We use an SoTP approach to value Omron. We take the five main divisions of the company (IAB, DMB, SSB, HCB, and DSB) and benchmark its divisional OP in FY3/26 against its global and domestic peers, and include a subjective 15% discount to reflect its conglomerate characteristics. We take three valuation measures (EV/sales, EV/EBIT, and PER) and use either an average or median multiple depending on the number of comps and whether there are any distorting variables. We add back net cash and the after-tax value of investments as of end-September 2024 and also deduct 25% of the goodwill on the balance sheet (note the big change in this entry in FY3/24 to reflect the acquisition of a majority stake in JMDC). This results in a target price of ¥7,200.

Downside risks include further weakness in Chinese manufacturing, a loss of market share for IAB products in China, a prolonged downturn in EV/battery capex, and slower growth at JMDC causing further share price weakness. A failure to deliver on planned cost savings would also be disappointing (the company aims for a medium-term ratio of SG&A expenses to sales excluding R&D of 27%-28%). We note a stronger yen only has a limited negative impact on earnings, and our FY3/26 forecasts are based on ¥150/$, ¥21.0/RMB, and ¥160/EUR, with each ¥1 change impacting OP by about -¥0.1bn, ¥1.0bn, and ¥0.3bn respectively.