Company Reports

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.

As the global market leader in high-end servo motors and one of the big four industrial robotics companies, Yaskawa Electric has a long-term record of providing its servo control-based solutions to high-end applications for precision machinery. Although other industrial robot companies also produce servo motors for their robots in-house, Yaskawa’s strategy has differed in that external sales of its servo technology to customers across various applications have served a central role for the company. As the company continues to take measures to adapt to the "Industry 4.0" trend and accentuates its strengths in its servo technology, we expect Yaskawa will continue to build on this approach to strengthen its motion-control/robotics businesses and its customization capability comprising its key products going forward.

We increase our fair value estimate for Yaskawa Electric to JPY 5,600 from JPY 5,200, mainly from raising our motion control (servo motors/inverters) and robot sales estimates for fiscal 2023, ending February 2024. November quarter orders were stronger than expected, with inverters and robots sequentially growing 10% and 19%, respectively, while servo motor orders only declined 9%. Weak factory automation, or FA, investments in Asia have especially affected servo motor orders, but inverter demand has been resilient, supported by applications related to the oil/gas industry as well as energy-saving. The strong robot order was mainly due to a large, one-time order from a Korean automobile manufacturer, which mitigated the impact of weaker demand in China and the United States. As macroeconomic headwinds in China/U.S. will persist in the near term, we expect order growth to be limited in the February quarter; however, we assume a stronger recovery in the first half of fiscal 2024, as customers complete inventory adjustments and FA demand picks up. We believe the company’s shares are fairly valued.

Yaskawa Electric is one of the leading players in the servo motor and industrial robot markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity. We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

We think the declining robotics orders in key regions including Japan, the Americas, and other Asian markets suggest that electric vehicles and new infrastructure-related demand are not as resilient as we previously thought. August-quarter robotics orders declined 15% year on year, which was lower than the 10% decline in the May quarter. Consequently, we cut our fiscal 2023 (ending February 2024) robotics sales growth assumption to 0.5% year on year from 8% previously, despite reflecting the weaker yen. With a lower near-term outlook of its motion control segment as well, we project consolidated revenue to decline 2.5% year on year, down from 2% growth before. However, our operating income forecast for 2023 is unchanged, as the impact of the revenue cut is largely offset by the upward revision in motion control’s operating margin, which improved due to the passthrough of cost increases. As a result, with our midterm revenue growth expectations remaining largely unchanged, we maintain our fair value estimate at JPY 5,200. For 2024, we project a top-line recovery of 9% year on year, supported by stronger factory automation demand as semiconductor and electronics production picks up. We believe shares are fairly valued.

Yaskawa Electric is one of the leading players in the servo motor and industrial robot markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity. We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

While Yaskawa’s weak order recovery in the May quarter was met with a poor market reaction, we believe its shares are still slightly overvalued. The company’s shares have outperformed its Japanese factory automation peers like Fanuc, which we mainly attribute to the market’s expectations that Yaskawa is less susceptible to the weak macroeconomic conditions in China. However, orders in China are down 27% year on year in the May quarter, suggesting otherwise, and we believe the recovery in Chinese consumption is to be slower than what the market is expecting. Based on our lower outlook in China (though partially offset by the weaker Japanese yen assumptions), we lower our fiscal 2023, ending February 2024, revenue growth assumption from 2.9% to 2.0%. Despite this, we maintain our fair value estimate of Yaskawa at JPY 5,200.

Yaskawa Electric is one of the leading players in the servo motor and industrial robot markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity. We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

Wide-moat Yaskawa Electric’s revenue growth of 22.0% year on year in the fourth quarter of fiscal 2022, ending February, was largely in line with expectations, driven by strong robot sales. Quarterly orders for the motion control segment, comprising AC servo motors and inverters, were down 28% year on year due to sluggish capital investments in the semiconductor industry as well as weak demand in China, which was exacerbated by the lockdown. Meanwhile, robotics orders were down by only 8% year on year, from solid demand outside China (which declined 32%), supported by EV/battery investments and factory automation needs in general industries. Looking to 2023, we expect these trends to continue, leading to further sales growth for industrial robots, while servo motor demand remains stagnant. With our outlook remaining intact, we maintain our fair value estimate at JPY 5,200, implying shares are fairly valued.

