Fanuc Earnings: Inventory Adjustments to Weaken Near-Term Sales; Expect FA Orders to Have Bottomed

Based on weaker-than-expected September quarter orders from prolonged inventory adjustments in the distribution channel, we lower Fanuc’s fiscal 2023 (ending March 2024) sales by 3 percentage points and now project a 10.3% decline from the previous year. However, we maintain our fair value estimate of JPY 5,200 as our medium-term growth expectation is intact. We continue to view that Fanuc’s computer numerical controllers, or CNCs, which are used for machine tools, will be essential for improving manufacturing capabilities in the long run. Meanwhile, Fanuc’s shares have fallen more than 25% from their recent peak in June on concerns over slowing demand for machine tools in China, which we believe are too pessimistic. In fact, September quarter orders for the factory automation, or FA, segment have risen 8.9% sequentially and increased for two consecutive quarters amid the economic slowdown, suggesting that the inventory adjustment is nearing an end. As a result, we forecast revenue to recover by 9% year over year in fiscal 2024 and then normalize to a 7% CAGR between fiscal 2024 and 2027.