Company Reports

As a global leader in motion control technology, Nabtesco boasts leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the Big Four industrial robotics companies, as well as major Chinese robotics players such as Estun. The narrow-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots, and we expect the business to continue to be the main top-line growth driver. The company is well positioned for secular growth in industrial robot demand, driven by a skilled labor shortage and the need to increase production efficiency through automation.

Nabtesco reported second-quarter sales of JPY 84.4 billion, up 16.8% year-on-year, and operating profit of JPY 7.6 billion, up 77.3%. Component Solutions, or CMP, margin reached 12.3%, while Transport Solutions, or TRS, posted record sales and profit.

Nabtesco reported 17% year-on-year sales growth in the March quarter, with component solutions up 28%. Operating margin rose 300 basis points year on year to 9.9%. Shares fell 3% the following trading day.

As a global leader in motion control technology, Nabtesco boasts leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the Big Four industrial robotics companies, as well as major Chinese robotics players such as Estun. The narrow-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots, and we expect the business to continue to be the main top-line growth driver. The company is well positioned for secular growth in industrial robot demand, driven by a skilled labor shortage and the need to increase production efficiency through automation.

Nabtesco's December-quarter sales rose 8% year on year with 6% operating margin after the hydraulic equipment carve-out. Components solutions, or CMP, sales grew 4% with 7% margin. Fiscal 2026 (ending December 2026) guidance implies 6.2% sales growth to JPY 327 billion and an 8.5% operating margin.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the Big Four industrial robotics companies, as well as major Chinese robotics players such as Estun. The narrow-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots, and we expect the business to continue to be the main top-line growth driver. The company is well positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and the need to increase production efficiency through automation.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the Big Four industrial robotics companies, as well as major Chinese robotics players such as Estun. The narrow-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots, and we expect the business to continue to be the main top-line growth driver. The company is well-positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and the need to increase production efficiency through automation.

Nabtesco's September-quarter sales from its component solutions and transport solutions segments, or CMP and TRS, grew 36% and 19% on year, respectively. Companywide sales rose 16% on a comparable basis, while operating margin improved to 7.4% from 3.9% (including hydraulic equipment) a year ago.

Nabtesco posted a 4.5% year-on-year increase in June-quarter sales, with its operating margin rising 3 percentage points to 6.1%. It also announced the sale of 70% of its hydraulic equipment business to Comer Industries for JPY 14.2 billion. Shares rose about 11% on the following trading day.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the Big Four industrial robotics companies, as well as major Chinese robotics players such as Estun. The narrow-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots, and we expect the business to continue to be the main top-line growth driver. The company is well-positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and the need to increase production efficiency through automation.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the big four industrial robotics companies, as well as major Chinese robotics players like Estun. The wide-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots and we expect the business to continue to be the main top-line growth driver. The company is well positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and need to increase production efficiency through automation.

We raise our fair value estimate for wide-moat Nabtesco to JPY 3,590 from JPY 3,500, reflecting better-than-expected sales recovery in the component solutions, or CMP, business, and profit overshooting in the transportation solutions, or TRS, business, in the March quarter. JPY 81 billion in sales and JPY 5.4 billion in operating profit in the first quarter of 2025 surpassed our previous estimates of JPY 76 billion in sales and JPY 4.2 billion in operating profit. While quarterly sales from other businesses aligned with our forecasts, the CMP business outperformed with a 24% year-on-year sales growth, far above our estimate of 4%, primarily boosted by the 41% sales growth of precision reduction gears. In terms of operating profit, the TRS business achieved an operating margin of 14.9% in the March quarter, better than our previous estimate of 10%, thanks to the increase in maintenance, repair, and overhaul, or MRO, services business in China. As a result, we nudged our companywide 2025 sales growth estimate to 8.3% from 6.7% and our operating margin estimate to 5.7% from 5.5%, respectively. Meanwhile, our midterm outlook remains intact.

We maintain our fair value estimate for wide-moat Nabtesco at JPY 3,500 per share as our midterm outlook remains intact. We believe Nabtesco’s shares are undervalued as the market is overly concerned about the long-term profitability of the component solutions, or CMP, business being temporarily dragged by utilization cuts and the kickoff of the new Hamamatsu factory.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the big four industrial robotics companies, as well as major Chinese robotics players like Estun. The wide-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots and we expect the business to continue to be the main top-line growth driver. The company is well positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and need to increase production efficiency through automation.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the big four industrial robotics companies, as well as major Chinese robotics players like Estun. The wide-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots and we expect the business to continue to be the main top-line growth driver. The company is well positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and need to increase production efficiency through automation.

