Expecting Keyence to Weather Macroeconomic Headwinds Better Than Most Factory Automation Players

We maintain Keyence’s fair value estimate at JPY 54,000, implying shares are fairly valued, as our higher revenue projection in 2022 from a weaker Japanese yen is counteracted by reduced sales growth expectations in Asia in 2023. While the company’s revenue in the September quarter surpassed our estimate, growing 36% year on year, this was largely contributed by a weaker-than-expected Japanese yen and post-lockdown shipment recovery, after logistics delays in the June quarter. On a local currency basis, sales in the Asia region (which excludes Japan) in the first fiscal half, ending September, only grew 10.0% year on year, which was lower than 15.9% in both Japan and the entire overseas area. We expect lower consumer spending will lead to further slowdown in capital investments by electronics and low/medium-end machine tool makers, which tend to be in Asia, until at least the first half of 2023. Although we raise our 2022 revenue growth projection to 16.7% year on year from 12.5% (due to the weaker Japanese yen), we lower 2023 revenue growth to 5.5% from 10.3%.