Nabtesco Earnings: Weak Reduction Gear Orders From Inventory Adjustments by Robot Makers

Nabtesco’s reduction gear orders were worse than expected with a year-on-year decline of 46% in the September quarter, compared with a 22% decline in the June quarter, as the robotics makers like Fanuc adjust their inventories. Although our revised 2023 and 2024 revenue growth projections now assume 6.8% and 4.1% year-on-year, respectively (6.0% and 4.6% before), after reflecting lower reduction gear and higher transportation equipment/automatic door sales, we maintain our fair value estimate at JPY 4,000, as our long-term outlook remains unchanged. Nabtesco’s shares have been underperforming year to date due to concerns of weakening component solutions, or CMP, sales, which are driven by reduction gear/construction machinery component demand; however, we believe most of the downside risks are priced in. We expect near-term headwinds to continue, but we forecast CMP will realize top-line growth from the second half of 2024, as the robotics makers digest inventories and construction activity in China picks up.