Expect Headwinds for Fanuc's CNC Demand in China, but Prospects for Industrial Robots Remain Strong

We've lowered our fair value estimate for Fanuc to JPY 27,000 per share from JPY 28,000 after revising our expectations for factory automation business sales and lowering margin estimates. The segment, which mainly sells computer numerical controls to machine tool makers in Asia, faced an order decline of 29.0% year on year in the September quarter. As local machine tool makers adjust their inventories from having overanticipated demand, FA orders in China will likely face declines for the remainder of fiscal 2022 (ending March). As such, we lowered our 2022 and 2023 revenue growth assumptions to 11.9% and 2.3% year on year, respectively, from 12.9% and 5.0%. Despite these headwinds, we think the market is underestimating Fanuc’s medium-term prospects, as high-end machine tools is a key area in the Chinese government’s efforts to improve its manufacturing prowess and Fanuc is the dominant market leader (globally and in China) in the high-end CNC space.