Nabtesco Earnings: Precision Reduction Gear Demand to Start Recovering in 1H 2025

Although headwinds in precision reduction gears may continue in the near term for Nabtesco, we maintain our fair value estimate of JPY 3,500 per share as our midterm outlook for the company is unchanged. We believe Nabtesco’s shares are undervalued as the market is overly concerned about the long-term profitability of the component solutions segment, or CMP, business, which is temporarily dragged by utilization cuts and the kickoff of the new Hamamatsu factory. Meanwhile, we reiterate our revenue compound annual growth rate assumption of 7.4% and 5.4% for precision reduction gears and hydraulic equipment between 2024 and 2028, respectively, and expect the CMP business' operating margin to gradually increase to 12.5% in 2028 from 4.3% in 2024, as its product competency would be continuously protected by its strong relationship with core customers.