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

Nabtesco's 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.