No Surprise on Casio's New Year's Guidance Numbers, but Positive Impression on Kashio's Leadership

Mixed Impressions From Casio's June Results, but Watches and Calculators Remain Healthy

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

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Morningstar, Inc.

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Equity Bottom-Up

We are initiating coverage of Casio Computer with a JPY 1,900 fair value estimate, and we assign no-moat and negative moat trend ratings. Our fair value estimate implies a P/E ratio of 18.8 times and enterprise value/EBITDA ratio of 9.3 times on a fiscal 2018 (fiscal year ending March 2018) basis. Casio’s current share price is 47% below the recent peak level in December 2015, because of<ol><li>Japanese yen appreciation damaging its profitability;</li><li>a slowdown in consumer products, such as digital cameras and electronic music instruments; and</li><li>a disappointing earnings result and cut in full-year guidance in November 2016.</li></ol>While we acknowledge that the company is somewhat inflexible to changing environments, we believe the market is ignoring the value of the solid cash flow derived from its mainstay watch business.Analyst: Kazunori Ito

We are initiating coverage of Casio Computer with a JPY 1,900 fair value estimate, and we assign no-moat and negative moat trend ratings. Our fair value estimate implies a P/E ratio of 18.8 times and enterprise value/EBITDA ratio of 9.3 times on a fiscal 2018 (fiscal year ending March 2018) basis. Casio’s current share price is 47% below the recent peak level in December 2015, because ofJapanese yen appreciation damaging its profitability;a slowdown in consumer products, such as digital cameras and electronic music instruments; anda disappointing earnings result and cut in full-year guidance in November 2016.While we acknowledge that the company is somewhat inflexible to changing environments, we believe the market is ignoring the value of the solid cash flow derived from its mainstay watch business.Analyst: Kazunori Ito

Initiating Coverage of Casio Computer With No-Moat, Negative Trend Ratings, and FVE of JPY 1,900