Assume Stable Earnings Even with Higher Costs; Stay OW

研报英文原文证据摘录

Assume Stable Earnings Even with Higher Costs; Stay OW

IdeaM

Investment Summary

Reiterate OW: The company’s earnings are gradually improving, supported by a recovery

in demand in China and increased capex in the US. Orders at Fictiv, which the company

acquired in April 2025, have also exceeded expectations, and Fictiv has improved its

profitability from an operating loss to breakeven. In addition to the demand upcycles in

the US and China, we believe that: (1) the Japanese market, which accounts for the largest

share of the company’s business, has also continued to recover steadily since April 2026;

and (2) the highly profitable China telecommunications projects continue to expand

significantly. We therefore expect earnings to continue improving even if the company

increases upfront spending, and reiterate our OW rating.

Recovery of Japan market is the biggest change of late

Machine tool orders also recovering strongly in Japan: Domestic machine tool orders

have posted strong YoY growth since April 2026, and the momentum has continued in

recent months (April: +43%; May: +36%; June: +46%). By industry: (1) automotive-related

demand, which remained sluggish over the past two to three years, has finally begun to

recover; (2) electronics-related demand is also recovering gradually; and (3) demand

related to aircraft, shipbuilding, and transportation equipment remains strong. We believe

capex in Japan is recovering broadly.

Exhibit 1: Machine tool orders: Japan domestic

Source: JMTBA, Morgan Stanley Research

Japan sales also on the rise: Japan is Misumi's biggest market. Although the sluggishness

of the Japan market over the past 2 years in contrast to the firm's gradual expansion

overseas mainly in the US and China has reduced Japan's sales weighting from 48% in