Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Securities analyst covering electronics, precision equipment & robotics, engineering, construction, transport and other sectors for more than 25 years in Japan and 3 years in Korea. Permanent resident of Japan.

Senior Technology Analyst, Japanese Equities

Nidec (6594 JP): Takeaways from 3Q Results and New Guidance

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Nidec (6594 JP): Guidance Probably Conservative, but Still Overvalued

🇯🇵 JAPAN • Results & Revisions 10/​​​​​​​​​​​​​​​​​26 Nidec, Canon, OBIC, Koei Tecmo, Nitto Denko

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Koei-Tecmo – Up 107% in a Year, Yet Not Too Late to Own

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

Nidec has reported a 12% YoY increase in operating profit on flat sales in 1H of FY Mar-21 (ended September) and a 20% YoY increase in operating profit on a 6% increase in sales in 2Q. Compared with 4Q of last fiscal year, 2Q operating profit was up 2.9 times.The recovery has been driven by strong demand for HDD motors, a rebound in the profits of the Automotive segment, and efficiency gains in other segments. This demonstrates the company's sound management practices and strategy.The operating margin of the Automotive segment increased from 0.1% in 1Q to 4.7% in 2Q. This is encouraging, but it is still a long way to the 9% recorded a year earlier, let alone the peak of 16% reached in the three months to September 2018.The full recovery of Automotive profitability is likely to take at least two or three years due to heavy investments in facilities for the production of traction motor systems for electric vehicles.Nidec is targeting annual capacity of five million units at factories in China, Europe and Mexico by 2025. This is expected to cost somewhere between ¥500 billion and ¥1 trillion according to CEO Nagamori, who wants 25% of the global market for EV motors by 2025 and 40% by 2030.He told the press, "To me, it is clear that electric motors will become the core in every transportation system in the future. Both ships and airplanes will also eventually be electrified."With the shares having more than doubled since April and selling at more than 60x EPS guidance for FY Mar-21, long-term investors must share this vision. On a short-term view, we recommend taking profits.

Nidec has reported a 12% YoY increase in operating profit on flat sales in 1H of FY Mar-21 (ended September) and a 20% YoY increase in operating profit on a 6% increase in sales in 2Q. Compared with 4Q of last fiscal year, 2Q operating profit was up 2.9 times.The recovery has been driven by strong demand for HDD motors, a rebound in the profits of the Automotive segment, and efficiency gains in other segments. This demonstrates the company's sound management practices and strategy.The operating margin of the Automotive segment increased from 0.1% in 1Q to 4.7% in 2Q. This is encouraging, but it is still a long way to the 9% recorded a year earlier, let alone the peak of 16% reached in the three months to September 2018.The full recovery of Automotive profitability is likely to take at least two or three years due to heavy investments in facilities for the production of traction motor systems for electric vehicles.Nidec is targeting annual capacity of five million units at factories in China, Europe and Mexico by 2025. This is expected to cost somewhere between ¥500 billion and ¥1 trillion according to CEO Nagamori, who wants 25% of the global market for EV motors by 2025 and 40% by 2030.He told the press, "To me, it is clear that electric motors will become the core in every transportation system in the future. Both ships and airplanes will also eventually be electrified."With the shares having more than doubled since April and selling at more than 60x EPS guidance for FY Mar-21, long-term investors must share this vision. On a short-term view, we recommend taking profits.

Nidec (6594 JP): Good Results, Excessive Valuation

Nidec Corp

Nidec (6594 JP): Good Results, Excessive Valuation