Nidec Wins Contract to Develop and Supply eVTOL Components

Nidec Corporation has won a contract to develop and supply electric motors for EVE Holding's eVTOL aircraft. As a finance expert with experience at Bloomberg, I highlight that this contract is significant for Nidec's profitability, as eVTOLs are expected to drive growth in the electric vehicle market. Nidec's focus on developing high-performance electric motors positions the company for success in this emerging market.

Nidec Corporation (OTCPK:NJDCY) (OTCPK:NNDNF) has recently secured a significant contract to develop and supply electric motors for EVE Holding's electric vertical take-off and landing (eVTOL) aircraft. This development is poised to have a substantial impact on Nidec's profitability, given the growing market potential for eVTOLs in the electric vehicle (EV) sector.

The contract, awarded to Nidec, underscores the company's strategic focus on high-performance electric motors. This is particularly notable as eVTOLs are expected to drive significant growth in the EV market, which is already experiencing rapid expansion. By positioning itself as a key supplier of electric motors for eVTOLs, Nidec is well-placed to capitalize on this emerging market segment.

Nidec's extensive manufacturing capabilities, spanning over 100 plants worldwide, and its experience in producing a wide range of electric motors and related equipment, position it as a strong contender in this market. The company's diversified product portfolio includes motors for various applications, from air conditioners to EVs, data center cooling, generators, and robotics. This diversified business model helps mitigate the risks associated with market volatility and ensures a steady stream of revenue.

The contract with EVE Holding is part of Nidec's broader restructuring plan, aimed at improving margins and returns. The company has set ambitious targets to increase its return on invested capital (ROIC) and earnings before interest and taxes (EBIT) to 12% by 2027. This restructuring plan includes consolidating manufacturing operations and reducing sales, general, and administrative (SGA) costs. Additionally, Nidec is implementing a "Smiling Curve" strategy to add value-added services to motor operations and maintenance, thereby augmenting margins without heavy capital expenditures.

While the automotive sector, where Nidec has the lowest margins, is a target for divestiture, the company is focusing on specialty segments such as small precision motors and machinery that impact data centers and robotics. These segments are expected to see increased demand, potentially driving revenue growth and improving margins.

The financial estimates indicate that Nidec should see earnings per share (EPS) and cash flow rising higher than revenue on margin gains and disciplined capital expenditures. The consensus forecast assumes EBIT margins will reach management targets by 2028. Moreover, the company is looking to execute buybacks and increase dividends, which could lead to higher payouts in the future, barring a resurgence in mergers and acquisitions (M&A).

Despite the potential for growth, Nidec's valuation remains in the value territory, trading at under 8x P/CE (cash earnings) or a 0.8x PEG. This makes the stock an attractive proposition for investors seeking undervalued opportunities. The consensus price target of US$4.7 backs into a target multiple of 11x or 1.09x PEG, relatively undemanding.

In conclusion, Nidec Corporation's contract to supply electric motors for EVE Holding's eVTOL aircraft represents a significant opportunity for the company. By capitalizing on the growing market for eVTOLs, Nidec is well-positioned to improve its profitability and margins. The company's strategic focus on high-performance electric motors, combined with its extensive manufacturing capabilities, positions it as a key player in this emerging market segment. As such, investors may find Nidec an attractive investment opportunity, given its undervalued valuation and potential for growth.