Airtac Earnings: Linear Guide Sales Below Expectation; Shares Fairly Valued

Narrow-moat Airtac’s first-half 2023 net profit was up 1% year on year to TWD 3.3 billion. Stripping out foreign exchange losses of TWD 236.9 million due to the depreciation of the Chinese yuan, we view the result as broadly in line with our expectation. Nonetheless, operating margin of 30% was below forecast due to lower utilization rate for its linear guide products. We cut our 2023 earnings by 6% to factor in the latest numbers, but our longer-term forecasts are largely unchanged. We maintain our fair value estimate at TWD 870, and we think the shares are fairly valued currently. Our valuation for Airtac implies a 2023 P/E ratio of about 25 times, versus its five-year historical trading range of around 14 times to 40 times.