Morningstar | Nidec’s September Quarter Results Show Its Resilience in Economic Slowdown; Shares Undervalued
Nidec’s September quarter operating income of JPY 51.6 billion is in line with our forecast of JPY 50.7 billion. While revenue growth did not reach our expectations, which we believe is due to the slowdown in the Chinese market, Nidec's operating margin was better than our numbers, compensating for the revenue shortfall. Its operating margin improved to 13.1% from 10.9% in the previous year, driven by the margin expansion for the automotive and appliance, commercial, and industrial, or ACI, segments, which both reached historic highs. Overall, the reported numbers support our view that even under the increasing uncertainty on global economy, Nidec’s outstanding management team will accomplish its operating income guidance of JPY 195 billion for this fiscal year. We believe that demand for power-efficient motors will continue to grow, driven by environmental regulation in various industries, and Nidec will fully leverage its expertise and cost advantage on producing brushless DC motors to capture the opportunity. As Nidec's long-term growth scenario is intact, we reiterate our fair value estimate of JPY 20,000, along with our narrow moat rating. Nidec’s share price has dropped more than 20% from its peak in January, providing a good opportunity to invest, in our view.Historically, Nidec has improved its competitive position, especially in the downturn. For instance, during the financial crisis, Nidec implemented a drastic cost-cutting plan, improving gross margin by approximately 5 points. Moreover, when the facilities of many Japanese companies were damaged from the severe flooding that occurred in Thailand in 2011, Nidec quickly leveraged its factories in the Philippines and succeeded in expanding its market share for HDD motors. Likewise, Nidec is now aggressively expanding its production capacity in Mexico to grab market share from Chinese competitors, which should somewhat mitigate the damage of the trade war and a possible economic slowdown.
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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