japan / technology hardware & equipment nidec …nidec’s acquisition of emerson’s generators...

Nidec Cor p 6594 JP BNP PARIBAS Masahiro Wakasugi

2 NOVEMBER 2016 JAPAN / TECHNOLOGY HARDWARE & EQUIPMENT

NIDEC CORP 6594 JP

Analysing Emerson biz acquisition

KEY STOCK DATA

Sources: FactSet estimates; BNP Paribas estimates

Acquisition of generators and motors/drives highly significant Nidec’s acquisition of Emerson’s generators and motors/drives business means it now has a full line-up of industrial products and geographic cover. More significantly, the purchase provides Nidec access to customers with global operations. We think generators and motors/drives are promising fields related to energy and energy-saving, and will contribute to earnings. We conservatively assume a 10% OPM by FY3/21, but Nidec is aiming for 15%.

Turnaround of top overseas management Nikkei Business and other media have started highlighting the success of Nidec’s management at overseas subsidiaries, for instance NMC’s Kei Pang, NASI’s Giovanni Barra and NMA’s Olav Schulte (see our report ACIM business poised for growth). Nidec’s overseas subsidiaries have independently initiated M&A activities in a serious bid to expand sales and achieve the 15% OPM target. We believe Nidec has improved the likelihood of achieving its medium-term plan.

Raise FY3/17-18 OP to JPY139.0b/JPY159.8b Based on Nidec’s strong 2Q FY3/17, we raise our OP for FY3/17 to JPY139.0b (from JPY130.0b) and for FY3/18 to JPY159.8b (from JPY150.0b). We maintain our FX assumption of JPY100/USD. The small precision motors and AACI businesses remain strong and we expect the adoption of IoT in Nidec’s plants to improve productivity. We assume the businesses acquired from Emerson will contribute OP of JPY2.8b in FY3/18 and JPY7.6b in FY3/19.

Target price raised to JPY12,000 from JPY10,700; maintain BUY Our target valuation remains the two-year historical average plus 1SD. After Nidec’s recent strong share price performance this is now 28.4x (from 27.6x previously). We apply this to our FY3/18 EPS (unchanged) to derive a JPY12,000 target price. We maintain our BUY rating in view of Nidec’s aggressive initiatives to achieve the lofty targets in its medium-term business plan.

Masahiro Wakasugi [email protected]

+813 6377 2240

Our research is available on Thomson One, Bloomberg, TheMarkets.com, FactSet and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for authorisation. Please see the important notice on the back page.

PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (JAPAN) LTD. THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST

CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 22

BUY UNCHANGED

TARGET PRICE JPY12,000

CLOSE JPY10,170

UP/DOWNSIDE +18.0%

PRIOR TP JPY10,700

CHANGE IN TP 12.15%

HOW WE DIFFER FROM CONSENSUS MARKET RECS

TARGET PRICE (%) 14.3 POSITIVE 20

EPS 2017 (%) 1.3 NEUTRAL 2

EPS 2018 (%) 5.8 NEGATIVE 1

2017E 2017C 2018E 2019E

Revenue 1,122.3 1,200.0 1,311.1 1,395.1

Op profit 139.0 135.0 159.8 178.4

Prior op profit 130.0 130.0 150.0 165.3

Pre-tax profit 136.4 133.0 160.1 179.0

Net profit 103.4 100.0 121.7 136.0

EPS (JPY) 348.6 337.2 410.3 458.5

P/E (x) 29.2 30.2 24.8 22.2

Dividend yield (%) 0.9 0.8 1.0 1.1

EV/EBITDA (x) 14.9 - 12.8 11.3

Price/book (x) 3.6 - 3.2 2.9

Net debt/equity (%) (4.4) - (7.3) (13.2)

ROE (%) 13.8 - 13.7 13.8

Share price performance 1 Month 3 Month 12 Month

Absolute (%) 9.8 7.8 10.9

Relative to country (%) 4.3 2.4 24.0

Next Results

Mkt cap (USD m) 28,616

3m avg daily turnover (USD m) 104.0

Free float (%) 65

Major shareholder Shigenobu Nagamori (8%)

12m high/low (JPY) 10,250/6,553

3m historic vol. (%) 24.4

ADR ticker NJ US

ADR closing price (USD; 28 Oct 2016) 23.02

Issued shares (m) 297

YE Mar (JPY b)

January 2017

(10)

0

10

20

30

6,500

7,500

8,500

9,500

10,500Nov-15 Jan-16 Apr-16 Jul-16 Oct-16

Nidec Corp Rel to TOPIX Index(JPY) (%)

https://eqresearch.bnpparibas.com/researchfs/CR__a7923c78aba243a2963106983b6ab68a.pdf

Nidec Corp 6594 JP Masahiro Wakasugi

Investment thesis Our three main investment themes:

1 Environmental and fuel efficiency regulations are driving growth for automotive motors and electronic control units (ECU). We expect Nidec’s appliances, commercial and industrial motors to benefit from a trend towards greater energy efficiency.

2 The introduction of global auto safety standards is fuelling a growth phase for ADAS-related products.

3 Nidec’s aggressive medium-term plan, strong management and M&A activity should facilitate inorganic growth.

Global warming and climate change are boosting the need for vehicle fuel efficiency and energy-saving in the appliance, commercial and industrial fields, prompting countries to enact various regulations. Nidec’s high-efficiency DC brushless motors contribute to fuel efficiency and energy saving, and we believe this should drive medium- to longer-term earnings.

We expect ADAS-related products to emerge as a new earnings driver for Nidec following its Elesys acquisition.

Catalyst We see two key potential positive catalysts for Nidec shares, and expect positive news flow on these themes over the medium to long term:

1) Environmental/mileage regulations on cars: mileage regulations are set to become tougher not only in developed economies, such as Japan, Europe and the US, but also in emerging countries like China and India; and

2) Introduction of auto safety standards: the introduction of New Car Assessment Programmes (NCAP) throughout the world implies new safety guidelines towards 2020.

Risk to our call Downside risks include: 1) delays in regulations on automotive, appliance, commercial and industrial motors; 2) slowing volumes and rising price competition due to a slump in demand; 3) a worse-than-expected decline in HDD volumes; and 4) rapid JPY appreciation – according to Nidec, every JPY1/USD depreciation has a JPY1.1b positive impact on annual OP, while every JPY1/EUR depreciation has a JPY300m positive impact, all else being equal.

Company background Key assumptions: sales breakdown

Nidec is the world’s leading diversified motor maker. The four main businesses are: precision motors; automotive motors; appliance, commercial and industrial motors; and other products. Its strategy envisages growth both via organic means and M&A.

Key executives Age Joined Title Shigenobu Nagamori 72 1973 Chairman of the Board, President &

CEO Hiroshi Kobe 67 1973 Representative Director, Vice

Chairman & CSO Mikio Katayama 58 2014 Representative Director,

http://www.nidec.com/en-Global/ Sources: Nidec Corp; BNP Paribas estimates

Principal activities (revenue, FY3/16) Earnings sensitivity

FY3/17E Bull case Base case Bear case

Sales (JPY m) 1,156,000 1,122,330 1,089,000

Diff (%) 3 0 (3)

OP (JPY m) 149,000 139,034 126,000

Diff (%) 7 0 (9)

EPS (JPY) 373.3 348.6 314.1

Diff (%) 7 0 (10)

Sources: Nidec Corp Sources: Nidec Corp; BNP Paribas estimates

Event calendar

Date Event

Approx.Jan-Feb 2017 Supply chain results announcements (STX, WDC, Midea, Honda, CON, etc.)

Various times Motor shows in North America, Geneva, Paris, Tokyo, Frankfurt, etc.

Irregular (1-2 times/yr) Announcements by NCAP/NHTSA/EPA

Not fixed Announcements of further M&A activity

Tighter fuel-efficiency standards are likely to promote adoption of Nidec’s high-efficiency DC brushless motors for power steering and other applications.

There is potential for its subsidiaries entering structural growth phase in appliance, commercial and industrial segments.

Our FX assumptions from 3Q FY3/17 are JPY100/USD and JPY110/EUR. JPY depreciation would be positive for earnings.

