Japan Specialist

Mark Chadwick

Equity Bottom-Up

<ul>
<li>Q3 net sales: ¥197.8 billion, down 10.1% YoY; operating income: ¥40.9 billion, down 22.1%; operating margin: 20.7% (-320bps YoY)</li>
<li>Full-Year guidance revised: Net sales up 1.8% to ¥771.5 billion; operating profit up 8.4% to ¥132.2 billion.</li>
<li>Positive stock reaction post-Q2 report; FY3/25 outlook cautious, especially for the Robot Division given a -30.2% YoY decline in Q4 orders.</li>
</ul>


Q3 net sales: ¥197.8 billion, down 10.1% YoY; operating income: ¥40.9 billion, down 22.1%; operating margin: 20.7% (-320bps YoY)
Full-Year guidance revised: Net sales up 1.8% to ¥771.5 billion; operating profit up 8.4% to ¥132.2 billion.
Positive stock reaction post-Q2 report; FY3/25 outlook cautious, especially for the Robot Division given a -30.2% YoY decline in Q4 orders.


<ul>
<li>Q2 2023 results for FANUC Group showed a 3.7% decrease in consolidated net sales, a 24.5% drop in consolidated operating income, and mixed performance in its divisions.</li>
<li>Some positives: operating profit exceeding analyst expectations and an operating margin increase to 17.2%. However, declining robot orders, challenges in the US region, and high inventory remain concerns</li>
<li>We believe that the stock is currently trading around fair value (20x EV/EBIT). However, we still see risks to the downside given macro concerns</li>
</ul>


Q2 2023 results for FANUC Group showed a 3.7% decrease in consolidated net sales, a 24.5% drop in consolidated operating income, and mixed performance in its divisions.
Some positives: operating profit exceeding analyst expectations and an operating margin increase to 17.2%. However, declining robot orders, challenges in the US region, and high inventory remain concerns
We believe that the stock is currently trading around fair value (20x EV/EBIT). However, we still see risks to the downside given macro concerns


<ul>
<li>2Q earnings miss and full year guidance cut - negative surprise to the market</li>
<li>Core FA orders down sequentially QoQ; Weak FA negative for overall OPM</li>
<li>Maintain bearish stance as negative YoY Machine Tool orders yet to come. </li>
</ul>


2Q earnings miss and full year guidance cut - negative surprise to the market
Core FA orders down sequentially QoQ; Weak FA negative for overall OPM
Maintain bearish stance as negative YoY Machine Tool orders yet to come. 


Fanuc (6954 JP) – Let the Derating Begin

<ul>
<li>We are bearish on Fanuc. Yaskawa's robotics orders were strong but Fanuc is more correlated with machine tool orders</li>
<li>Machine Tool orders have already turned south and Fanuc is losing momentum in its order growth</li>
<li>If we are right on the cycle, we expect Fanuc to trade down to 2.3x book value, 20% downside risk from here</li>
</ul>


We are bearish on Fanuc. Yaskawa's robotics orders were strong but Fanuc is more correlated with machine tool orders
Machine Tool orders have already turned south and Fanuc is losing momentum in its order growth
If we are right on the cycle, we expect Fanuc to trade down to 2.3x book value, 20% downside risk from here


Fanuc (6954) - Forget Yaskawa...a Slowdown Is Coming

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. We said that FA and Robot sales were likely flattish QoQ (-0.8% QoQ and +6.1% QoQ respectively) but that the Robomachine division could see sales collapse to about ¥28bn from ¥53.2bn in the last quarter. They did, falling to ¥27.8bn. What remains to be seen is how far ahead of the clueless and oblivious sellside (which projected a 1.6% QoQ rise in sales) the market was. For now though…</p><p><iframe src="//www.youtube.com/embed/gbGfhT1yehw" width="640" height="360"></iframe></p>

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. We said that FA and Robot sales were likely flattish QoQ (-0.8% QoQ and +6.1% QoQ respectively) but that the Robomachine division could see sales collapse to about ¥28bn from ¥53.2bn in the last quarter. They did, falling to ¥27.8bn. What remains to be seen is how far ahead of the clueless and oblivious sellside (which projected a 1.6% QoQ rise in sales) the market was. For now though…

Japan

FANUC CORPORATION manufactures factory automation (FA) systems and equipments, and robots. The Company's products include computerized numerically-controlled (CNC) equipment, servo motors, laser systems, industrial robots, wire-cut electric discharge machines, and CNC drill.  Fanuc participates in a joint venture with General Electric in the FA field.

Fanuc Corp (6954 JP)

Fanuc (6954) | Robot Orders Remain Weak

Q3 net sales and operating income for the company decreased YoY, but full-year guidance revised higher. Expect a positive stock reaction, but...

Mark Chadwick

Fanuc (6954) | Not Out of the Woods Yet

FANUC Group's Q2 2023 results show a decrease in sales and operating income, mixed division performance.. Stock is trading at fair value but...

Mark Chadwick

Fanuc (6954 JP) – Let the Derating Begin

FA weakness to weigh down on Fanuc's earnings and valuations in the coming quarters. The YoY turn in Machine Tool orders is yet to come, ...

Mark Chadwick

Fanuc (6954) - Forget Yaskawa...a Slowdown Is Coming

The market should ignore the positive read-across from Yaskawa results. Fanuc is more correlated with machine tool orders. We see signs of a...

Mark Chadwick

Fanuc – Whoomp! There It Is

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. They did.

Mio Kato

Fanuc (6954) | Robot Orders Remain Weak

​Q3 net sales and operating income for the company decreased YoY, but full-year guidance revised higher. Expect a positive stock reaction, but...

Mark Chadwick

Fanuc (6954) | Not Out of the Woods Yet

​FANUC Group's Q2 2023 results show a decrease in sales and operating income, mixed division performance.. Stock is trading at fair value but...

Mark Chadwick

Fanuc (6954 JP) – Let the Derating Begin

FA weakness to weigh down on Fanuc's earnings and valuations in the coming quarters. The YoY turn in Machine Tool orders is yet to come, ...

Mark Chadwick

Fanuc (6954) - Forget Yaskawa...a Slowdown Is Coming

The market should ignore the positive read-across from Yaskawa results. Fanuc is more correlated with machine tool orders. We see signs of a...

Mark Chadwick

Fanuc – Whoomp! There It Is

On Friday we warned that Fanuc might come through with a surprise downgrade as a result of weakness in its Robomachine division. They did.

Mio Kato

Q3 net sales and operating income for the company decreased YoY, but full-year guidance revised higher. Expect a positive stock reaction, but...

FANUC Group's Q2 2023 results show a decrease in sales and operating income, mixed division performance.. Stock is trading at fair value but...