Although headwinds in precision reduction gears may continue in the near term for Nabtesco, we maintain our fair value estimate of JPY 3,500 per share as our midterm outlook for the company is unchanged. We believe Nabtesco’s shares are undervalued as the market is overly concerned about the long-term profitability of the component solutions segment, or CMP, business, which is temporarily dragged by utilization cuts and the kickoff of the new Hamamatsu factory. Meanwhile, we reiterate our revenue compound annual growth rate assumption of 7.4% and 5.4% for precision reduction gears and hydraulic equipment between 2024 and 2028, respectively, and expect the CMP business' operating margin to gradually increase to 12.5% in 2028 from 4.3% in 2024, as its product competency would be continuously protected by its strong relationship with core customers.

As expected, Nabtesco’s component solutions segment, or CMP, continues to face headwinds, but the 16% year-on-year decline of its operating income in the June quarter was better than expected, as price increases and cost cuts mitigated the impact of weak reduction gear capacity utilization. As we expect this trend to continue, we raised our fiscal 2024 operating income projection by 8% to JPY 14.5 billion, assuming a 4% decline in sales and an operating margin of 4.5%. However, our overall outlook remains unchanged, and we maintain our fair value estimate at JPY 3,500. We continue to forecast operating income to increase to JPY 23 billion in 2025, as manufacturing activity picks up globally and industrial robot/machine tool manufacturers increase production. We believe Nabtesco’s shares are undervalued as the market underestimates CMP’s medium-term prospects, driven by demand for medium-/large-size industrial robots used for electric vehicle production.

Nabtesco’s component solutions segment’s, or CMP’s, March-quarter operating margin of 3.6% was a positive surprise, as cost pass-throughs mitigated the impact of weaker capacity utilization and higher fixed costs from the new factory for the reduction gear business. As CMP’s margins would not weaken as much as we had expected, we raise Nabtesco’s operating income estimate for fiscal 2024 by 14% to JPY 13.5 billion, implying a 5.5% revenue decline and 4.3% operating margin. Nonetheless, our outlook of a stronger recovery of reduction gear sales/capacity utilization from 2025 remains unchanged; therefore, we maintain our fair value estimate of JPY 3,500 per share. Although we expect CMP’s sales/utilization levels to remain low while its main customers, Fanuc and Yaskawa Electric, digest their high inventories, we expect the adjustments to be completed in the December quarter of 2024. As the market underestimates CMP’s prospects from 2025, we believe wide-moat Nabtesco’s shares are undervalued.

As a global leader in motion control technology, Nabtesco boasts the leading global and/or domestic market share with its main products in each of its segments. Nabtesco’s precision reduction gears are supplied to the big four industrial robotics companies, as well as major Chinese robotics players like Estun. The wide-moat company has a 60% global share in the RV reduction gear market for medium- to large-size industrial robots and we expect the business to continue to be the main top-line growth driver. The company is well positioned for a secular growth of industrial robot demand, driven by skilled labor shortage and need to increase production efficiency through automation.

Nabtesco’s 2024 operating income guidance of JPY 12.8 billion, or 4.0% operating margin, implies a 26% decline from last year and was a negative surprise, suggesting that the capacity utilization this year will be much lower than we had anticipated. Further, due to the weak December-quarter orders and higher inventory levels of the industrial robot manufacturers, we expect the inventory adjustment to take even longer than the company assumes and, accordingly, lower our 2024 operating income forecast to JPY 11.8 billion, or 3.7% operating margin, from JPY 18.2 billion previously. We also believe the company’s plan to return to a 10% operating margin in 2026 is optimistic, and we forecast an operating margin of 7.7%—which is lowered from 9.6% due to a lower capacity utilization assumption and higher-than-expected fixed costs from the recently constructed Hamamatsu plant. As a result, we lower our fair value estimate for Nabtesco to JPY 3,500 per share from JPY 4,000. While the firm's turnaround plan seems optimistic, we nevertheless believe that Nabtesco’s shares are undervalued as the market is overly pessimistic about the company’s medium-term margin recovery.