Casio Computer: Revise Our Uncertainty Rating To Medium Due To Solid Watch and Calculator Sales

We revise Casio Computer’s Morningstar Uncertainty Rating to Medium from High. We had assigned Casio a High Uncertainty Rating since October 2022 in response to a deteriorating operating margin in the music instrument business due to the economic slowdown and rising raw material prices, and a worse-than-expected margin in the timepieces segment due to the deteriorating product mix caused by the rapid slowdown in watch sales in China. However, we now have better visibility of the company’s earnings forecasts as the company is working on restructuring the music instrument business and watch sales in China have stabilized. In future, we expect Casio to maintain steady growth driven by solid sales of watches and calculators, and the rich cash flow generated by these businesses will allow the company to pay attractive dividends, which should support the share price. We maintain Casio’s operating income forecasts of JPY 18 billion and JPY 25 billion for fiscal 2023 (ending March 2024) and fiscal 2024, respectively, as well as Casio’s fair value estimate of JPY 1,500. We believe Casio’s shares are undervalued.