0100200300400500600700

FY3/13 FY3/14 FY3/15 FY3/16 FY3/17E FY3/18E FY3/19E

(JPY b)

HDD motor Other small precision motorsMachinery Elec. and optical componentsOthers

HDD motor - 17.7%

Other small precision motors - 20.4%

ACI - 24.1%

Automotive - 23.0%

Machinery - 9.0%

Elec. and optical components - 5.4%

Other - 0.4%

2 BNP PARIBAS 2 NOVEMBER 2016


Views on the acquisition of Emerson’s motors/drives and electric power generation businesses

1) Overview of acquisition

Purpose of acquisition: to fill out industrial line-up and gain ability to sell drives and motors as a package

On 2 August, Nidec announced plans to acquire the motors & drives (M&D) and electric power generation (EPG) businesses of Emerson Electric (hereafter Emerson). The purposes of the acquisition are: 1) to become a full-line supplier of products for industrial use and improve geographic cover, 2) to strengthen Nidec’s ability to propose drives and motors in a package to customers, and 3) to accelerate its business entry into the market for motion control, automated guided vehicles (AGV) and robotics, taking advantage of the business’s full range of servo motors and gears. According to Nidec, the businesses to be acquired had sales of USD1.674b (JPY167.4b at JPY100/USD) in FY9/15. The acquisition price is USD1.2b (JPY120.0b at JPY100/USD), to be paid for in cash (unless otherwise indicated, all subsequent sales figures relating to the businesses to be acquired are based on FY9/15 results).

Sales breakdown: good product balance, geographic fit

The businesses to be acquired are relatively well balanced in terms of sales breakdown: 1) low-voltage alternators 31%, 2) medium/high-voltage alternators 15%, 3) motors 31%, and 4) drives and solutions 22% (based on Nidec data; the figures do not total 100% probably due to rounding). Nidec sorts these four categories into two businesses, lumping 1) and 2) together as “alternators” and 3) and 4) together as “motors & drives”. The sales breakdown is alternators 46%, motors & drives 53%.

By region, Western Europe has the highest sales weighting, generating 45% of total sales, followed by the US and Canada with 26%. After that come China (11%) and Asia Pacific (8%), with the Middle East and Africa accounting for another 5%. This complements Nidec’s current geographical distribution, enhancing opportunities for business expansion, particularly in Europe.

Sales breakdown by company: Leroy-Somer and Control Techniques

Through this deal Nidec will acquire Leroy-Somer (LS) and Control Techniques (CT), both Emerson subsidiaries. In FY9/15, LS had sales of USD1.309b and CT USD374m. LS accounts for the lion’s share of sales (78%). Founded in 1919, LS has competed successfully for nearly 100 years. Coincidentally, CT was founded in 1973, the same year as Nidec.

Only LS handles alternators. Both LS and CT handle motors and drives, with combined sales of USD903m as of FY9/15 of which LS generated USD529m and CT

Exhibit 1: Breakdown of sales by product (FY9/15): good balance

Exhibit 2: Breakdown of sales by product: good geographic fit

Sources: Nidec Corp; BNP Paribas Sources: Nidec Corp; BNP Paribas

Low-voltage alternators

31%

Medium/high-voltage

alternators15%

Motors31%

Drives & solutions

22%

By product

US & Canada

26%

Western Europe

45%

Eastern Europe

3%

China11%

Asia Pacific8%

Middle East & Africa

5%

South America

1%

By region



USD374m. As of 1 October 2015, the alternators business employed 3,559 people (37%) and the motors & drives business 5,689 (58%), while another 455 (5%) worked in shared services. The headcount of the motors & drives business is slightly disproportionate to its share of sales (sales 53%, headcount 58%). (Unless otherwise specified, subsequent headcount data are based on figures for 1 October 2015.)

Significance of acquisition from customer perspective: strengthening relationships with global companies

Many major customers of LS and CT are well-known global corporations. Major customers for LS’s alternators include construction engine maker Caterpillar, aircraft engine makers GE and Rolls-Royce, and marine engine makers Man and Wärtsilä. Other well-known companies include Total, Mitsubishi Heavy Industries and EDF.

Major customers of LS’s motors & drives include companies with worldwide operations, such as Schindler, Michelin, United Technologies, Ingersoll Rand and Manitowoc. As with LS, major customers of CT (motors and drives) include a string of global players, such as GE, Areva, Motion Industries, Goldwind and Senvion.

We think it is highly significant that Nidec has now gained access to customers operating on a global level, such as those listed above. For a components supplier, it is very important whether a customer has a strong competitive edge or not.

Companies that have a strong competitive advantage tend to be very demanding regarding quality and delivery timing, but that helps to toughen up component suppliers, and has the potential to enhance the suppliers’ own competitiveness.

Exhibit 3: Sales by company as of FY9/15: LS is larger

Exhibit 4: Headcount breakdown by segment as of FY9/15: Motors & drives is the larger


Exhibit 5: Overview of businesses to be acquired

Name of business Major customers Main products

Head-count (excl. persons working in shared services)

Main manufacturing locations (locations involved in development design)

LS Alternators Caterpillar, Rolls-Royce, Kohler Generators, Atlas Copco, Total, GE, Man, Andritz, Électricité de France, Ghaddar, SDMO, Mitsubishi Heavy Industries, Wärtsilä

Industrial range (low to medium voltage), custom range (low to high voltage), wind power generators, etc.

3,559 10 locations, including Orléans (France), Lexington (US), Fuzhou (China) of which 6 have development design facilities

Motors & drives Schindler, Michelin, United Technologies, Ingersoll Rand, BOBST, Edwards Industrial, Stäubli, Manitowoc Cranes, Karl Mayer, Atlas Copco, EDF, Orona Elevators

Induction motors, gears, DC motors, permanent magnet motors, servo motors, torque motors, gears, drives, etc.

5,689

22 locations, including Newtown (UK), Angoulême (France) and Eden Prairie (US) of which 15 have development design facilities

CT Senvion, Hitachi Elevator (China), Karl Mayer, Motion Industries, Orona Elevators, Southeastern Wind Coalition, Quanta Power Generation, Ming Yang Wind Power, Goldwind, GE, Areva

Industrial drives, AC drives, DC drives, servo drives, AC motor controls, servo motors, etc.

Sources: Nidec Corp; BNP Paribas

LS78%

CT22%

By company

Alternators37%

Motors & drives58%

Shared services

5%

By number of employees



Customers that are highly competitive in their industries often provide access to important, leading-edge content. As such, we think it is important for component suppliers to do business with customers that are highly competitive in their industries in order to improve their own competitiveness and win out against their competitors. That is why we see this acquisition as particularly significant for Nidec.

2) Views on financial performance

Comparison of sales/employee: acquired businesses have high sales/employee

Based on disclosed information, the businesses to be acquired as a whole had sales of JPY20.7m/employee (using the average rate of JPY119/USD when sales were booked). The alternator business (LS) had sales of JPY24.7m/employee, higher than the JPY18.2m/employee of the motors & drives business (combined total for LS and CT). In FY3/16, Nidec had sales of JPY12.2m/employee, so the businesses to be acquired generate a higher level of sales/employee than Nidec itself.

At JPY20.7m/employee, FY3/16 headcount sufficient to achieve medium-term plan’s JPY2t sales target in 2020

Assuming Nidec was to achieve its medium-term plan’s FY3/21 sales target of JPY2t with its end-FY3/16 headcount of 96,602, sales/employee would come to exactly JPY20.7m. From the perspective of sales/employee, the JPY2t sales target in Nidec’s medium-term plan appears achievable given the comparisons below.

Looking at sales/employee data for companies earlier acquired by Nidec, GPM had JPY32.9m/employee, Ansaldo had JPY22.4m/employee, the current NMC (former Emerson motors & controls business) had JPY13.3m/employee and Kinetek had JPY10.7m/employee (using average FX rates at the time sales were booked). Compared to the JPY13.3m/employee of the Emerson motors & controls business acquired in 2010, the motors & drives and alternators businesses to be acquired from Emerson this time have higher sales/employee.

A high sales/employee level does not necessarily equate with higher profits, but it does imply efficient management as relatively few people are generating large sales. Another implication is that, although Emerson is selling these businesses, it does not mean that Nidec will be taking on businesses with excess employees.

