Declining FA Orders for Mitsubishi Electric Suggest Headwinds but Longer-Term Outlook Intact

We maintain narrow-moat Mitsubishi Electric, or MEC's, fair value estimate at JPY 1,900, implying shares are undervalued; however, we think investors will need to be patient to realize upside potential. While the company’s third-quarter (ending December) revenue growth of 17.5% year on year was in line with expectations, we project revenue will decline in fiscal 2023 from lower demand for factory automation, or FA, systems and air conditioners/home products, or AC. Nevertheless, we expect FA orders to recover toward the end of this year as smartphone shipments pick up and digital/semiconductor-related investments increase. Over the longer term, we continue to believe secular trends like labor shortages and aging populations will serve as a tailwind for MEC, who is one of the leading players in the programmable logic controller market in Asia.