Calibrating FA Sector Preference: U/G Harmonic Drive Systems & SMC; D/G Omron

Research evidence excerpt

Calibrating FA Sector Preference: U/G Harmonic Drive Systems & SMC; D/G Omron

6324-JP Buy U/P 6,860 10,000 3,000 46%

2 SMC 6273-JP Buy Hold 70,130 94,700 78,100 35%battery- and semiconductor-related demand supports industry capex (Charts 16-18). 3 Keyence 6861-JP Buy Buy 75,650 95,000 91,300 26%

4 Nabtesco 6268-JP Buy Buy 5,040 6,100 5,000 21%

5 Daifuku 6383-JP Buy Buy 6,944 8,000 7,600 15%

-2% Yaskawa Electric 6506-JP Hold Hold 6,655 6,500 5,300

-5%Upgrade Harmonic Drive Systems to Buy: We had been bearish on HDS due to our concerns 678 Omron 6645-JP Hold Buy 5,812 6,000 6,000 3% THK 6481-JP Hold Hold 7,448 7,100 4,200

over long-term margin risk from humanoid applications. However, mgmt's latest disclosure . 910 FanucCKD 6954-JP6407-JP HoldHold HoldHold 7,3447,390 7,0006,800 7,0004,400 -5%-8%

suggests that humanoid related sales should be less than 10% of total sales, implying Source: Jefferies estimates, FactSet (as of 15 June)

our previous view was overly conservative. We expect HDS to book record-high orders Chart 1 - Cycle of Production Equipment

toward FY3/28, driven by traditional robot sector and lucrative non-traditional areas such as 25%

aerospace, defense, and medical sector. Near-term surprise will come from surging orders 20%15% Downcycle Peak

5%from semiconductor sector and mgmt's positive comment on humanoid-related orders. (%)YoY 10% Bottom Upcycle

Upside to profit consensus suggests that valuations should be actually cheaper than they Inventory -5%0% Feb 2026 Jan 2026

appear. Based on a cycle-peak multiple and our FY3/28 EBITDA forecast, our Street-high price -10%-15% Mar 2026Apr 2026

-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

Shipment YoY (%)target of ¥10,000 offers over 40% upside. We now choose HDS as our top-Buy within the FA . -20% Jan 2021

sector.