Nabtesco Realizes Weak Revenue Growth in 2022 but Outlook Remains Largely Intact

Nabtesco’s 6268 December quarter revenue grew 4.8% year over year, which was below our expectation of 10.1% growth, due to weaker-than-expected revenue growth in its mainstay components solutions segment. In the December quarter, the segment posted 3.1% year-over-year revenue growth, well below the company’s guidance of 9.4% growth and our projected 11.0% growth. However, we believe the disappointing sales were due to temporary production issues caused by labor shortages in Japan and lockdowns in China. Orders for reduction gears in the quarter were down 9% year over year, but in line with our expectations given the lower capital spending in the electronics industry. Overall, our long-term outlook for reduction gears remains intact. While we expect sluggish overseas orders to continue for most of 2023, demand from domestic customers will remain strong as robot makers like Fanuc and Yaskawa are inundated with orders/inquiries that more than offset the weak demand from the electronics industry. Therefore, we maintain our fair value estimate of JPY 4,500 and believe that Nabtesco’s shares are undervalued.

We broadly maintain our 2023 revenue forecast for Nabtesco, assuming 8.1% year-on-year growth. While we lower our sales assumption for hydraulic equipment from 3% growth to 5% decline as the weak construction activity in China appears to be prolonged, we raise our sales growth assumption for reduction gears from 8% to 12%. Although orders for small robots for electronics will slow down in the short term, we expect the impact on sales in 2023 to be limited due to order backlogs and demand for industrial robots, especially for electric vehicles, will remain strong. Looking ahead, we expect continued sales momentum for reduction gears as capital spending for electronics recover and the newly launched Hamamatsu Plant starts mass production to meet robust demand. This resilience in demand for reduction gears is underestimated by the market, in our view.