For reference, we compared sales/employee data of companies in our coverage. The top three are manufacturers of assembled end-products, with Sony (6758 JP; HOLD; CP: JPY3,337) having the highest level of sales/employee, followed by Sharp (6753 JP; REDUCE; CP: JPY179) and Panasonic (6752 JP; BUY; CP: JPY1,026). Among electronic component suppliers, those at the top are Nitto Denko (6988 JP; HOLD; CP: JPY7,437), Hirose Electric (6806 JP; HOLD; CP: JPY13,460) and Hamamatsu Photonics (6965 JP; HOLD; CP: JPY3,175). Surprisingly, Nidec has the lowest ratio of sales/employee of the companies we cover. However, annual

Exhibit 6: Comparison of sales/employee: higher for alternators

Exhibit 7: Comparison of sales/employee with earlier acquisitions


12.2

20.7

24.7

18.2

0

5

10

15

20

25

30

Nidec Total biz acquired EPG biz M&D biz

(JPY m/employee)

Sales/employee

The same level as the sales of JPY2t in "Vision 2020"

32.9

22.4 20.7

13.3 12.210.7

0

5

10

15

20

25

30

35

GPM

Ansa

ldo

Emer

son:

LS &

CT

Emer

son:

NM

C

Nid

ec to

tal

Kine

tek

(JPY m/employee) Sales/employee

Higher than the level of old-

Emerson M&C div acquired in 2010



securities reports show that while sales have grown over the past three years, the number of employees has declined, an indication that sales per employee are improving.

On OP/employee data for FY3/16, Hirose Electric tops the list, followed by Hamamatsu Photonics, Murata Manufacturing (6981 JP; BUY; CP: JPY13,940) and Nitto Denko, in that order, with Nidec at ninth of 12 companies. In terms of OPM, however, Nidec’s 11% is the fifth highest. Moreover, Nidec’s OPM rose to 13.0% in 2Q FY3/17, an indication that profitability is steadily improving, in our view.

Financial performance of businesses to be acquired

Unfortunately, the recent financial performances of the businesses to be acquired have not been especially favourable. The combined sales of the alternators and motors & drives businesses totalled USD1.984b in FY9/13. In FY9/14, sales inched up to USD1.989b, but FY9/15 saw a sharp drop of 16% y-y to USD1.674b. EBITDA, which was USD273m (EBITDA margin 13.8%) in FY9/13, fell 36% y-y to USD175m (EBITDA margin 10.5%) in FY9/15.

Exhibit 8: Sales/employee (FY3/16): Nidec surprisingly low

Exhibit 9: OP/employee and OPM (FY3/16): reasonably profitable


Exhibit 10: Sales trends: revenues down in FY9/15 Exhibit 11: EBITDA trends: earnings down two years in a row


64.756.6

30.3 29.6 28.7 26.922.1 21.4

16.612.8 12.6 12.2

0

10

20

30

40

50

60

70

Sony

Shar

p

Pana

soni

c

Nitt

o D

enko

Hiro

se

HP

K

Mur

ata

Kyoc

era

Roh

m

Taiy

o Yu

den

TDK

Nid

ec

(JPY m/person)

Sales/person

11

(10)(5)0510152025

(6)(4)(2)02468

Hiro

se

HP

K

Mur

ata

Nitt

o D

enko

Sony

Pana

soni

c

Roh

m

Kyoc

era

Nid

ec

Taiy

o Yu

den

TDK

Shar

p

(%)(JPY m/person)

OP/employee (LHS) OPM (RHS)

1,984 1,989

1,674

1,0001,1001,2001,3001,4001,5001,6001,7001,8001,9002,000

FY9/13 FY9/14 FY9/15

(USD m)

273 260

17513.8

13.1

10.5

8

9

10

11

12

13

14

15

0

50

100

150

200

250

300

FY9/13 FY9/14 FY9/15

(%)(USD m)EBITDA (LHS) EBITDA margin (RHS)



Customers’ sales on gradual downtrend, but signs of recovery recently

Nidec’s disclosures list 11 major customers of the combined alternators and motors & drives businesses: Caterpillar, Ingersoll Rand, Michelin, GE, Senvion, Schindler, Rolls-Royce, Man, Atlas Copco, Karl Mayer, and United Technologies. Nidec has provided sales data for seven of these companies (Caterpillar, Ingersoll Rand, Michelin, GE, Schindler, Man, Atlas). Aggregate quarterly sales trends for these seven companies since 2011 show a gradual decline from a peak of USD77.0b in 4Q11. Sales bottomed at USD55.3b in 1Q16, 28% down from the peak.

From 3Q12, aggregate sales of the seven companies declined y-y in all quarters except 1Q14. However, sales rose 0.1% y-y in 2Q16, marking a very modest return to positive growth. Recovery in customers’ sales should help restore the sales and earnings of the businesses to be acquired, increasing the likelihood that they will contribute to Nidec’s earnings after the acquisition.

Construction-machinery industry

Reference material provided by Nidec mentions Caterpillar first in the section dealing with major customers. We examine trends in the construction-machinery industry to which Caterpillar belongs. However, Caterpillar is not the only customer and this should be borne in mind.

Yukihiro Kumagai, our capital goods analyst, regards capex by global mining companies as important when considering demand trends for construction machinery (especially for mining). Capex data for six major mining companies (BHP Billiton, Rio Tinto, Anglo American, Vale, Freeport-Mcmoran, Glencore) show a downtrend from 2013 through 2017 (using Bloomberg consensus estimates from 2016). The y-y growth figures, however, suggest a bottoming-out in 2016, pointing to a potential positive growth in 2018.

Exhibit 12: Customers’ aggregate sales trends: gradual decline, but…

Exhibit 13: Customers’ sales growth y-y: signs of recovery


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

CY2011 CY2012 CY2013 CY2014 CY2015 CY2016

(USD m) CAT IR ML GE SCHP MAN ATCOA

(15)

(10)

(5)

0

5

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

CY2012 CY2013 CY2014 CY2015 CY2016

(%) Total sales growth y-y of seven main customers

Growth y-y is recovering



Komatsu’s (6301 JP; REDUCE; CP: JPY2,329) KOMTRAX data are useful for understanding trends in the combined mining and construction industries. These show, for example, that average working hours in China have turned positive since February 2016. Material presented at Hitachi Construction Machinery’s (HCM; 6305 JP; REDUCE; CP: JPY2,193) results briefing indicate that global demand for hydraulic excavators has almost bottomed out, with demand continuing to rise notably in India, mostly due to ‘infrastructure investment in coal mining and quarrying’. In April, HCM was forecasting 17% y-y growth in India’s demand for hydraulic excavators in 2016, but in July, it revised this figure to 50% y-y growth.

Caterpillar announced its 3Q FY12/16 results on 25 October (local time). At the same time, it issued a statement saying, “Our preliminary outlook for 2017 is that sales and revenues will not be significantly different than 2016. [...] we could see a more positive second half”. HCM announced its 2Q FY3/17 results on 27 October with the CFO commenting that, “The Chinese market will not decline further”. From these comments, we expect that the construction machinery industry is likely to bottom out in 2016 and start to pick up from 2H 2017.

Share price trends at customer companies: may be leading indicator of earnings

Since share prices are one of the leading economic indicators, they can provide useful insights into earnings trends. The recent share prices of Caterpillar, Ingersoll Rand, Michelin and Atlas Copco, for example, show a declining trend through 2H15, but an apparent bottoming-out during 1H16.

Exhibit 16: Market caps of customer companies: bottoming out

Sources: Bloomberg; Note: Excludes the remaining seven given the relatively smaller market cap and limited impact.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Feb-

14

Apr-1

4

Jun-

14

Aug-

14

Oct

-14

Dec

-14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct

-15

Dec

-15

Feb-

16

Apr-1

6

Jun-

16

Aug-

16

(USD m)CAT IR Michelin ATCOA

Exhibit 14: Mining capex: may be bottoming out Exhibit 15: KOMTRAX China data: hints of bottoming-out

Based on data for six major miners: BHP Billiton, Rio Tinto, Anglo American, Vale, Freeport-Mcmoran, Glencore Sources: Company data; Bloomberg consensus estimates; BNP Paribas

Sources: Komatsu; BNP Paribas

35

(13)

17

37 28

7

(18)(28)

(33)

(13)

4

(40)

(30)

(20)

(10)

0

10

20

30

40

50

0

10

20

30

40

50

60

70

80

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

(y-y %)(USD b) Mining capex (LHS)Growth (RHS)

(30)

(20)

(10)

0

10

20

30

020406080

100120140160180200

Jan-

12Ap

r-12

Jul-1

2O

ct-1

2Ja

n-13

Apr-1

3Ju

l-13

Oct

-13

Jan-

14Ap

r-14

Jul-1

4O

ct-1

4Ja

n-15

Apr-1

5Ju

l-15

Oct

-15

Jan-

16Ap

r-16

Jul-1

6

(y-y %)(hours) Average working hour (LHS)Growth (RHS)



The recent earnings of the businesses that Nidec is acquiring may not be very impressive, but sales at customer companies, construction-machinery industry data and share-price trends at customer companies point to a bottoming-out in recent months. We believe a turnaround in earnings at customer companies could be positive for Nidec.

