Improvement in Traction Motors Ahead of Schedule a Plus: Nidec’s FVE Trimmed to JPY 12,500

We trimmed narrow-moat Nidec’s earnings forecasts to incorporate the increasing materials costs and lower revenue growth outlook, and therefore revised our fair value estimate to JPY 12,500 from JPY 13,000. Meanwhile, we are encouraged that the company is introducing the new version of traction motors for electric vehicles earlier than we had anticipated. Nidec prioritized the introduction of first-generation traction motors to establish a superior position ahead of its competitors, and in fact, Nidec estimates that it currently holds a 27% market share of the external traction motor market in China. On the other hand, the company has been making a loss on the business owing to the heavy capital expenditure and preceding R&D expenses. While Nidec had been expecting the business to turn profitable in fiscal 2023, the earlier-than-expected introduction of the second-generation motors should contribute to an accelerated timing of the turnaround. We believe that the margin expansion led by traction motors is underestimated, and thus Nidec’s shares are undervalued. Our new fair value estimate of JPY 12,500 corresponds to 20 times 2023 EV/EBITDA.