Fanuc Earnings: Inventory Adjustments To Dent Robot Sales, but Medium-Term Outlook Is Intact

We lower our fair value estimate for Fanuc 6954 to JPY 5,200 from JPY 5,400, mainly as a result of lowering our near-term robot sales projection. The sudden decline in robot orders was a negative surprise, as June-quarter segment orders fell 23% year on year, after 10 consecutive quarters of annual growth. Much of this was due to inventory adjustments in China and the Americas regions, and with manufacturers remaining cautious over capital investments, we expect this adjustment will continue throughout 2023. While we cut our 2023 companywide revenue growth forecast to a 7% year-on-year decline (down from 1% growth), we maintain our 7% revenue CAGR projection between 2023 and 2027. We believe Fanuc’s shares are undervalued, despite the poor market reaction from the June-quarter results, as the market is underestimating the industrial robot market leader’s midterm prospects, driven by further electric vehicle investments and new applications in nontraditional industries.

Despite our downward sales revision, we think the company’s revised full-year revenue guidance of 12% year-on-year decline is conservative, based on foreign exchange rates and demand assumptions. While we now expect robot orders to decline year on year for 2023, the weak Japanese yen as well as the accumulated backlog will mitigate some of the impact; therefore, we assume robot sales will remain flat from last year. As for Fanuc’s factory automation and robomachine segments, which are linked to machine tool demand, we expect orders to sequentially recover (albeit slowly) in the December and March quarters, as electronics production in Asia starts to pick up in the second half of fiscal 2023.