Morningstar | While Watches Remain Stable, Casio Needs to Overcome Weak Top-Line Growth; Shares Fairly Valued
We think Casio Computer’s June quarter results are fairly in line with our forecasts. Its operating income of JPY 6.6 billion is slightly below our forecast of JPY 7.1 billion, but we are not concerned about the miss, as we estimate that some research and development cost was brought forward and will not recur in the September quarter. In fact, the operating margin of the mainstay consumer segment has reached 15.7%, which is the highest number since 2015. We thus believe that Casio can achieve our operating income forecast of JPY 36 billion for this fiscal year. Meanwhile, we do not plan to raise our fair value estimate at this point, owing to weak top-line growth. Overall, we reiterate our view that while Casio’s guidance to increase its revenue by 8% for this fiscal year is unrealistic, the company can achieve its operating income guidance of JPY 35 billion. As a result, we will retain our fair value estimate of JPY 1,800 and our no-moat rating, and we think its shares are currently fairly valued. Casio’s shares have declined following earnings, but we view the downside as limited, as the current dividend yield of 3% should be attractive for investors.Meanwhile, we believe that Casio’s long-term strategy to leverage its sales channel is reasonable. We acknowledge that Casio has established strong relationships with schools, as the firm holds the top share in the domestic electronic dictionary market, and the company aims to use this unique sales channel to expand its sales of scientific calculators and projectors, which looks like a sensible plan in the longer run. As discussed in our previous note, Casio has been struggling to expand its business, and has not achieved its initial revenue guidance at least over the past decade. Therefore, we believe that the increased visibility of revenue growth on educational products may lift our fair value estimate in the future.
Casio Computer is mainly engaged in the development, manufacture and sale of consumer electronics. Along with its affiliates, Co. operates in three business segments. The Consumer segment is engaged in the manufacture and sale of watches, clocks, electronic dictionaries, electronic calculators, label printers, electronic musical instruments and digital cameras. Co.'s watch brands include "G-SHOCK," "BABY-G," "PRO TREK," "EDIFICE," "OCEANUS, " "SHEEN," "PHYS," "wave ceptor" and "LINEAGE." The System equipment segment provides handy terminals, electronic cash registers including POSs, office computers, page printers and data projectors. The Other segment manufactures molds and other products.
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