Omron's FVE Lowered on Weaker Outlook, Share Price Already Reflects Challenges

While Omron’s fiscal second-quarter results were largely in line, we lowered Omron’s fair value estimate to JPY 9,300 from JPY 9,900, after reducing our estimates for its fiscal 2023 (year ending March 2024) revenue and operating margin. Although currency tailwinds and demand from the electric vehicle industry are helping orders for its industrial automation business, or IAB, in the near term, the slowing growth of new orders points to a normalizing backlog and weakening sales outlook. Weakening global consumer confidence may also have an impact on sales of consumer healthcare products and components. As such, we see revenue sliding 4% year on year in fiscal 2023 from growth of 13.6% in fiscal 2022 before normalizing to our assumed midcycle average of 5.5%, barring any drastic rebound in the yen against other currencies. We think Omron’s share price already reflects the softer 18 months outlook but there are likely to be limited catalysts that would spark relative outperformance in the near term.