Morningstar | Nidec’s Margins to Recover on Restructure and Auto Related Motor Demand, FVE Unchanged
After reviewing our forecasts, we retain our fair value estimate on Nidec at JPY 18,000. Nidec undervalued presently and we think that this presents an opportunity to buy its shares. We view the ongoing inventory adjustment, owing to the weaker demand in China, will last at least through September, but expect that demand will recover thereafter on expected replenishment while sales of new products is likely to remain firm. In particular we are impressed with Nidec’s stronger outlook on orders from the auto industry. Nidec is the top supplier of electronic power steering motors and new generation braking motors. Also, orders for its main traction motor for electronic vehicles seem to be more robust than anticipated. Overall, despite the near-term uncertainty, our long-term view on Nidec’s growth is intact. We believe that Nidec’s expertise in power efficient motors will enable the company to benefit from the digitalization trend in non-IT industries.We acknowledge Nidec’s aggressive M&A strategy is supporting its rapid growth. Nidec has acquired 63 companies and business units historically and the company has proposed to purchase Omron Automotive Electronics this April. As Omron specializes in motor control units and sensors for autos, we expect positive synergies with Nidec’s motor business. The move is consistent with its strategy to acquire capabilities to produce key components internally, and to quickly add to its customer base.
We believe that Nidec’s profitability will recover in the second half, on the implementation of the WPR3 comprehensive restructuring program. While past programs, WPR1 and WPR2, have succeeded in improving Nidec’s gross margin by 3-5 percentage points, WPR3 is focusing on reorganizing its resources to reduce fixed costs. As the shipment of HDD motors has halved from its peak in 2010, we believe that Nidec will allocate the excess facilities to motors for autos and robots, which is a significant growth area for Nidec.
NIDEC and its subsidiaries are primarily engaged in the design, development, manufacture and marketing of small precision motors, mid-size motors, machinery, electronic and optical components, and other products. Co.'s principal products are spindle motors for hard disk drives, motors for optical disk drives, small precision fans and other small motors; mid-size motors; test systems, measuring equipment, power transmission equipment, factory automation systems, card readers and industrial robots; camera shutters, camera lens units, switches, trimmer potentiometers, motor driven actuator units, processing and precision plastic mold products; and auto parts and pivot assemblies.
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