Analyst Note| Jason Kondo |
Keyence showed larger-than-expected declines for the first quarter of fiscal 2020, where quarterly revenue declined 18% year on year for the first quarter, with sales declining globally except in a few regions such as China. We maintain our fair value estimate for Keyence at JPY 38,000, but revise our revenue projection for fiscal 2020 to a 5% decline from 5.6% growth, as we now assume Keyence’s top-line recovery at the companywide level will start later during the second half of the current fiscal year at moderate levels. We continue to believe Keyence would be able to undergo top-line recovery at a faster pace than other Japanese factory automation, or FA, companies like wide-moat Fanuc, as its FA solutions tend to be based on its sensors and machine vision equipment. This is on the assumption that when capital-related constraints are loosened, many manufacturers will likely start with smaller-scale investments (such as with sensors) initially to deal with social distancing from the COVID-19 pandemic.