Harmonic Drive Earnings: Sales to Recover in Fiscal 2024 After Macro Headwinds

We maintain our fair value estimate for Harmonic Drive Systems at JPY 5,700, as our medium-term outlook remains unchanged after the current headwinds. The 6% sequential decline in third-quarter fiscal 2023 orders was slightly below our expectations due to sluggish capital spending by semiconductor production equipment makers and inventory adjustments by customers in the U.S. and Europe. On the other hand, orders for industrial robot applications (the largest application by sales) in Asia have been recovering as expected. Although we lower our fiscal 2024 revenue assumption ending March 2025 to 12% growth from 17%, largely due to a slower recovery for SPE applications over the next three quarters, we continue to expect stronger growth in the second half of fiscal 2024 as the inventory adjustments are completed.