Yaskawa Electric Earnings: Near-Term Outlook Revised on Weak EV Orders, but Long-Term Outlook Intact

Wide-moat Yaskawa Electric recorded a revenue decline of 11.8% year on year in the August quarter, dipped further from a 7.1% year-on-year decline in the May quarter and below our estimates of a 3.6% year-on-year decline, due to EV weakness. Operating margin for this quarter marked a mere 9.1% compared with our estimate of 11.3%. While we cut our near-term revenue estimate for the firm based on a delayed top-line recovery in servo and robotics, our JPY 5,600 fair value estimate remains unchanged for two reasons: 1) Our long-term outlooks for the firm’s robotics and servo businesses are unaffected, and 2) One-time gains from the sale and valuation of investments in YSM, an affiliate in China (approximately JPY 24 billion). We believe Yaskawa’s shares are undervalued.