Expect China Lockdown to Affect Nabtesco’s Second-Quarter Sales, but Medium-Term Prospects Are Intact

Nabtesco’s fiscal 2022 first-quarter revenue and operating margin fell a bit short of our expectations, with companywide revenue declining 2.3% year on year and operating margin falling to 7.1% from 9.2%. We attribute this mainly to lower-than-expected sales in China, especially with hydraulic equipment (components for construction machinery) and railroad equipment. While we maintain our fair value estimate at JPY 5,000, we fine-tune our 2022 assumptions to reflect our expectations of high logistics/components costs and that lockdowns in China will especially impact sales of hydraulic equipment; therefore, we now assume 5.8% year-on-year revenue growth and operating margin at 10.0% (compared with 6.2% top-line growth and 10.8% previously) on an International Financial Reporting Standards basis. We expect headwinds such as rising materials costs will continue for the foreseeable future and we have yet to see any signs of a recovery in Nabtesco’s railroad vehicle equipment business (the largest business in its transport solutions segment), which we think has also contributed to the company’s share price remaining low throughout the year.