Yaskawa (6506): FY17 Q1 Results Comment – China Servomotor Demand ....

Key Points 

• Astounding jump in FY17 Q1 earnings sees 43% upward revision to H1 OP guidance, though full-year is only revised up by the H1 overshoot. 
• Servomotors were the main driver with Q1 sales rising over 30% YoY while Robotics were only up 10% YoY. 
• Strong demand for high quality servomotors for smartphone and semiconductor use has led to good pricing power with the China operation in Shenyang enjoying phenomenal marginal profitability with low SG&A.  
• Motion Control Division FY17 Q1 OP rose 2.5x YoY to ¥10.8bn while Robotics Division Q1 OP rose 59% to ¥3.5bn. Management claims servomotor OPM is only around 22-23% with Robotics at 10% and hence by inference, inverters at around 10-12%. 
• We believe servomotor OPM is higher than claimed, and as the global leader in servomotor production with capacity for the new low-cost high-quality Sigma 7 being expanded, FY17 earnings will outperform guidance. 
• Robotics remain disappointing, though management claims the China plant in Changzhou is beginning to generate record returns. 
• Yaskawa produced extra robots in Q1 for inventory and some analysts see Chinese customers over-buying in advance across the board, but we take the strong Q1 at face value for FY17. 
• We will be adjusting our figures, but note the risk that China-based strong pricing and smartphone / semiconductor demand may not be sustainable, possibly leading to FY18 earnings little better than what looks likely to be a phenomenally strong FY17.