3) Insights giving a deeper understanding

Examples of LS business

Alternator business

LS’s alternators/generators are used in a wide range of applications, including cogeneration systems and marine vessels. As an example of their use in cogeneration, St Luke Hospital in Belgium employs two LS generators together with a diesel engine supplied by Perkins (a Caterpillar subsidiary) in its cogeneration system. In the marine sphere, the world’s largest luxury liner Harmony of the Seas is equipped with eight LS generators coupled with Wärtsilä engines delivering 100MW of power. Large passenger liners require high-voltage power, and as this example shows, LS has the ability to supply not only low/medium-voltage products, but customised high-voltage generators for use in marine vessels and the like.

In Japan and many other countries, there is growing use of renewable energy aimed at reducing the environmental load. This is likely to prompt active investment in the stable supply of electric power, potentially boosting demand for LS’s generators and the energy storage systems of Nidec ASI, acquired earlier.

LS’s generators are also used in wind turbines. The company supplies wind-turbine generators ranging from 600kW to 5MW, mainly targeting the low/medium-voltage market. According to The Wind Power, the Vestas V47 wind turbine is equipped with a LS 690V generator.

For a company acquired by Nidec, the benefit of merging is likely to be the ability to expand the customer base. In July 2016, for example, Nidec ASI announced its first deal to supply power-conversion and energy-storage systems for use in Japan following an order from Advantec, a company that sells and installs solar power generating systems. Similarly, LS could now be in a position to secure new orders for generators not only from overseas companies like Vestas, but also from Japanese manufacturers.

Suppliers of generators for wind turbines (competitors of LS) include ABB, Siemens, Elin Motoren, Ingeteam and Weier.

Exhibit 17: Use in cogeneration: St Luke Hospital Exhibit 18: Use in marine vessel: Harmony of the Seas

Source: LS website Source: LS website



Motors & drives business

LS’s product line-up includes permanent-magnet motors and gears. The new electric vehicle E-Mehari released by Citroen (PSA Group) in December 2015 uses a Dyneo® permanent-magnet motor supplied by LS for the driving motor. This product couples high efficiency with low power consumption. An example from the servo gear category is the bottle line at the plant of world-renowned champagne maker Centre Vinicole - Champagne Nicolas Feuillatte (CV-CNF), which is equipped with CT’s drives and LS’s gears. These gears are designed with minimum backlash (space intentionally inserted between gear teeth) to ensure strong durability against overload and greater accuracy.

Examples of CT business

CT produces industrial AC drives, DC drives and servo motors. CT’s “Unidrive SP” AC drives are used in the Unilever-owned plant that produces ‘Magnum’, the world’s top-selling ice cream brand. Around 50 Unidrive SP drives are used in the 100-metre long ‘Magnum’ and ‘Solero’ lines.

CT’s AC drives have been installed in tyre maker Michelin’s Dundee factory. As officially announced by CT’s press release, this has resulted in annual power saving equal to 1,500MWh at the Dundee factory, which has capacity to produce 24,000 tyres a day. Given the growing international effort to cut energy use in order to combat global warming, demand for CT’s drives offering power saving and improved efficiency is likely to increase (for more details regarding regulations on CFC

Exhibit 19: LS’s generator line-up Exhibit 20: Structure of wind-turbine generator

Source: LS website Source: LS website

Exhibit 21: Used in champagne bottle line

Source: LS website



alternatives, see our reports entitled Cooling of Things (6 October 2016) and CoT Part 2: Impact of CFC alternatives regulations (17 October 2016).

Post-merger profit-improvement plans: three phases

At its results briefing on 25 October, Nidec outlined a three-phase plan to improve profitability after completion of the deal (Exhibit 24). In Phases 1 and 2, the aim is to achieve 10% OPM while pursuing post-merger integration (PMI). Phase 3, starting in FY3/21, will target an OPM of 15%. CEO Nagamori explained at the briefing that he was aiming for an OPM of 10% on sales of JPY200b and OP of JPY20b in two years from now (Phase 2). He added that “the main key to improving profits is not (growth by) the individual companies, but synergy with the existing Nidec business”.

4) Growing role of overseas management

In our July 2016 report entitled ACIM business poised for growth, we referred to structural growth trends at overseas companies that have started to generate strong profits under the heading “Turnaround of subsidiaries” acquired earlier. We identified Kei Pang, CEO of US subsidiary Nidec Motor Corporation (NMC), and Giovanni Barra, CEO of Italian subsidiary Nidec ASI (NASI), as key persons.

NMC’s CEO Kei Pang appears to understand and share CEO Nagamori’s medium-term management goals. NMC was instrumental in starting up the business supplying to global logistics centres and the business related to low-speed electric vehicles in China. Overseas subsidiaries have begun to play an autonomous role in driving growth for the Nidec group, a recent example being the August 2015 acquisition of KB Electronics (US), in which NMC played a leading role.

Exhibit 22: Magnum plant: equipped with CT’s drives Exhibit 23: Michelin factory: 1,500MWh power saving

Source: CT website Source: CT website

Exhibit 24: Post-merger profit-improvement plans

Source: Nidec


https://eqresearch.bnpparibas.com/researchfs/FS__f4f628e1a7044ab286acf902726a9787.pdf

https://eqresearch.bnpparibas.com/researchfs/FS__7bea525125474c319d4b7269a78d1e58.pdf

https://eqresearch.bnpparibas.com/researchfs/FS__7bea525125474c319d4b7269a78d1e58.pdf

https://eqresearch.bnpparibas.com/researchfs/CR__a7923c78aba243a2963106983b6ab68a.pdf


When Nidec announced plans to acquire the motors, drives and electric power generation businesses of Emerson Electric, Mr Pang himself took the rostrum and expressed his strong commitment to expanding the business, including the goal of lifting ACIM (appliance, commercial and industrial motors) sales in FY3/21 to JPY600b (which would generate OP of JPY90b assuming achievement of the medium-term business plan’s 15% OPM goal for the group as a whole) and to JPY1t in FY3/23 (see our 2 August 2016 report entitled Long-awaited and significant M&A).

NASI CEO Giovanni Barra also appears to share CEO Nagamori’s medium/long-term goals and has been working to expand the business. Examples include orders from Germany’s STEAG for electric power storage systems at power plants and new orders to supply large motors for oil pipelines from Russian Electric Motors (REM). In an interview with Nikkei Business (published on 24 October), Mr Barra stated that the value of orders NASI is expecting to receive could “set to double this year”.

Olav Schulte driving NMA’s growth

Nikkei Business also referred to the efforts of Olav Schulte, CEO of Nidec Motors & Actuators (NMA). NMA is a Nidec subsidiary that develops, manufactures and sells automotive motors, including those used in engine cooling, anti-lock braking systems and steering adjustment. It was previously the automotive motors business of France’s Valeo, which Nidec acquired in December 2006. Like Messrs Pang and Barra, Mr Schulte also appears to understand and share CEO Nagamori’s philosophy.

According to Nikkei Business, NMA struggled for a period after the acquisition, but following the appointment of Mr Schulte as CEO in October 2013, it took actions that resulted in a 50% work-force cut and doubling of productivity. These included: 1) relocating the Paris headquarters to NMA’s German factory in order to serve customers better; 2) establishing several cross-function teams (CFT) within the company to study ways of reducing costs and developing new projects; and 3) upgrading facilities at many factories.

We believe that top overseas managers, such as Messrs Pang, Barra and Schulte, who understand and share Chairman Nagamori’s lofty goals and can take the necessary action to accomplish them, will contribute significantly to Nidec’s earnings growth in the period ahead.


https://eqresearch.bnpparibas.com/researchfs/CF__a0884f8429b04f5586803b22f286a2a3.pdf

https://eqresearch.bnpparibas.com/researchfs/CF__a0884f8429b04f5586803b22f286a2a3.pdf


Nidec’s future earnings

Raise FY3/17 OP estimate to JPY139.0b from JPY130.0b

Our FY3/17 forecasts are: sales JPY1.1223t (−5% y-y), OP JPY139.0b (+18%) and NI JPY103.4b (+15%). Our FX assumptions from 3Q FY3/17 remain JPY100/USD and JPY110/EUR (1H actual rates were JPY105/USD and JPY118/EUR, so the full-year averages are JPY102.6/USD and JPY114.1/EUR).

