Yaskawa Electric Earnings: Long-Term Outlook Unchanged Despite Near-Term Weakness in Servos

Wide-moat Yaskawa Electric reported a 2.4% year-on-year revenue decline and a mere 8.6% operating margin in the November quarter, recording three consecutive quarters below 10%, both below our estimates and the firm's previous guidance. Management commented that the negative surprise was mainly attributed to a delayed recovery in servos and inverters, as semiconductor investment weakened in Korea and oil and gas and photovoltaic investment halted in the US, waiting for the presidential election result. While we cut our near-term revenue and operating profit margin estimates for the firm to reflect the near-term weakness, our JPY 5,600 per share fair value estimate remains unchanged as our long-term outlook for the firm's robotics and servo businesses is unaffected. We believe Yaskawa’s shares are currently undervalued.