Better Long-Term Outlook on Traction Motors Offsets Short-Term Concerns; Nidec’s Shares Undervalued

Although Nidec’s June quarter numbers were slightly below our expectations, we maintain our fair value estimate of JPY 12,500, as short-term concerns are mostly offset by the improving long-term outlook for its traction motor business. Nidec raised the traction motor shipment outlook for fiscal 2025 (financial year ending March 2026) to 4.0 million from 3.6 million, and the company suggested that the actual order number may be even larger if all the preorders materialize. While we estimate that the business’ operating loss exceeded JPY 20 billion in fiscal 2021 due to the upfront investments, we are encouraged that the company is launching its gen-2 traction motors this September, which is earlier than expected. We therefore slightly lifted our operating margin assumptions for the traction motor business as well as the automotive segment, offsetting the downward revision on the appliance, commercial, and industrial segment, which struggles from the worse-than-expected product mix and increasing material costs. Overall, we retain our view that Nidec’s shares are undervalued, as we think Nidec’s margin expansion led by the turnaround of traction motors is underestimated.