Omron Earnings: Weak Demand to Continue in the Near Term but Profit Recovery in Sight

Omron’s March-quarter results and full-year guidance for fiscal 2024 (ends March 2025) show signs of a recovery in the operating margin of its industrial automation business, or IAB. However, due to slower channel inventory adjustments, we cut our fiscal 2024 operating income forecast to JPY 52 billion from JPY 68 billion, assuming a 4% revenue growth and 6.1% operating margin. As such, we lower our fair value estimate to JPY 7,500 per share from JPY 8,000. Nevertheless, we believe Omron’s shares are undervalued as the market underestimates IAB’s medium-term margin expansion, driven by improved capacity utilization and a favorable product mix from increased automation solutions to the electronics/semiconductor and automotive industries.