Via SeekingAlpha.com

Some days ago, I wrote an article on the Yaskawa and the robotics industry. That article was my second article on the robotics industry, and to say that I am passionate about this industry would be an understatement. As robot technology improves and its price declines, seeing a robot in our day to day lives will be the new norm. I firmly believe that robots will be the solution to problems like global warming, water and food shortage, etc. But enough with my antics lets get to analyzing a robotics company to make us some money hopefully.

Overview Of The Robotics Industry

Two significant trends are occurring in the robotics industry, and both trends should increase robot demands and make demands less volatile.

Figure 1 – Less Dependence On A Few Countries

Source: IFR Executive Summary 2019 and analyst’s estimates

As seen in figure 1, the Asian market accounted for 70.4% (280,277) of all robot installations. One year later, the Asian market was responsible for only 67% of the total demand, while the number of installations increased from 280,277 to 283,080 (+1%).

In 2017, the standard deviation for demand by location was 11.1%. The standard deviation fell by 90 bps in 2018 (10.2%). I believe that the robotics industry is becoming less dependent on the Asian market, which should decrease order volatility and also increase global demand.

Figure 2 – Less Dependence On A Few Industries

Source: IFR Executive Summary 2019 and analyst’s estimates

Figure 2 demonstrates that the robotics industry is now less dependent on a few customer industries as they were in 2013. In 2013, 59.5% of all robot installations were for the automotive and electronics industries. The standard deviation went from 13.1% to 11.7% during the analyzed period. This demonstrates that other customer industries are increasing their demand for robotics.

The decrease in the robotics industry’s dependency on a few countries, and a few customer industries should reduce sales volatility for robot makers.

READ ALSO  Venezuela’s Oil Major Sees Oil At $35 Through 2021

Figure 3 – Base-Case Scenario For The Robotics Industry

Source: IFR Executive Summary 2019 and analyst estimates

In my second article on Yaskawa, I presented the readers with my worst-case and best-case scenarios for the robotics industry. In this article, I will only show you my base-case scenario, which has a CAGR of 7.5%. Due to the coronavirus, I estimated that the robotics industry would have a total loss of 207,465 units installed. My estimate is based upon a W-shaped recovery during 2020 and accounts for the risk of a second wave of the pandemic or a decrease in business confidence in the short term.

Even with the adverse effects on the industry due to COVID 19, I am still very bullish on the industry.

Fanuc Corporation Vs. Yaskawa Corporation

Figure 4 – Net Sales Vs. Robotic Industry’s Total Installations

Source: Fanuc and Yaskawa financials, and IFR Executive Summary 2019

From 2013 until 2019, FANUY had an accumulated net sales of 4,211.6 billion yen. During the same period, OTCPK:YASKY had an accumulated net sales of 2,919.9 billion yen nearly 44% less than FANUY. Fanuc seems to have more market share of the robotics and motion control sectors than Yaskawa. That being said, I believe that Fanuc’s market share is probably shrinking or growing at a slower rate than Yaskawa. During the same period, Yaskawa net sales increased by 2.1%, Fanuc’s rose by 2.0%, and the industry grew by 15.5%.

Just looking at figure 4, and it is clear that FANUY has very volatile sales when compared to Yaskawa or the robotics industry. FANUY’s net sales growth standard deviation was 34%, while the industry and Yaskawa were only 12% and 11%, respectively. When a company has high net sales volatility, usually that means they are very dependent on a small group of customers. With that thought in mind, I did a correlation study on FANUY’s net sales growth and individual customer industry installation growth. I discovered that FANUY’s net sales are 99.3% correlated with the automotive industry’s robotics installations, and it has an R2 of 98.6%. I need to dig deeper into Fanuc’s past financial data to see if they shed light on their dependence on only one industry. Still, with such a high R2, they are probably highly dependent on the automotive industry’s demand for new robots.

READ ALSO  Latino Business Owner: This Election Is Not About Donald Trump

Figure 5 – Operating Income Margin

2013 2014 2015 2016 2017 2018 2019 ST DEV AVE
OP MARGIN – FANUY 37% 36% 41% 35% 29% 32% 26% 5% 34%
OP MARGIN – YASKY 7% 8% 9% 9% 8% 12% 11% 2% 9%

Source: Companies’ financial statements

FANUY has an average operating income margin of 34%, 2500 basis points more than YASKY’s operating income margin. Before analyzing figure 5, I imagined that Fanuc’s operating margin would be just as volatile as its net sales, but to my surprise, it was not. Comparing Fanuc’s operating margin standard deviation to its net sales standard deviation lets us know that Fanuc has low fixed costs, and a majority of its operating expenses are variable, not fixed.

Figure 6 – Dividends Per Share In Yen

2013 2014 2015 2016 2017 2018 2019
DIVIDENDS – FANUY 170.06 636.62 490.07 395.18 563.20 1,003.11 300.00
DIVIDENDS – YASKY 12.00 20.00 20.00 20.00 40.00 52.00 52.00

Source: Companies’ financial statements

During the period analyzed in figure 6, Fanuc paid out a total of $32.47 (USDJPY @ 109.59), while Yaskawa only paid out $1.97. Fanuc has a payout ratio goal of 70%, and Yaskawa’s is 30%. Fanuc’s average dividend growth rate is 47% and has a standard deviation of 123%. Yaskawa’s average growth rate is 33%, and it has a standard deviation of 42%, much less volatile than Fanuc. Fanuc’s yearly dividends exhibit negative growth rates. Remember that for FANUY, one common share equals 0.1 ADR (1:0.1), and for YASKY, the ratio is 2:1.

The Battle Of The Robotics Companies

  1. Fanuc is highly dependent on the demand from the automotive industry, while Yaskawa is less dependent on this industry and exhibits a high correlation to the whole robotics industry.
  2. Fanuc has a higher operating income margin than Yaskawa, and though its net sales are highly volatile, its operating margin is not.
  3. Fanuc has a payout ratio goal of 70%, while Yaskawa’s is 30%. Fanuc’s dividend CAGR is 9.9%, and Yaskawa’s is 27.7% from 2013 until 2019.

Fanuc is a better company than Yaskawa when you compare them by their operating margin. Fanuc has a more concentrated customer base than Yaskawa, which is why Fanuc’s sales are so much more volatile than the market or Yaskawa. Fanuc prioritizes dividend payouts over equity growth. In the short-term, Fanuc’s sales should suffer as the automotive industry is suffering from the negative effects of COVID 19 and for this reason, I am neutral on the stock.

In the future, I plan to analyze the rest of the top five robotics companies. With this information, I will create a small robotics portfolio with recommended weights for each company.

Please follow me via Seeking Alpha for analysis of Brazilian and Food Industry Stocks and, occasionally, analysis of the Robotics Industry.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.