Fanuc Earnings: We Expect Further Margin Deterioration in 2023

We lower our fair value estimate for Fanuc to JPY 5,400 from JPY 5,600 after revising our operating margin assumptions. March-quarter orders suggest further near-term sales divergence in Fanuc’s two main businesses, with factory-automation orders (mainly CNC systems) down 51.4% from the previous year and robot orders up 27.5%. We expect robot orders to remain robust over the medium term, supported by secular tailwinds, such as EV production automation and increased robot adoption in general industry, while demand for CNC is subject to economic fluctuations. As a result, while our medium-term revenue growth forecasts remain largely intact, we believe the company’s product mix will be less favorable than we had anticipated, and we have lowered Fanuc’s operating margin assumption for fiscal 2026 (ending March 2027) to 23.5% from 28.0%. We believe Fanuc’s shares are currently fairly valued.