Morningstar | Robust Revenue Growth and Margin Expansion Will Encourage Market; Raise Nidec FVE to JPY 20,000
While Nidec's June quarter operating income of JPY 46.6 billion is in line with our forecast of JPY 47 billion, we are impressed with: 1) the robust revenue growth of 11.9%; and 2) the margin expansion in the automotive products and appliance, commercial and industrial products, or ACI, segments, both of which contribute to us lifting our five-year earnings forecasts. Nidec explained its aggressive plan to increase production capacity to fulfill massive demand from autos, air conditioners, and robots, which supports our view that environmental regulations will drive the growth of power-efficient motors, and Nidec will take advantage of the opportunity by leveraging its expertise and cost advantage on motors, which are the source of its narrow economic moat. Our operating income forecast for fiscal 2023 is raised to JPY 360 billion from JPY 345 billion, and thus we lift our fair value estimate to JPY 20,000 from JPY 19,000.We had mentioned in our April note that margin expansion on ACI products will be the key to achieve Nidec's midterm target of 15% operating margin by fiscal 2021. Therefore, we are encouraged that the margin reached 10.1% in June quarter, up 2.9% from the previous year, which we assume is driven by: 1) robust demand of inverter motors for air conditioners; and 2) reorganizing and restructuring its facilities.
Long-term growth of auto products segment also looks promising. Environmental regulations have been requiring autos replace hydraulic mechanism to motors, and we believe that Nidec possesses all capabilities to capture the demand. In fact, Nidec became the top supplier of electronic power steering motors, and the company forecasts that new demand for electronic brakes and traction motors will quickly pick up from 2018, driving the midterm revenue growth of the segment. We assume that Nidec's aggressive capacity expansion plan is underpinned by the huge order backlogs from auto manufacturers.
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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