2020 (financial year ending March 2020) is somewhat optimistic. Despite the increasing R&D costs, Casio expects 4% growth on its operating income. The company plans to increase its revenue by 5.6% for the new fiscal year, implying 8.4% revenue growth for non-watch businesses. We think this is very aggressive and puts the company’s guidance at risk. We will revise our numbers after visiting the company in mid-May.

Casio revealed its mid-term target to achieve JPY 360 billion of revenue and JPY 42 billion of operating income in fiscal March 2022, which was JPY 298 billion and JPY 30 billion in fiscal 2019, respectively. We consider these numbers are somewhat challenging, but we believe that the outline of the plan is reasonable. Casio identifies that: 1) business domains had been operated separately; and 2) each domain had been focusing too much on achieving short-term targets, and therefore, business resources were not optimized to maximize long-term growth of the company. Casio implemented the organizational reform to resolve such problems, and the introduction of board-with-committees system will contribute clarifying the management’s responsibility and speeding up the decision-making, by separating the supervisory and execution functions.