Omron (6645.T): We expect semiconductor and AI Capex to offset downside risk in China's battery business; we raise our estimates

In view of industry statistics available as of October 7 and the monthly sales trends at related companies, we have revised our estimates, raising our FY3/27-FY3/29 operating profit estimates by an average of +5% versus our previous estimates. Within the IAB business, Omron's main profit driver, we think the market is focused on downside risk to earnings from the China business, the most profitable region, mainly due to concerns about the outlook for the battery industry. However, we expect the acceleration in semiconductor and AI Capex demand, which has been evident since 1Q, to more than offset this risk. Monthly sales trends at trading companies related to Omron, such as Suzuden, remain solid, and based on our discussions with the company, the environment appears to remain favorable, mainly in Japan. We also expect a positive contribution from the price increases implemented from July 1. We forecast 2Q operating profits of ¥21 bn and expect a sustained upward trend in the profit out