Demand Prospects for Fanuc's Robots Remain Strong Despite Recession Concerns

We maintain our fair value estimate at JPY 28,000, as our medium-term outlook remains largely intact. While market concerns over reduced factory automation/machine tool investments likely contributed to its stagnant share price, we believe there is continued order/sales growth for Fanuc, driven by robot demand. We see diverging demand prospects between Fanuc’s robot and robomachine businesses. On one hand, Fanuc continues to capitalize on strong industrial robot demand in key regions like Americas and China, as its finished the June quarter with record robot orders, growing 33.8% year on year. On the other hand, robomachine orders, which include machining centers used to shape 3C items like PC/tablets, declined 29.6% during the same period. While a slowdown in consumer electronics demand is bound to happen (for example Gartner forecasts 9.5% annual decline in PC shipments) and consequently affect robomachine orders, we expect robot demand will be relatively resilient over both near and medium-term, as automation investments related to EV and labor shortage will continue to be necessary, despite recession concerns. As a result, we remain convinced there is upside potential in Fanuc’s shares.