Yaskawa’s Servo Motor Orders Hit by Reduced Semiconductor Investments, but Shares Remain Undervalued

Yaskawa Electric remains undervalued, but we cut our fair value estimate to JPY 5,200 from JPY 5,500, after lowering our margin assumptions in fiscal 2023, ending February 2024, largely due to a negative product mix from lower sales of the high-margin motion-control business. Despite raising our robotics sales estimate, we expect lower semiconductor-related investments will affect demand for motion control components like servo motors. In the November quarter, robot orders grew 41.6% year on year, but in contrast, motion control orders declined 20.8% year on year, making it the first annual decline after eight quarters. Although sluggish memory-related demand and U.S. export restrictions to China will affect servo motor sales, we think a recovery in smartphone shipments in the second fiscal half of 2023 as well as secular trends like vehicle electrification/need for advanced chips will drive longer-term growth. Further, with continued robotics demand for EV/batteries and select industries like food, we believe the company’s prospects are underestimated by the market and therefore see medium-term upside potential.