Guidance up despite strong JPY

Nidec’s revised FY3/17 guidance (announced on 24 October, previous guidance was announced on 25 April) is sales JPY1.2t (+2% y-y, previously JPY1.25t), OP JPY135.0b (+15%, previously JPY130.0b), and NI JPY100.0b (+11%, previously JPY98.0b). The company revised up its OP and NI numbers despite cutting its sales projection. Its revised FX assumptions from 3Q are JPY100/USD (from JPY105/USD) and JPY110/EUR (from JPY115/EUR). Nidec has raised its OP target despite the assumption of a stronger JPY. We thus think the level of OP improvement may be higher than the JPY5.0b guided by Nidec.

Raise FY3/17 OP forecast by JPY9.0b to JPY139.0b

We previously estimated FY3/17 OP of JPY130.0b, but now raise our estimate by JPY9.0b. As our FX assumptions are unchanged, the revision is based solely on improved performance in the actual business. Since 1H OP exceeded our forecast by around JPY5.0b, the upward revision for 2H amounts to JPY4.0b. The quarterly revisions are +JPY2.3b in 3Q and +JPY1.7b in 4Q. We expect 2Q’s positive business conditions to continue from 3Q.

The segmental breakdown of the additional JPY9.0b is as follows: 1) small precision motors +JPY6.6b; 2) automotive, appliance, commercial and industrial products +JPY600m; 3) machinery +JPY1.0b; 4) electronic & optical components +JPY1.6b; and 5) eliminations/corporate −JPY600m (aggregated figures do not match the total due to rounding).

Potential for additional JPY3.5b OP if FX remains at JPY105/USD

Both Nidec and we assume JPY100/USD and JPY110/EUR, but if rates remain at JPY105/USD and JPY115/EUR, OP would increase by around JPY3.5b. According to Nidec, every JPY1/USD change has a JPY1.1b impact and every JPY1/EUR change a JPY300m impact on annual OP. If actual rates remain JPY5 weaker against both the USD and EUR in 2H, we estimate a further JPY3.5b increase in OP, which would lift our FY3/17 OP number to JPY142.5b.

3Q OP estimate: JPY35.9b

We estimate 3Q FY3/17 OP of JPY35.9b (+16% y-y, −4% q-q), down JPY1.6b q-q (2Q OP was JPY37.5b). Assuming a stronger JPY in 3Q, we estimate a JPY1.0b negative q-q impact. In HDD motors, we expect growth in nearline sales to offset somewhat a decline in sales of 2.5-inch and 3.5-inch models, resulting in slight product-mix and margin improvement on a q-q basis. However, we do not expect nearline sales to completely counterbalance the decline in 2.5-inch and 3.5-inch HDDs because of the much larger volume of 2.5-inch and 3.5-inch HDDs, so the absolute value of OP is likely to decline by around JPY800m q-q.

We forecast slight q-q growth in earnings from “other small motors”, driven by haptic devices and motors for virtual reality (VR) systems. However, earnings from automotive, appliance, commercial and industrial products are likely to decline slightly because of the Christmas holidays in Europe and the US. We expect a slight q-q decline in machinery earnings due to seasonal factors and a slight increase in earnings from electronic & optical components as shipments ramp up ahead of the Christmas selling season.

4Q OP estimate: JPY34.2b

In 4Q, we expect seasonal growth in automotive, appliance, commercial and industrial products and in machinery. HDD motors, haptic devices and electronic &



optical components, however, will enter a seasonal-adjustment period, with earnings likely to decline q-q. Our total OP forecast for 4Q is JPY34.2b (+25% y-y, −5% q-q).

Raise FY3/18 OP forecast to JPY159.8b from JPY150.0b

Our FY3/18 forecasts are: sales JPY1.3111t (+17% y-y), OP JPY159.8b (+15%) and NI JPY121.7b (+18%). The y-y OP increase is JPY20.7b, broken down as follows: 1) appliance, commercial & industrial motors (ACIM) +JPY9.6b; 2) automotive +JPY6.1b; 3) non-HDD small precision motors (including haptic devices) +JPY5.0b; 4) machinery +JPY1.6b; 5) electronic & optical components +JPY1.3b; and 6) HDD motors −JPY2.1b (see Exhibit 27 for details). Our FX assumptions are JPY100/USD and JPY110/EUR from 3Q FY3/17.

JPY9.8b higher than our previous OP forecast

Our revised FY3/18 OP forecast of JPY159.8b is JPY9.8b higher than our previous forecast (JPY150.0b). This essentially flows on from the JPY9.0b increase in our FY3/17 forecast. There is some variation at the segmental level, but basically we expect product categories that performed well in 2Q FY3/17 to continue doing so in FY3/18. There is no change in our FX assumptions so our forecast revisions are unrelated to FX.

Impact of Emerson generators and motors & drives businesses: roughly JPY2.8b contribution to FY3/18 OP

We have not factored any impact from the Emerson generators and motors & drives businesses into our FY3/17 estimates, but include sales of around JPY140.0b and OP of around JPY2.8b in our FY3/18 numbers. We expect the businesses are capable of generating real OPM of 6%, but assuming amortisation of intangible fixed assets of around 4%, we estimate nominal OPM at 2%. Amortisation of intangible fixed assets is often high in the first year after an acquisition, and if that is the case, it could depress earnings. From the second year, however, it stabilises, so a transient increase in amortisation costs should not be a matter of great concern, in our view.

Our OP forecasts for these businesses are JPY7.6b (OPM roughly 5%) in FY3/19, JPY12.2b (OPM roughly 8%) in FY3/20, and JPY17.3b (OPM roughly 10%) in FY3/21. In FY3/21, we expect OPM to reach 10% as the businesses absorb amortisation of intangible fixed assets. For reference, Nidec has officially set its OPM target for these businesses in FY3/21 at 15%. Given Nidec’s skills in managing post-merger integration, we think there are good prospects OPM will exceed our (conservative) forecasts.

Exhibit 25: Revised earnings forecasts

FY3/16 ---------- FY3/17E ---------- ---------- FY3/18E ---------- ---------- FY3/19E ---------- FY3/17E

A Old New Old New Old New Guidance

(JPY m) (JPY m) (JPY m) (JPY m) (JPY m) (JPY m) (JPY m) (JPY m)

Sales 1,178,290 1,184,406 1,122,330 1,260,400 1,311,100 1,350,700 1,395,100 1,200,000

Change y-y (%) 15 1 (5) 6 17 7 6 2

OP 117,903 130,000 139,034 150,000 159,780 165,300 178,380 135,000

Change y-y (%) 6 10 18 15 15 10 12 15

OPM (%) 10.0 11.0 12.4 11.9 12.2 12.2 12.8 11.3

NI 90,120 96,900 103,400 114,000 121,700 125,900 136,000 100,000

Change y-y (%) 19 8 15 18 18 10 12 11

Diluted EPS (JPY) 302.5 326.7 348.6 384.3 410.3 424.5 458.5 -

Change y-y (%) 18 8 15 18 18 10 12 -

JPY/USD 120.1 102.0 102.6 100.0 100.0 100.0 100.0 102.6

JPY/EUR 132.6 116.0 114.1 110.0 110.0 110.0 110.0 114.1

Note: FY3/16 results are based on IFRS Sources: Nidec Corp; BNP Paribas estimates



Trends in closely watched products 1): Forecast y-y OP growth of roughly JPY1.0b from vibration devices in FY3/17, JPY2.0b in FY3/18

We forecast roughly JPY1.0b y-y growth in the contribution to OP from vibration devices, a closely watched category by the stock market, in FY3/17. We expect sales to grow by around JPY7.0b y-y in FY3/17. The main reason for the higher earnings will be yield improvements and other internal efforts. We do not expect rapid growth in customers’ smartphone volumes or market-share growth.

In FY3/18, our forecast is for relatively modest sales growth of around JPY5.0b and OP growth of around JPY2.0b y-y. We believe productivity and yield improvements should put these targets well within reach. If customer volumes and/or Nidec’s market share trend higher than our assumptions, there could be upside to our forecasts.

