1Q FY3/27 results: Orders rise 37% YoY, but rising costs weigh on profitability

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Fanuc (6954)

1Q FY3/27 results: Orders rise 37% YoY,

but rising costs weigh on profitability

Reiterate Rating: NEUTRAL | PO: 7,700 JPY | Price: 7,135 JPY

Trim FY3/27-28 OP estimates and lower PO 4% to ¥7,700

On balance, we view Fanuc’s 1Q results slightly negative. Orders were strong at

¥281.9bn (+12% QoQ), exceeding both our +3% QoQ forecast and the consensus

expectation for flattish growth. While operating profit (OP) of ¥53.5bn met the

Bloomberg consensus estimate, it missed our estimate by 13%. Management noted that

supply constraints are extending lead times and increasing costs. While FY3/27 OP

guidance was raised 3% to ¥218.0bn, implied operating margin (OPM) declined to 23.0%

from 23.3%. We cut our FY3/27-28 OP forecasts by an average of 5% and lower our PO

by 4% from ¥8,000 to ¥7,700 (no changes to our valuation method, ADR PO lowered

from $26.33 to $22.81). We reiterate our Neutral rating.

Strong underlying demand, though some front loading

FA/Robomachine orders significantly exceeded expectations, rising 26% QoQ/31% QoQ,

respectively, driven by data center-related demand, while Robot orders declined 3% QoQ

as expected due to softer US demand. Though underlying demand remains robust,

management highlighted component shortages and longer lead times, which appear to

be causing some order front-loading. This likely explains why factory automation (FA)

orders outpaced Japan machine tool orders on a QoQ basis by 10ppt in the quarter.

Regarding Physical AI, our impression is that related orders have not increased

meaningfully from the CRX-related orders highlighted in 3Q FY3/26.

Component shortages extend lead times, raise costs

Fanuc stated that it is facing component shortages, mainly in semiconductors and

electronic parts, with no signs of near-term improvement. At the same time, rising costs

are proving difficult to fully offset through pricing & cost reductions, as reflected in the

revised guidance. However, the implied 2H OPM of 23.6%, vs 22.4% in 1H, suggests

profitability may bottom in 2Q, though the implied 2H incremental OP margin of 24%

suggests Fanuc is not expecting a major improvement in profitability in 2H either.

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