Casio Earnings: Solid Watch and Calculator Sales Offset Weakness of Musical Instruments

We maintain Casio Computer’s fair value estimate of JPY 1,500 based on the solid June-quarter results. Operating income for the quarter was JPY 4.3 billion, slightly above our forecast. Sales in the musical instrument business fell far short of the company's guidance due to deteriorating demand caused by inflation and the economic slowdown, but this was more than offset by strong sales of its mainstay watches and scientific calculators. As a result, we believe Casio is on track to meet our operating income forecast of JPY 18 billion, which is higher than the company’s guidance of JPY 16 billion. We maintain our view that Casio’s shares are undervalued as the market overlooks the solid cash flow generated by its lucrative businesses such as watches and calculators. Casio’s current dividend yield of 3.6% is attractive compared with most other tech hardware stocks.