Trends in closely watched products 2): Forecast y-y OP decline of roughly JPY6.1b from HDD motors in FY3/17, roughly JPY2.1b decline in FY3/18

The market has some concerns about HDD motors and our forecasts are for OP from this business to decline roughly JPY6.1b y-y in FY3/17 and roughly JPY2.1b y-y in FY3/18. Our HDD market volume assumptions are approximately 418m units in calendar 2016 (−11% y-y) and 385m units in 2017 (−8%). At its results briefing, Nidec reported that OPM on HDD motors reached 24.8% in 2Q FY3/17. The arrival of the IoT/big-data era has fuelled growth in high-performance HDDs for nearline applications, and the benefits to Nidec’s product mix are likely to continue for some time.

We estimate the contribution of HDD motors to total company OP at around 38% in FY3/16, but expect this to decline to 29% in FY3/17 and 24% in FY3/18. We think there is little risk that concerns about HDD motors will weigh on Nidec’s share price.

Comparison with Bloomberg consensus

We compare our forecasts with a simple average of forecasts among securities companies (the Bloomberg consensus). There has not been much updating of analysts’ forecasts since the release of Nidec’s results on 24 October, but our forecasts appear to be slightly more bullish than the consensus.

Exhibit 26: Comparison with the consensus

------------ BNPP ----------- -------- Consensus ------ -------------% Diff------------

FY3/17E FY3/18E FY3/17E FY3/18E FY3/17E FY3/18E

OP (JPY b) 139.0 159.8 136.1 155.9 2.1 2.4

EPS (JPY) 348.6 410.3 343.2 394.5 1.6 4.0

Sources: Bloomberg consensus estimates; BNP Paribas estimates



Exhibit 27: Forecasts by segment

FY3/16 ---------------- FY3/17E ---------------- ----- FY3/17E ----- -------- y-y ------- ----- FY3/18E ----- -------- y-y -------

A 1QA 2QA 3QE 4QE Old New Old New

Sales (JPY b) (JPY b) (JPY b) (JPY b) (JPY b) (JPY b) (%) (JPY b) (JPY b) (JPY b) (%) (JPY b)

Small precision motors 448 94.8 116.9 115.5 93.0 409 420 (6) (27.8) 418 423 1 2.7

HDD motors 208 42.8 47.6 44.2 38.9 166 173 (17) (34.6) 157 162 (7) (11.6)

Other small motors 240 52.0 69.3 71.4 54.1 242 247 3 6.8 261 261 6 14.3

AACI Products 555 138.3 127.4 125.0 137.0 597 528 (5) (27.1) 652 704 33 176.7

Auto 271 64.0 60.1 61.0 63.0 293 248 (9) (23.3) 322 268 8 19.7

ACIM 283 74.3 67.3 64.0 74.0 303 280 (1) (3.8) 331 437 56 157.0

Machinery 108 27.1 26.7 25.9 27.6 111 107 0 (0.5) 118 113 5 5.4

Elec. & Opt. component 64 15.2 15.9 16.7 15.6 64 63 (1) (0.8) 68 67 6 3.8

Others 4 0.8 0.9 1.0 0.9 5 4 2 0.1 5 4 5 0.2

Total sales 1,178 276.2 287.8 284.2 274.1 1,184 1,122 (5) (56.0) 1,260 1,311 17 188.8

Change y-y (%) 14.6 (3.1) (4.8) (7.7) (3.1) 0.5 (4.7) 6.4 16.8

Change q-q (%) (2.4) 4.2 (1.3) (3.6)

OP

Small precision motors 64.7 13.7 19.2 18.7 13.8 58.9 65.5 1 0.7 59.8 68.3 4 2.9

AACI Products 46.0 13.8 14.2 13.3 15.8 56.4 57.0 24 11.0 73.1 72.7 28 15.7

Machinery 15.0 4.9 5.3 4.7 5.5 19.4 20.4 36 5.3 21.2 22.0 8 1.6

Elec. & Opt. component 5.4 2.1 2.8 3.0 2.4 8.8 10.3 91 4.9 10.0 11.6 13 1.3

Others 0.5 0.1 0.2 0.2 0.2 0.8 0.7 37 0.2 0.8 0.8 5 0.0

Corporate & elimination (13.8) (3.2) (4.1) (4.0) (3.5) (14.2) (14.8) 7 (1.0) (14.9) (15.6) 5 (0.7)

Total OP 117.9 31.5 37.5 35.9 34.2 130.0 139.0 18 21.1 150.0 159.8 15 20.7

Change y-y (%) 6.3 5.6 26.0 16.0 24.8 10.3 17.9 15.4 14.9

Change q-q (%) 15.2 18.8 (4.3) (4.7)

OPM (%) (%) (%) (%) (%) (%) (%) (% pt) (%) (%) (% pt)

Small precision motors 14.4 14.5 16.4 16.2 14.8 14.4 15.6 1.1 14.3 16.2 0.6

AACI Products 8.3 10.0 11.1 10.6 11.5 9.4 10.8 2.5 11.2 10.3 (0.5)

Machinery 13.9 18.0 19.8 18.0 20.0 17.5 19.0 5.0 18.0 19.5 0.5

Elec. & Opt. component 8.4 13.9 17.4 18.0 15.5 13.7 16.3 7.8 14.7 17.3 1.0

Others 14.7 15.8 16.9 20.2 25.6 16.2 19.8 5.1 16.2 19.8 0.0

Total OPM 10.0 11.4 13.0 12.6 12.5 11.0 12.4 2.4 11.9 12.2 (0.2)

Note: FY3/16 results are based on IFRS Sources: Nidec Corp; BNP Paribas estimates



Revised target price

Raise target price to JPY12,000 from JPY10,700

We increase our target price to JPY12,000 from JPY10,700. Our target valuation remains the two-year historical average plus 1 standard deviation. With recent data reflecting a rise in Nidec’s valuations, we revise the P/E multiple used in deriving our target price to 28.4x from 27.6x on our FY3/18E.

Nidec’s ambitious medium-term plan targets sales of JPY2.0t and OP of JPY300.0b (OPM 15%) in FY3/21. Its 2030 sales target is an even loftier JPY10.0t, but CEO Nagamori is highly committed to achieving these numbers. As discussed in this report, Nidec has embarked on a programme to steadily acquire businesses aimed at achieving the medium-term plan’s targets. Its overseas subsidiaries are led by highly capable managers who share CEO Nagamori’s high goals and have begun to play key roles in boosting the earnings of the group as a whole.

To achieve the high targets of the medium-term plan, Nidec is in the process of expanding its business on a number of fronts. For that reason, we expect the market to start pricing in its earnings growth faster than for other stocks. In other words, we expect the value of Nidec’s stock to rise. We reiterate our BUY rating.

Exhibit 28: Consensus P/E (FY1) average, standard deviation Exhibit 29: Consensus P/E (FY2) average, standard deviation

1Y 2Y 3Y 4Y 5Y

Avg. 25.7 26.2 25.6 24.0 22.6

Std Dev. 2.4 2.3 2.6 4.1 5.1

Avg + 1 Std Dev. 28.1 28.4 28.2 28.1 27.6

Avg - 1 Std Dev. 23.2 23.9 23.0 20.0 17.5

1Y 2Y 3Y 4Y 5Y

Avg. 22.0 21.9 21.1 19.9 18.4

Std Dev. 2.2 1.8 2.0 3.0 4.0

Avg + 1 Std Dev. 24.2 23.7 23.2 22.9 22.4

Avg - 1 Std Dev. 19.8 20.0 19.1 16.9 14.4

Sources: Bloomberg; BNP Paribas estimates Sources: Bloomberg; BNP Paribas estimates

Exhibit 30: Historical consensus P/E since 2003 (FY1) Exhibit 31: Historical consensus P/E for the two years (FY1)



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Exhibit 32: Historical P/BV and ROE Exhibit 33: Historical consensus EV/EBITDA (FY1)

Sources: Bloomberg consensus estimates; BNP Paribas estimates Sources: Bloomberg consensus estimates; BNP Paribas estimates

Clear reasons to buy Nidec shares

We think investors need solid reasons to purchase stocks in the current equity market environment. Nidec offers very clear reasons for investors to buy its shares, in our opinion, including 1) strong leadership from Chairman Nagamori, 2) high medium-term plan goals and a commitment to their realisation, 3) benefits for high efficiency motors and ADAS products from the automotive megatrend, 4) robust competitiveness for high-efficiency motors for appliance, commercial and industrial uses, and 5) strategic M&A activity.

