Nabtesco Earnings: Strong RV Reduction Gear Sales Recovery Raises Conviction as to Midterm Outlook

We raise our fair value estimate for wide-moat Nabtesco to JPY 3,590 from JPY 3,500, reflecting better-than-expected sales recovery in the component solutions, or CMP, business, and profit overshooting in the transportation solutions, or TRS, business, in the March quarter. JPY 81 billion in sales and JPY 5.4 billion in operating profit in the first quarter of 2025 surpassed our previous estimates of JPY 76 billion in sales and JPY 4.2 billion in operating profit. While quarterly sales from other businesses aligned with our forecasts, the CMP business outperformed with a 24% year-on-year sales growth, far above our estimate of 4%, primarily boosted by the 41% sales growth of precision reduction gears. In terms of operating profit, the TRS business achieved an operating margin of 14.9% in the March quarter, better than our previous estimate of 10%, thanks to the increase in maintenance, repair, and overhaul, or MRO, services business in China. As a result, we nudged our companywide 2025 sales growth estimate to 8.3% from 6.7% and our operating margin estimate to 5.7% from 5.5%, respectively. Meanwhile, our midterm outlook remains intact.