Expect Near-Term Headwinds for Omron, but Industrial Automation Segment Growth Prospects Are Intact

Omron’s fiscal 2021 revenue, ending March, was in line with our expectations, up16.4% year on year, supported by strong factory automation, or FA, demand. We retain our JPY 9,900 fair value estimate after fine-tuning our projections based on the latest earnings and midterm plan. Shares are undervalued, as prices have declined year to date, likely from concerns over rising components/logistics costs and decline in order/sales growth momentum from lockdowns in China; as well as reduced stay-at-home demand affecting the sales of thermometers, relays for consumer electronics, and so forth. While we expect these headwinds will hurt near-term sales, we think much of this downside is priced in and believe the company’s industrial automation business, or IAB, which makes up close to 60% of sales, is well-positioned for FA investments related to electric vehicles, digital (5G and semiconductor-related), and food/packaging.