Omron Earnings: Profitability to Weaken in the Near Term but Expect a Stronger Recovery in 2025

Based on worse-than-expected results for the industrial automation business, we lowered our fair value estimate of Omron to JPY 8,000 from JPY 8,200 after revising our near-term operating income forecast. December quarter IAB operating margin declined sequentially to 1.0% from 5.2%, with sales down 8% in the same period due to a negative mix from lower sales to the electronics and electric vehicle industries and deteriorating capacity utilization. With profits to be affected by delays in electronics/EV investments, we cut our operating income estimate for fiscal 2024 (ending March 2025) to JPY 68 billion, down from JPY 91 billion. However, our medium-term outlook remains intact, and we believe Omron’s shares are undervalued. Considering the recent share price decline, we think the market is overconcerned about IAB’s profit recovery from 2025.