Lowering Nabtesco's FVE Due to Near-Term Headwinds in China; Shares Undervalued

Based on the worse-than-expected September quarter results and downward revision on the company’s full-year guidance, we lower Nabtesco’s fiscal 2022 and 2023 (ending December) earnings forecasts and cut our fair value estimate to JPY 4,500 from JPY 5,000. Its shares are trading below our fair value estimate, likely due to concerns about macroeconomic headwinds in China affecting sales. However, over the longer term, we remain positive on its outlook, as we think the wide-moat company’s reduction gear sales will grow along with industrial robot demand, such as for EV/battery assembly. Further, as the COVID-19 pandemic settles, transportation components sales will increase from the recovery of aircraft/railroad vehicles production as well as MRO demand.