Yaskawa Earnings: Weak Inverter Demand to Continue, but Maintain Outlook for Order Recovery in 2024

While we slightly cut our near-term revenue estimate for wide-moat Yaskawa Electric based on a delayed top-line recovery in inverters, this does not affect our JPY 5,600 fair value estimate, as our outlook for the firm's mainstay robots and servo motors is unchanged. Motion-control segment orders for the February quarter fell short of our expectations, as the 12% sequential increase in servo motor orders was not enough to offset the 21% decline in inverter orders. Inverter demand was hurt by weaker oil/gas-related investments in the US, which we expect will continue in the near term. As a result, we cut our revenue estimate for fiscal 2024 (ending February 2025) by 4% to JPY 579 billion and lowered our operating margin assumption by 0.4 percentage point to 12.0%. Nevertheless, a recovery in servo motor demand is underway, supported by semiconductor-related investments as well as demand in China, where orders increased 13% sequentially and 16% from last year. Moreover, the company’s plan to invest about JPY 30 billion for a new factory in the US confirms medium-term growth, driven by the need for industrial robots and servo motor-based equipment to produce semiconductor equipment. We believe these factors are priced into the shares and currently see limited upside potential.