Fanuc Earnings: Inventory Adjustments to Weaken Near-Term Sales; Expect FA Orders to Have Bottomed

Based on weaker-than-expected September quarter orders from prolonged inventory adjustments in the distribution channel, we lower Fanuc’s 6954 fiscal 2023 (ending March 2024) sales by 3 percentage points and now project a 10.3% decline from the previous year. However, we maintain our fair value estimate of JPY 5,200 as our medium-term growth expectation is intact. We continue to view that Fanuc’s computer numerical controllers, or CNCs, which are used for machine tools, will be essential for improving manufacturing capabilities in the long run. Meanwhile, Fanuc’s shares have fallen more than 25% from their recent peak in June on concerns over slowing demand for machine tools in China, which we believe are too pessimistic. In fact, September quarter orders for the factory automation, or FA, segment have risen 8.9% sequentially and increased for two consecutive quarters amid the economic slowdown, suggesting that the inventory adjustment is nearing an end. As a result, we forecast revenue to recover by 9% year over year in fiscal 2024 and then normalize to a 7% CAGR between fiscal 2024 and 2027.

Meanwhile, September quarter orders in the robots segment were worse than expected, falling 13.0% sequentially, following a 26% decline in the June quarter, mainly due to the inventory correction for robots. As shipments of industrial robots for electric vehicle/rechargeable battery-related applications grew significantly in China and the Americas in 2022, we believe that the industry is currently suffering from oversupply; therefore, most projects could be postponed to next year. As a result, we revise our fiscal 2023 and 2024 robot sales forecasts to 4% decline and 10% growth, from 0.5% growth and 8% growth, respectively. Over the longer term, we project robot sales to grow at a CAGR of 8% between 2024 and 2027, driving Fanuc’s top-line growth.