2010  2011  
Price:  7,500.00  EPS  $496.00  $578.00  
Shares Out. (in M):  145  P/E  15.0x  13.0x  
Market Cap (in $M):  13,109  P/FCF  35.0x  18.4x  
Net Debt (in $M):  811  EBIT  1,816  2,021  
TEV ($):  14,638  TEV/EBIT  11.0x  10.0x  
Borrow Cost:  NA 
Description: ~65% of Nidec's EBIT comes from selling HDD motors and other PC components (cooling fans, etc.). This is the company's highest margin business (~18% EBIT margin vs overall Co. at 13 % margin), and it is dominated by "brushless" (electronic) / spindle motors that go into standard 2.5" (notebook) and 3.5" (desktop) HDDs. This motor technology has not significantly changed since the 80s. Nidec's HDD market share was ~60% in 2004 and has gradually increased (to close to 80%) through the downturn w/ industry capacity reductions. There is not an outsized #2 competitor, but Minebea and Alphana Technology have competing HDD motors. As a % of HDD motor sales, Nidec's sales split mirrors the HDD industry: STX is 31%, WDC is 30%, Hitachi is 21%, and Samsung and Toshiba are the other two significant customers. The majority of Nidec's HDD motor sales are conducted justintime, with quarterly pricing. Even though Nidec has 80% market share in HDD motors, it is continuing to cut prices 12% q/q every quarter, in order to "stay on the good side of the HDD co's" (Nidec's HDD motor ASPs are ~$5 on an average total HDD ASP of ~$45). Recent talk of 10%+ HDD ASP declines for 4Q puts significant pressure on Nidec to increase the size of its quarterly price cuts.
The rest of Nidec's operating income is: ~15% optical components (digital camera shutter and lens components for cameras / phones); ~10% machinery automation components (industrial robot applications); and the remainder is "midsized" motors (home appliances, automotive systems, etc.) Nidec has ambitious plans to significantly increase its nonHDD motors business through acquisitions (recently paid ~$760M / ~10.5x EBIT to acquire EMR's appliance and tools motors business, a ~7% EBIT margin business postsynergies).
Mkt Cap is $13.4B USD, EV is ~$15B USD (PF for a recent $720M cash acquisition from EMR), and revs are ~$8.3B USD. Liquidity is ~$90M USD /day.
Updated analyst estimates of the HDD market are well below Nidec's last guidance #'s for the overall market:
HDD Unit Forecasts, Million Units of Sales 





Cal 3Q10 
Cal 4Q10 
Comment 

Nidec's 7/23 Guidance 
170 
185 







Gartner's 9/10 Lowered Estimate 
165 
172 


Barclays 9/10 Lowered Estimate 
165 
172 
Lowered 4Q from 177. 

Avian's 9/15 Lowered Estimate 
160 

Would be a "near flat" comparison to Q2. 




Normal seasonality is +1015%. 

Average 
163 
172 







Nidec's Divergence from Updated Avg Estimates 
4% 
8% 


On top of this, street EPS estimates for FY10 3/11 of ¥502 are already ¥50 higher than Nidec's EPS guidance of ¥452. The street is assuming that Nidec's guidance is conservative and also likely estimating future acquired revenues.
Valuation on Street Estimates:


