Fanuc Impacted by Components Crunch but Demand for Robots and CNCs Remain Strong; Maintain FVE

Wide-moat Fanuc’s 2021 third-quarter results, ending in December, showed another quarter of strong revenue growth at 30% year on year, which surpassed our expectations. We maintain our fair value estimate at JPY 28,000, implying that its shares are undervalued. We think increased concerns of FA demand peaking in China have been negatively impacting Fanuc’s shares, and a quarter-on-quarter decline in orders for its FA business (driven by computer numerical controls or CNCs) in China seems to reaffirm these concerns. However, management commented that this is due to production not being able to catch up with orders, thus leading to a significant increase in backlogs and also resulting in customers making “adjustments” to their orders. We interpret this as customers plan to make purchases, once Fanuc is able to clear out some of its existing backlog to accept new orders going forward. Despite the quarterly decline in FA orders in China, the book-to-bill ratio in the region is still at 1.06, supported by strong industrial robot orders from EV- and IT-related demand.