Keyence Earnings: Hiring Costs Dampen Operating Margin in the June Quarter

Although Keyence’s 11% year-on-year revenue growth in the June quarter was largely in line with expectations, its operating margin of 49.9%, down 0.2 percentage points from the previous year, was disappointing, as hiring costs weighed on profitability. Consequently, we expect higher near-term personnel expenses and lower our fiscal 2024 (ending March 2025) and 2025 operating margin assumptions to 51.8% and 53.0%, respectively, from 52.5% and 54.0%. However, we keep our fair value estimate for narrow-moat Keyence at JPY 63,000 per share, as our 12% revenue compound annual growth rate between fiscal 2024 and 2028 remains intact—and we continue to expect the sales contribution from new hires to improve margins over the medium term. We believe the company’s shares are fairly valued.