We also expect business expansion over the next few years from FY3/17, with growth driven by motor-related products for the world’s largest logistics center, key parts for the LSEV drive system with rapid growth prospects and energy management system business. The possibility of IoT and robotics business as new growth drivers in the future has emerged too.

Nidec has a track record of achieving seemingly difficult profit targets and we believe this time is no different, even though the yen has strengthened. The “three new activities” strategy is in Nidec’s DNA. This is a move to proactively open up “new products, new markets and new customers”. Based on its track record, we believe that Nidec will be aggressive in their strategies to boost profit and achieve high, medium and long-term targets.

We think Nidec will continue to be a preferred choice for investors and sustain conditions for trading at a premium versus peers. Nidec commented at the results briefing that it is regularly reviewing about 30 M&A opportunities. We believe it is able to react quickly to opportunities, to meet the bullish medium-term plan goals of JPY2t in sales and JPY300b in OP in FY3/21, and see several potential catalysts for share price advances.

Exhibit 34: Forex sensitivity matrix (FY3/17 OP) Exhibit 35: Changes in FX sensitivity matrix (FY3/17 OP = 0%)

(JPY b) ---------------------------------------USD---------------------------------------

83.7 90 95 100 102.6 105 110 115

-----

-----

-----

--- E

uro

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----

-----

100 120.9 126.4 131.9 134.8 137.4 142.9 148.4

105 122.4 127.9 133.4 136.3 138.9 144.4 149.9

110 123.9 129.4 134.9 137.8 140.4 145.9 151.4

114.1 125.1 130.6 136.1 139.0 141.6 147.1 152.6

115 125.4 130.9 136.4 139.3 141.9 147.4 152.9

120 126.9 132.4 137.9 140.8 143.4 148.9 154.4

125 128.4 133.9 139.4 142.3 144.9 150.4 155.9

(%) ---------------------------------------USD---------------------------------------

83.7 90 95 100 102.6 105 110 115

-----

-----

-----

- Eur

o --

-----

----

-----

100 (13) (9) (5) (3) (1) 3 7

105 (12) (8) (4) (2) (0) 4 8

110 (11) (7) (3) (1) 1 5 9

114.1 (10) (6) (2) 0 2 6 10

115 (10) (6) (2) 0 2 6 10

120 (9) (5) (1) 1 3 7 11

125 (8) (4) 0 2 4 8 12

Sources: Nidec Corp; BNP Paribas estimates Sources: Nidec Corp; BNP Paribas estimates

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(%)(x)P/BV (LHS) ROE (RHS)

6789

10111213141516

Jul-0

5Ja

n-06

Jul-0

6Ja

n-07

Jul-0

7Ja

n-08

Jul-0

8Ja

n-09

Jul-0

9Ja

n-10

Jul-1

0Ja

n-11

Jul-1

1Ja

n-12

Jul-1

2Ja

n-13

Jul-1

3Ja

n-14

Jul-1

4Ja

n-15

Jul-1

5Ja

n-16

Jul-1

6

(x)Consensus EV/EBITDA (FY1)



Exhibit 36: Forex sensitivity matrix (FY3/18 OP) Exhibit 37: Changes in FX sensitivity matrix (FY3/18 OP = 0%)

(JPY b) ---------------------------------------USD---------------------------------------

91.4 85 90 95 100 105 110 115

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-----

- Eur

o --

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----

-----

95 138.8 144.3 149.8 155.3 160.8 166.3 171.8

100 140.3 145.8 151.3 156.8 162.3 167.8 173.3

105 141.8 147.3 152.8 158.3 163.8 169.3 174.8

110 143.3 148.8 154.3 159.8 165.3 170.8 176.3

115 144.8 150.3 155.8 161.3 166.8 172.3 177.8

120 146.3 151.8 157.3 162.8 168.3 173.8 179.3

125 147.8 153.3 158.8 164.3 169.8 175.3 180.8

(%) ---------------------------------------USD---------------------------------------

91.4 85 90 95 100 105 110 115

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-----

- Eur

o --

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95 (13) (10) (6) (3) 1 4 8

100 (12) (9) (5) (2) 2 5 8

105 (11) (8) (4) (1) 3 6 9

110 (10) (7) (3) 0 3 7 10

115 (9) (6) (3) 1 4 8 11

120 (8) (5) (2) 2 5 9 12

125 (8) (4) (1) 3 6 10 13

Sources: Nidec Corp; BNP Paribas estimates Sources: Nidec Corp; BNP Paribas estimates



Financial statements Nidec Corp

Sources: Nidec Corp; BNP Paribas estimates

Profit and Loss (JPY b) Year Ending Mar 2015A 2016A 2017E 2018E 2019E

Revenue 1,028.4 1,178.3 1,122.3 1,311.1 1,395.1

Cost of sales (incl depreciation) (786.2) (908.3) (849.1) (994.5) (1,049.8)

Gross profit 242.2 270.0 273.3 316.6 345.3

SG&A (131.2) (145.4) (134.2) (156.8) (166.9)

R&D 0.0 0.0 0.0 0.0 0.0

Operating profit 110.9 124.5 139.0 159.8 178.4

Interest and dividends received 2.4 1.9 2.4 2.7 3.0

Associates 0.0 0.0 0.0 0.0 0.0

Other non-operating income 0.8 (0.2) 0.0 0.0 0.0

Interest paid (1.5) (2.2) (2.4) (2.4) (2.4)

Other non-operating expenses (5.5) (4.7) 5.0 0.0 0.0

Extraordinary gains 0.0 0.0 0.0 0.0 0.0

Extraordinary losses 0.0 0.0 0.0 0.0 0.0

Pre-tax profit 107.1 119.3 136.4 160.1 179.0

Tax (29.1) (26.5) (32.3) (37.6) (42.1)

Minorities* (2.1) (1.1) (0.8) (0.8) (0.9)

Net profit 76.0 91.8 103.4 121.7 136.0

EBITDA (operating profit + depreciation) 162.4 189.2 201.0 231.4 255.9

Per share (JPY)

