Japan Markets View

Surge in orders for automobiles and semiconductors – Yaskawa Electric (6506)
Published : Jul 16, 2021 Equity

[Nikkei QUICK News] Yaskawa Electric Corporation (6506) announced on July 9, that its consolidated net profit (based on International Accounting Standards) for FY2/22 is likely to increase to JPY41bn, that is 2.2x YoY. Demand for capital investment in sectors such as automobile, semiconductors, and electronic components has exceeded expectations and surpassed the previous forecast (JPY31.7bn with a 67% increase). The numbers are expected to exceed the market forecast significantly with strong inquiries coming in from a wider range of regions, including China, the United States and Europe. In the Tokyo market on July 12, the stock price rose on the favorable announcement.


■ Demand that surpassed every anticipation
In the new forecast for the current fiscal year, sales is expected to increase 18% YoY to JPY460bn (the previous forecast was JPY430bn with a 10% increase), and operating income expected to increase to JPY54bn, marking an increase of 99% (the previous forecast was JPY42bn with 55% increase). Operating income is expected to be well above the QUICK Consensus of JPY46.7bn (15 companies as of July 7), the average of analysts’ forecasts. Many investors are likely to take this as a positive surprise.


Demand that surpassed every anticipation


The reason for the upward revision is as stated by the Communications and Investor Relations Department of Yaskawa Electric Corporation, “The demand has been so strong that we could not have anticipated it at the beginning of the fiscal year.” Consolidated orders for the March-May 2021 period (Q1) were up 47% YoY and up 20% QoQ. At the beginning of the fiscal year, the company had assumed that orders would be at the same level as in the previous quarter, but it turned out to be wrong, in a positive way. In particular, “April turned out to be a month witnessing the highest-ever orders in a single month,” states the company.


Looking at Q1 orders by product, orders for servo motors were up 74% YoY with the demand related to manufacturing equipment for base stations for 5G, a high-speed communication standard. Also, orders for robots showed a clear recovery with a 51% increase YoY on the back of recovery in automobile production.


■ Strong Business in China
Prior to the announcement of these results, some market participants were concerned about a lull in the Chinese economic recovery. However, the momentum has not slowed and there is no sign of a slowdown at this point. The company explains, “In China, not only is capital investment in solar panels and other environment-related equipment booming, but the market for lithium-ion batteries, which are expected to be used in electric vehicles (EVs), is coming up rapidly too.” According to the company, servo motors and robots are in demand in the manufacturing and assembly process of lithium-ion batteries. As for the consolidated orders received in June, the company said, “Demand trends in China and other regions are satisfactory, unchanged from the first quarter,” and the situation continues to be favorable.


As the utilization rate rises, the operating income margin for the full fiscal year is expected to be 11.7%, a continued improvement from Q1 (10.9%), and the overall situation seems ideal. What is worrisome is the possibility that investors may think that the company has reached its peak performance and may thus presume that the demand might peak out in the future as the economy is booming. While Yaskawa Electric Corporation says that the growth trend will continue in 2021 and 22, detailed explanations that give a sense of assurance to the future are likely to be needed.



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