FA Equipment Suppliers’ Earnings: Expect Headwinds for Omron/MEC, while Keyence Outperforms in 2023

The Japanese factory automation, or FA, control equipment suppliers (Keyence, Omron, and Mitsubishi Electric, or MEC) posted lower year-on-year revenue growth in the March quarter than in the December quarter. According to the Nippon Electric Control Equipment Industries Association, shipments of FA electric control equipment, including switches and relays, grew about 12% year on year in the March quarter, slowing down from 19% in the December quarter. In addition, FA-related orders for Omron and MEC declined year on year in the past two quarters, due to weak capital investments in the semiconductor/electronics industries. Therefore, our expectation of a slowdown in shipments in 2023 remains unchanged, and we maintain our fair value estimates for Omron and Keyence at JPY 9,100 and JPY 58,000, respectively. Meanwhile, we slightly increase our fair value estimate for MEC to JPY 2,000 from JPY 1,900 after revising our margin assumptions.