Yaskawa Electric is one of the leading players in the servo motor and industrial robot markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity. We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

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.

Yaskawa Electric is one of the leading players in the servo motors/controllers, inverters, and industrial robots markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity (see Economic Moat section for details). We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

We maintain our fair value estimate of Yaskawa Electric at JPY 5,500, but lower our operating margin assumption in fiscal 2022 (ending February), from higher expected costs based on the latest quarter results. Although August quarter operating margin of 12.1% was above previous year's 11.5%, it still fell short of our expectations by about a percentage point, mainly due to motion control margins falling to 13.6% from 15.3%. Motion control was especially affected by high components prices and increased airborne shipments to meet tight deadlines. With this likely to continue affecting the business, we lower our fiscal 2022 motion control margin by 3 percentage points to 14.0%, which is in-line with the revised guidance, and our 2022 operating margin assumption is now 12.2% (on IFRS-basis), compared with12.6% before.

Yaskawa Electric is one of the leading players in the servo motors/controllers, inverters, and industrial robots markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity (see Economic Moat section for details). We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

Yaskawa Electric is one of the leading players in the servo motors/controllers, inverters, and industrial robots markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity (see Economic Moat section for details). We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

Yaskawa’s latest results for the first quarter (ending May) of fiscal 2022 showed mixed signals related to demand in China, as quarterly robot orders in the region were up 67% year on year, but AC servo motor and inverter orders declined 36% and 19% year on year, respectively, notably due to customers in the latter businesses being more affected by the lockdown. With China being the largest overseas market for Yaskawa’s motion control segment (comprising servo motors and inverters) and the likelihood of related orders having already hit their near-term quarterly peak a year ago, we think these factors—coupled with the worse-than-expected lockdown impact as well as recession concerns—have contributed to the recent decline of Yaskawa’s share price. While consumer confidence may take time to recover, we think the market overreacted, as capital investments in electric vehicles and new infrastructure have stayed strong. Further, we expect trends like vehicle electrification and rising labor costs/shortage would contribute to factory automation demand. We, therefore, keep our fair value estimate of JPY 5,500.

Yaskawa posts record sales for fiscal 2021 (ending in February), as expected, with revenue increasing 22.9% year on year. What was more surprising was the strong 25.5% quarterly order growth in its robotics segment, which led to record orders in the fourth quarter.

Yaskawa Electric is one of the leading players in the servo motors/controllers and industrial robots markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity. We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.

Yaskawa’s fiscal 2021 third quarter (ending in November) results show strong sales, similar to the first two quarters and also in line with our expectations, at about 26% year-on-year growth. We maintain our fair value estimate at JPY 5,200, on the expectation that fourth-quarter sales will be similar to the previous quarter. With Yaskawa’s shares falling year to date, our fair value estimate implies that shares are now fairly valued. We think its share price fell due to higher sales growth expectations previously by investors, given the current record order levels, and increased concerns over a slowdown of demand in China (Yaskawa’s largest region by sales after Japan). Despite this, some of this was alleviated, as the latest PMI figures increased to 50.3 in December from 50.1 in November, after dipping below the “50-threshold” in September and October. Yaskawa’s orders in China are up 28% year on year but also down 9% from the previous quarter; however, we are not convinced that demand will drop in the near term. Management commented that demand bottomed in October from customers being affected by the electricity supply shortage, but then subsequently recovered in November and demand continues to be strong.

Yaskawa Electric is one of the leading players in the servo motors/controllers, inverters, and industrial robots markets. With a strong core in its "mechatronics" technology, which is an engineering field that integrates mechanical and electronics principles into devices/systems and a term pioneered by the company, it is looking to realize synergies among its products by making a shift from being a provider of motion-control products to a provider of data-driven factory automation solutions, through its i3 mechatronics (pronounced “i cubed”) initiative. To lay the foundation for this shift, the company has built and commenced operations of its Yaskawa Solution Factory, which leverages big data and interconnects the key devices/components like motors to increase automation and improve productivity (see “economic moat” section for details). We expect the company will transfer this production technology to its other manufacturing sites, which will realize efficiencies and increased capacity to meet further demand.