Reported EPS 256.1 308.2 348.6 410.3 458.5

DPS 70.0 80.0 90.0 100.0 110.0

Growth

Revenue (%) 17.5 14.6 (4.7) 16.8 6.4

EBITDA (%) 25.6 16.5 6.2 15.1 10.6

Operating profit (%) 30.7 12.3 11.6 14.9 11.6

Recurring profit (%) - - - - -

EPS (%) 32.0 20.4 13.1 17.7 11.8

Operating performance

Gross margin inc depreciation (%) 18.5 17.4 18.8 18.7 19.2

EBITDA margin (%) 15.8 16.1 17.9 17.6 18.3

Operating profit margin (%) 10.8 10.6 12.4 12.2 12.8

Net margin (%) 7.4 7.8 9.9 9.3 9.7

Effective tax rate (%) 27.2 22.2 23.6 23.5 23.5

Dividend payout on net profit (%) 27.3 26.0 24.0 24.4 24.0

Interest cover (x) 28.8 23.9 n/a n/a n/a

Inventory days 68.5 68.7 71.7 64.8 68.3

Debtor days 77.0 73.2 74.7 67.6 70.7

Creditor days 83.9 74.8 72.6 63.9 67.3

Operating ROIC (%) - - - - -

ROIC (%) - - - - -

ROE (%) 12.0 12.2 13.8 13.7 13.8

ROA (%) 6.4 7.1 7.6 8.1 8.4

*Pre exceptional pre-goodwill and fully diluted

Revenue By Division (JPY b) 2015A 2016A 2017E 2018E 2019E

HDD motor 204.1 208.0 173.4 161.8 148.9

Other small precision motors 193.9 240.0 246.8 261.1 278.4

ACI 263.0 283.4 279.6 436.6 469.3

Automotive 197.0 271.3 248.1 267.8 302.6

Machinery 98.8 106.5 107.3 112.7 120.6

Elec. and optical components 65.1 64.1 63.4 67.2 71.2

Other 6.5 5.0 3.7 3.9 4.1



Financial statements Nidec Corp

Sources: Nidec Corp; BNP Paribas estimates

Cash Flow (JPY b) Year Ending Mar 2015A 2016A 2017E 2018E 2019EPre-tax profit* 107.1 119.3 136.4 160.1 179.0Tax paid 29.1 26.5 32.3 37.6 42.1Depreciation 51.4 64.7 62.0 71.6 77.5Working capital 0.0 0.0 0.0 0.0 0.0Other (36.5) (47.4) (64.5) (75.2) (84.2)Operating cash flow 91.9 147.6 168.8 156.0 197.5Capital expenditure (58.0) (81.9) (110.0) (95.0) (95.0)Other (23.2) (13.4) 0.0 0.0 0.0Investing cash flow (81.2) (95.3) (110.0) (95.0) (95.0)Free cash flow 10.6 52.3 58.8 61.0 102.5Change in debt 0.0 0.0 0.0 0.0 0.0Dividends paid (16.6) (24.0) (26.7) (29.7) (32.6)Net buybacks 0.0 0.0 0.0 0.0 0.0Equity issued 0.0 0.0 0.0 0.0 0.0Other (2.9) 31.8 0.0 0.0 0.0Financing cash flow (19.5) 7.8 (26.7) (29.7) (32.6)Gross change in cash 22.2 36.0 32.1 31.4 69.8Other adjustments 0.0 0.0 0.0 0.0 0.0Change in cash 22.2 36.0 32.1 31.4 69.8

Per share (JPY)Operating cash flow per share 312.5 497.7 569.1 526.1 665.7FCF per share 35.9 175.5 198.2 205.8 345.4

Balance Sheet (JPY b) 2015A 2016A 2017E 2018E 2019ECash & equivalents 269.9 305.9 338.0 369.4 439.2A/c receivable 237.6 235.3 224.1 261.8 278.6Inventories 170.9 171.0 162.8 190.2 202.4Other 50.6 53.2 53.2 53.2 53.2Current assets 729.0 765.3 778.1 874.6 973.4Tangible fixed assets 342.1 347.7 395.7 419.1 436.6Intangible fixed assets 163.0 163.0 163.0 163.0 163.0Investments and other assets 123.2 108.5 108.5 108.5 108.5Total assets 1,357.3 1,384.5 1,445.3 1,565.1 1,681.4A/c payable 195.0 177.3 160.6 187.6 199.6Short term debt 97.9 163.9 163.9 163.9 163.9Other (70.1) (79.3) (79.3) (79.3) (79.3)Current liabilities 362.9 420.5 403.8 430.8 442.8Long term debt 184.6 136.9 136.9 136.9 136.9Other 56.7 54.6 54.6 54.6 54.6Long-term liabilities 241.3 191.5 191.5 191.5 191.5Total liabilities 604.2 612.0 595.3 622.3 634.3Common equity 745.0 764.2 840.9 933.0 1,036.3Preferred equity 0.0 0.0 0.0 0.0 0.0Minorities etc 8.1 8.3 9.0 9.8 10.7Net Assets 753.1 772.5 850.0 942.8 1,047.1Liabilities & net assets 1,357.3 1,384.5 1,445.3 1,565.1 1,681.4*includes convertibles and preferred stock which is being treated as debt

Per share (JPY)Book value per share 2,534 2,577 2,835 3,146 3,494Tangible book value per share 1,979 2,027 2,286 2,596 2,945

Financial strengthNet debt/equity (%) 1.7 (0.7) (4.4) (7.3) (13.2)Net debt/total assets (%) 0.9 (0.4) (2.6) (4.4) (8.2)Current ratio (x) 2.0 1.8 1.9 2.0 2.2CF interest cover (x) 3.8 11.0 n/a n/a n/a

Valuation 2015A 2016A 2017E 2018E 2019EP/E (x) * 39.7 33.0 27.2 24.8 22.2P/E @ target price (x) * 46.9 38.9 32.1 29.3 26.2Reported P/E (x) 39.7 33.0 29.2 24.8 22.2Dividend yield (%) 0.7 0.8 0.9 1.0 1.1P/CF (x) 20.0 18.6 18.2 15.5 14.1P/FCF (x) 283.6 57.9 51.3 49.4 29.4Price/book (x) 4.0 3.9 3.6 3.2 2.9Price/tangible book (x) 5.1 5.0 4.4 3.9 3.5EV/EBITDA (x) 18.5 16.0 14.9 12.8 11.3EV/EBITDA @ target price (x) 21.9 18.8 17.6 15.1 13.4EV/invested capital (x) 3.7 3.7 3.4 3.2 3.0

** Pre exceptional & pre-goodwill and fully diluted



Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (JAPAN) LTD

ANALYST(S) CERTIFICATION

Masahiro Wakasugi, BNP Paribas Securities (Japan) Ltd, +813 6377 2240, [email protected] The BNP Paribas Securities (Japan) Ltd Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations

The individual(s) identified above certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed herein.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas"). The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, employee or advisory board member of this company or has received

compensation from the company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report:

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.

2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the

transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,

BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired.

7. The listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation. 9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8. 10. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the

following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

Company Ticker Disclosure (as applicable)

Nidec Corp 6594 JP 5

Company Ticker Price (as of 31-Oct-2016 closing price) InterestN/A N/A N/A N/A



History of change in investment rating and/or target price

Nidec Corp (6594 JP)

Masahiro Wakasugi started covering this stock from 09 Oct 2013 Price and TP are in local currency Sources: FactSet; BNP Paribas

Company Ticker Price Rating Valuation & Risks

Nidec Corp 6594 JP JPY 10,170 Buy Our TP of JPY12,000 is based on our FY3/18E P/E of 28.4x. Downside risks include: 1) delays in regulations on automotive, appliance, commercial and industrial motors; 2) slowing volumes and rising price competition due to a slump in demand; 3) a greater-than-forecast decline in HDD volumes; and 4) rapid JPY appreciation.

Sources: Factset, BNP Paribas

4,000

6,000

8,000

10,000

12,000

14,000Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16

Nidec Corp Target Price(JPY)

Date Rating Target price Date Rating Target price Date Rating Target price31-Oct-13 Buy 5,000.00 12-May-14 Buy 7,600.00 28-Jul-15 Buy 12,600.0001-Nov-13 Buy 5,300.00 29-Jul-14 Buy 8,300.00 27-Oct-15 Buy 11,700.0022-Jan-14 Buy 6,350.00 05-Nov-14 Buy 8,400.00 26-Jan-16 Buy 10,100.0005-Feb-14 Buy 6,400.00 28-Jan-15 Buy 9,800.00 09-May-16 Buy 9,700.0005-Mar-14 Buy 7,650.00 01-May-15 Buy 10,600.00 26-Jul-16 Buy 10,700.00



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Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia Syrus Securities Public Company Limited (“FSS”). FSS International Investment Advisory Securities Co Ltd (“FSSIA”) prepares and distributes research under the brand name “BNP PARIBAS/FSS”. BNPP is not an affiliate of FSSIA or FSS. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of FSSIA and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas. Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment and BNP Paribas. Information, comments and suggestions on investment given in this material are not within the scope of investment consulting. The investment consulting services are rendered tailor made for individuals by competent authorities considering the individuals’ risk and return preferences. However the comments and recommendations herein are based on general principles. These opinions may not be consistent with your financial status as well as your risk and return preferences. Therefore, making an investment decision only based on the information provided herein may not bear consequences in parallel with your expectations. This material issued by TEB Yatırım Menkul Değerler A.Ş. for information purposes only and may be changed without any prior notification. All rights reserved. No part of this material may be copied or reproduced in any manner without the written consent of TEB Yatırım Menkul Değerler A.Ş. Although TEB Yatırım Menkul Değerler A.Ş. gathers the presented material that is current as possible, it does not undertake that all the information is accurate or complete, nor should it be relied upon as such. TEB Yatırım Menkul Değerler A.Ş. assumes no responsibility whatsoever in respect of or arising out or in connection with the content of this material to third parties. If any third party chooses to use the content of this material as reference, he/she accepts and approves to do so entirely at his/her own risk.

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Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative. All share prices are as at market close on 31 October 2016 unless otherwise stated.



RECOMMENDATION STRUCTURE

Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Industry Recommendations Improving (): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 1 November 2016)

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. © 2016 BNP Paribas Group

Total BNP Paribas coverage universe 461 Investment Banking Relationship (%)

Buy 267 (57.9%) Buy 31.84

Hold 134 (29.1%) Hold 35.07

Reduce 60 (13.0%) Reduce 25.00


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