Nidec Earnings: Profitability Improves, but Future of EV Motors Is Uncertain; Raise Fair Value 7%

We raise Nidec’s 6594 fair value estimate to JPY 9,000 from JPY 8,400 based on the better-than-expected June-quarter results. Nidec’s operating income of JPY 60.2 billion was up 35% from the previous year, exceeding our expectation. In addition to the lower fixed costs due to the restructuring implemented in the March quarter, a better-than-expected product mix in the appliance, commercial, and industrial products segment and the automotive products segment contributed to the highest operating profit on a quarterly basis. While we are impressed with the rapid margin recovery, we note that the outlook for electric vehicle traction motor shipments has been lowered for two consecutive quarters, and the revenue growth may temporarily slow down following the appointment of a new president next year. This increases the uncertainty in the longer term, and therefore, we believe Nidec’s shares are fairly valued.

We are encouraged that the appliance, commercial, and industrial products segment’s operating margin reached 12.9%, up from 8.0% in the previous year, due to the increasing demand for brushless motors for home appliances such as air conditioners and washing machines, and compressors used for refrigerators. In addition, the company expects more demand of power-efficient motors to come from mid-to-large-size motors for industrial applications, which should provide a tailwind for Nidec.

On the other hand, we have a mixed impression of the automotive products segment. On the positive side, EV traction motors turned profitable in the June quarter, which is two quarters earlier than we had expected, as the company prioritized improving the profitability and significantly reduced the shipments of unprofitable Gen-1 motors. On the negative side, the company reduced its EV motor shipment target in China for this fiscal year to 448,000 from 812,000, with a 64% cut in Gen-1 and a 37% cut in Gen-2 motors.