Nabtesco Earnings: Impact of Weak Reduction Gear Capacity Utilization Mitigated by Price Increases

As expected, Nabtesco’s component solutions segment, or CMP, continues to face headwinds, but the 16% year-on-year decline of its operating income in the June quarter was better than expected, as price increases and cost cuts mitigated the impact of weak reduction gear capacity utilization. As we expect this trend to continue, we raised our fiscal 2024 operating income projection by 8% to JPY 14.5 billion, assuming a 4% decline in sales and an operating margin of 4.5%. However, our overall outlook remains unchanged, and we maintain our fair value estimate at JPY 3,500. We continue to forecast operating income to increase to JPY 23 billion in 2025, as manufacturing activity picks up globally and industrial robot/machine tool manufacturers increase production. We believe Nabtesco’s shares are undervalued as the market underestimates CMP’s medium-term prospects, driven by demand for medium-/large-size industrial robots used for electric vehicle production.