Yen  USD  
Price  ¥7,500  
Shrs Out  145.1  
Mkt Cap  ¥1,088,063  $13,109  
Add: Debt  ¥131,601  
Add: Minority Int  ¥59,592  
Add: New Convert Debt  ¥100,000  Note: 0% interest rate, strike is ~40% premium for ~6.5% dilutive effect.  
Gross Debt  ¥231,601  $2,790  
Less: Cash  ¥127,374  
Less: EMR Motors Deal Prc  ¥63,080  $760  
Less: Cash from New Convert  ¥100,000  
Gross Cash  ¥164,294  $1,979  
EV  ¥1,214,962  $14,638  
Note: Net Debt  ¥67,307  $811  
Street  Street  Street  
FY 3/2006  FY 3/2007  FY 3/2008  FY 3/2009  FY 3/2010  FY 3/2011  FY 3/2012  FY 3/2013  
Revs  ¥536,858  ¥629,667  ¥742,126  ¥613,458  ¥587,459  ¥692,953  ¥752,958  ¥800,915  
Gross Profit  ¥123,846  ¥143,040  ¥158,216  ¥130,565  ¥151,122  
% Sales  23.1%  22.7%  21.3%  21.3%  25.7%  
EBIT  ¥53,426  ¥64,009  ¥76,833  ¥51,806  ¥78,342  ¥110,481  ¥124,444  ¥134,828  
% Sales  10.0%  10.2%  10.4%  8.4%  13.3%  15.9%  16.5%  16.8%  
EBITDA  ¥79,711  ¥94,006  ¥113,167  ¥83,953  ¥107,527  ¥150,691  ¥167,784  ¥184,024  
EBITDA  CapEx  ¥36,526  ¥54,862  ¥77,507  ¥45,452  ¥70,919  ¥85,691  ¥122,784  ¥139,024  
FCF (NI + D&A  CapEx)  ¥24,049  ¥30,785  ¥41,830  ¥21,999  ¥44,538  ¥34,579  ¥66,198  ¥71,862  
CapEx  ¥43,185  ¥39,144  ¥35,660  ¥38,501  ¥36,608  ¥65,000  ¥45,000  ¥45,000  
Net Income  ¥40,949  ¥39,932  ¥41,156  ¥28,353  ¥51,961  ¥70,394  ¥82,013  ¥87,677  
EPS  ¥276  ¥284  ¥197  ¥373  ¥496  ¥578  ¥620  
Multiples  
EV / Revs  2.1x  1.8x  1.6x  1.5x  
EV / EBIT  15.5x  11.0x  9.8x  9.0x  
EV / EBITDA  11.3x  8.1x  7.2x  6.6x  
EV / EBITDA  CapEx  17.1x  14.2x  9.9x  8.7x  
P / E  20.1x  15.1x  13.0x  12.1x  
EV / FCF  27.3x  35.1x  18.4x  16.9x  
Growth  
Sales Grwth %  17%  18%  17%  4%  18%  9%  6%  
EBIT Grwth %  20%  20%  33%  51%  41%  13%  8% 
Scenario Model:
Scenarios, FY11 3/12E  
3 Yr Avg  FY09 3/10  FY10 3/11  Bad  Street  Base  Best  
Rev  ¥640,874  ¥587,459  ¥692,953  ¥752,784  ¥710,825  ¥647,674 
2 Yr Rev Grwth Rate  13%  10%  5%  
EBIT %  10.8%  13.3%  15.9%  16.5%  11.5%  10.5% 
EBIT  ¥69,251  ¥78,342  ¥110,481  ¥124,209  ¥81,745  ¥68,006 
EBITDA  ¥102,710  ¥108,722  ¥107,527  ¥167,709  ¥125,245  ¥111,506 
Capex  ¥33,693  ¥29,359  ¥65,000  ¥45,000  ¥45,000  ¥45,000 
EBITDA  CapEx  ¥69,016  ¥79,363  ¥85,691  ¥122,709  ¥80,245  ¥66,506 
EPS  ¥197  ¥373  ¥496  ¥583  ¥381  ¥310 
EV/EBITDA  CapEx  17.1x  14.2x  11.0x  11.0x  10.0x  
Price Target  ¥8,840  ¥5,620  ¥4,120  
Implied P/E  20.1x  15.1x  15.2x  14.7x  13.3x  
Implied EV/EBITDA  11.3x  8.1x  8.4x  7.6x  6.6x  
Return  18%  25%  45%  
Up/down:  2.5x  
Probability  30%  40%  30%  
Wtd Avg Price Target  ¥6,136 
Bad / Street: 13% total rev growth (assumes 5 yr avg 11% HDD unit growth continues and pricing is 5%) for 6% base rev growth annually. Rest of revenue (90B Yen) comes from acquisitions, assuming a similar rev multiple as paid for EMR motors (and using the cash from the Nov '10 100B convert issue). On EBIT % margin, street assumes growth (above mgmt guidance for a decline) and that the acquired revenue is close to Nidec average EBIT % margin.
Base: Assumes 8% HDD unit growth , 5% pricing for 3% base rev growth (+ the same amount acquired revenue). Assume EBIT% margin contraction to near 3 year average.
Best: Assumes 3% HHD unit growth, 5% pricing, + same amount of acquired revenue. Assumes additional ~50bp of EBIT % pressure in the HDD business and that acquired revenue (~13% of mix) is EBIT margin dilutive in a similar amount to the EMR motors acquisition. (~400bp lower margin x 13% of mix).
CapEx & D&A assumpions used were from conversation w/ IR.
P/E  EV / EBITDA  
Price  Mkt Cap  Net Debt  EV  FY10  FY11  FY12  FY10  FY11  FY12  
Nidec  6594 JP  ¥7,500  ¥1,088,063  ¥4,227  ¥1,214,962  15.1x  13.0x  12.1x  8.1x  7.2x  6.6x  
Japanese HDD Food Chain Comps:  
TDK, 100% HDD  6762 JP  ¥4,825  ¥622,869  ¥53,129  ¥676,070  12.4x  10.7x  9.7x  4.4x  4.2x  4.0x  
NHK ~50% HDD  5991 JP  ¥646  ¥152,941  ¥26,867  ¥179,939  8.6x  7.9x  7.7x  3.5x  3.4x  3.1x  
U.S. HDD Companies:  
Western Digital  WDC  $27.90  $6,557  $2,334  $4,223  7.7x  6.6x  6.7x  2.6x  2.6x  2.4x  
Seagate  STX  $11.49  $5,745  $13  $5,732  5.6x  5.1x  4.7x  3.1x  2.8x  2.9x  
MidSized / Appliance Motors Comps:  
Baldor  BEZ  $41.42  $1,971  $1,110  $3,080  24.0x  16.7x  14.2x  9.8x  8.4x  7.7x  
RegalBeloit  RBC  $56.43  $2,198  $101  $2,316  13.6x  11.9x  10.7x  6.9x  6.1x  5.7x  
EV / EBITDA  CapEx  GP %  EBIT %  Rev Grwth  
FY10  FY11  FY12  CY09  CY09  TTM  Last Qtr  
Nidec  6594 JP  10.6x  11.8x  10.2x  26%  13%  4%  38%  
Japanese HDD Food Chain Comps:  
6762 JP  7.6x  7.0x  6.3x  24%  3%  11%  52%  
5991 JP  5.1x  4.9x  4.4x  13%  5%  8%  45%  
U.S. HDD Companies:  
WDC  4.9x  4.8x  4.1x  24%  15%  32%  66%  
STX  4.7x  4.1x  4.3x  28%  16%  16%  42%  
MidSized / Appliance Motors Comps:  
BEZ  11.5x  9.6x  8.6x  29%  12%  
RBC  7.6x  6.7x  6.2x  23%  9% 
Further confirmation of weak PC volumes in 2H from companies in the value chain.