Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<ul>
<li>Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high. </li>
<li>The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production - which is scheduled to continue until 2025.</li>
<li>But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.</li>
</ul>


Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high. 
The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production - which is scheduled to continue until 2025.
But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.


Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

<ul>
<li>Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus despite a 5.8% beat at the top line.</li>
<li>The deterioration in profitability across the Existing Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern. </li>
<li>It also suggests that consensus expectations for 22.6% OP growth next year may prove highly optimistic.</li>
</ul>


Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus despite a 5.8% beat at the top line.
The deterioration in profitability across the Existing Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern. 
It also suggests that consensus expectations for 22.6% OP growth next year may prove highly optimistic.


Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over

1H results turned out to be conservative, as we had expected, but both year-on-year sales growth and the gross &amp; operating profit margins declined in 2Q. Gross profit itself was down slightly and operating profit up only 2.4% sequentially in the three months to September.The main reasons for this were the collapse of HDD spindle motor sales and the upfront cost of entering the EV motor business. Demand for the company's other products was generally strong.In <a href="https://www.smartkarma.com/insights/nidec-early-results-for-the-ev-business-look-terrible" target="_blank" data-smartkarma-citation="insights:59569" rel="noopener">Nidec – Early Results for the EV Business Look Terrible</a> , Mio Kato noted that Nidec faces the issue of a decline in volumes for HDD motors and appears to be betting the farm on capturing the top share for EV traction motors. We aren’t at all convinced that they can, but even if they do, the early signs are that that might not be as lucrative as they imagined.And it might take longer than some investors have thought. As  noted in <a href="https://www.smartkarma.com/insights/nidec-6594-jp-good-1q-but-ev-motors-face-tough-competition-and-severe-pricing" target="_blank" data-smartkarma-citation="insights:54923" rel="noopener">Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing</a> , EV power trains are not expected to become cheaper than Internal Combustion Engine power trains until 2025, In the meantime, Nidec faces rapidly growing competition from Hitachi and demanding customers in China.Considering the risks, at 49x our EPS estimate for FY Mar-22 and 41x our estimate for FY Mar-24, the shares look Overvalued.

1H results turned out to be conservative, as we had expected, but both year-on-year sales growth and the gross &amp; operating profit margins declined in 2Q. Gross profit itself was down slightly and operating profit up only 2.4% sequentially in the three months to September.The main reasons for this were the collapse of HDD spindle motor sales and the upfront cost of entering the EV motor business. Demand for the company's other products was generally strong.In Nidec – Early Results for the EV Business Look Terrible , Mio Kato noted that Nidec faces the issue of a decline in volumes for HDD motors and appears to be betting the farm on capturing the top share for EV traction motors. We aren’t at all convinced that they can, but even if they do, the early signs are that that might not be as lucrative as they imagined.And it might take longer than some investors have thought. As  noted in Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing , EV power trains are not expected to become cheaper than Internal Combustion Engine power trains until 2025, In the meantime, Nidec faces rapidly growing competition from Hitachi and demanding customers in China.Considering the risks, at 49x our EPS estimate for FY Mar-22 and 41x our estimate for FY Mar-24, the shares look Overvalued.

Nidec (6594 JP): HDD & EV Motors Drag Down Profit Margins

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. We said that FA and Robot sales were likely flattish QoQ (-0.8% QoQ and +6.1% QoQ respectively) but that the Robomachine division could see sales collapse to about ¥28bn from ¥53.2bn in the last quarter. They did, falling to ¥27.8bn. What remains to be seen is how far ahead of the clueless and oblivious sellside (which projected a 1.6% QoQ rise in sales) the market was. For now though…<iframe src="//www.youtube.com/embed/gbGfhT1yehw" width="640" height="360"></iframe>

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. We said that FA and Robot sales were likely flattish QoQ (-0.8% QoQ and +6.1% QoQ respectively) but that the Robomachine division could see sales collapse to about ¥28bn from ¥53.2bn in the last quarter. They did, falling to ¥27.8bn. What remains to be seen is how far ahead of the clueless and oblivious sellside (which projected a 1.6% QoQ rise in sales) the market was. For now though…

Nidec faces the issue of a decline in volumes for HDD motors and appears to be betting the farm on capturing the top share for EV traction motors. We aren’t at all convinced that they can, but even if they do, the early signs are that that might not be as lucrative as they imagined.

Nidec faces the issue of a decline in volumes for HDD motors and appears to be betting the farm on capturing the top share for EV traction motors. We aren’t at all convinced that they can, but even if they do, the early signs are that that might not be as lucrative as they imagined.

Nidec – Early Results for the EV Business Look Terrible

Japan

NIDEC CORPORATION is the world's leading manufacturer of small precision motors mainly used in HDD and optical disk drives. The company has extended its focus to the home appliance and automotive markets. NIDEC is active in M&A and its subsidiaries include the world's leading manufacturers of LCD panel handling robots and camera shutters.

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Nidec Corp (6594 JP)

Nidec (6594): Catch a Falling Knife

Nidec's share price has dropped 31% since the start of the year, wiping out over-optimism regarding how fast EV motors and other initiatives might...

Scott Foster

Nidec – Machinery and Appliance, Commercial and Industry Segments Rolling Over

Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus. The deterioration in profitability suggests that consensus expectations...

Mio Kato

Nidec (6594 JP): HDD & EV Motors Drag Down Profit Margins

HDD motors in decline, EV motors losing money, and growth prospects limited without M&A. Overvalued at 49x projected earnings this fiscal year and...

Scott Foster

Fanuc – Whoomp! There It Is

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. They did.

Mio Kato

Nidec – Early Results for the EV Business Look Terrible

Nidec faces declining volumes for HDD motors and is betting the farm on capturing the top share for EV traction motors but early signs are that...

Mio Kato

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