Analyst Note| Jason Kondo |
Wide-moat Fanuc’s latest earnings results in the fourth quarter surpassed our expectations due to an unexpected rise in sales in the Asia ex China region (particularly India) and also stronger-than-expected year-on-year increase of sales for Robodrills in China, due to high demand for PCs and tablets amid the coronavirus pandemic. We raise our fair value estimate to JPY 25,000 from JPY 22,000, after adjusting our revenue projections and raising our operating margin assumptions to account for the effects of operating leverage. Our revision is mainly based on stronger expectations of Fanuc’s factory automation, or FA, business sales in Asia, which are driven by computer numerical control systems, or CNCs, as well as stronger near-term demand for Robodrills (compact drilling equipment used to shape 3C products like consumer electronics). From a valuation perspective, we believe that current price levels of Fanuc are fairly valued (as of April 30, 2021), and that both cyclical post-coronavirus recovery and secular growth factors like increased need for social distancing are already priced in.