Keyence Earnings: Record Gross Margin From Value-Added Solutions Amid Macro Headwinds

Keyence's stronger-than-expected March-quarter results were greeted positively by the market, as the firm not only realized 8% year-on-year revenue growth despite macro headwinds, but also a record gross margin of 83.7%. Keyence has been offering solutions that add value in the current downcycle through new products, such as a wide area scanner that can replace inspectors to measure large components as well as radar level sensors that conserve energy. While we slightly cut our revenue estimate for fiscal 2024 (ending March 2025) after reflecting delayed investments in Asia, our medium-term growth of about 12% CAGR between fiscal 2024 and 2028 is intact. Therefore, we maintain our fair value estimate of Keyence at JPY 63,000. Despite our top-line growth projection above its factory automation peers, we think the market is overestimating its prospects.