Omron Earnings: Headwinds Continue for Industrial Automation Business but Expect Profit Recovery

As expected, Omron’s industrial automation business, or IAB, continues to face headwinds, leading to a 10% year on year companywide revenue decline in the June quarter, due to sluggish factory automation demand in key markets like China. However, its operating margin of 3.4%, down from 7.0% in the previous year, was slightly better than expected due to progress in IAB’s restructuring initiatives. As we expect further cost cuts, we slightly raise our operating margin assumption for fiscal 2024 (ending March 2025) to 6.4% from 6.1%, but our longer-term outlook remains largely unchanged; therefore, we maintain our fair value estimate at JPY 7,500. We believe the market underestimates the company’s operating margin recovery from fiscal 2025, which we project to increase to 9.1%, driven by improved capacity utilization and IAB's sales growth for electronics/semiconductor and electric vehicle-related applications, which have high profitability.