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JapanJapan Machinery Strong FY results and orders bode wellfor FY1Q; Pre-ordering to watch Valuation & Risks Iris Zheng, CFAResearch Analyst+852-2203-5884 FANUC reported results for 4Q FY3/25 (3M ending March 2026) and hosted a resultsbriefing after market close on 24 April 2026. There are several bright spots from the release: (1) solid FY4Q results ahead ofmarket expectations and company guidance; (2) upside to the new FY3/27Eguidance — we are 5%/3%/5% above for sales/operating profit/net profit,respectively; (3) impressive FY4Q orders at ¥252 billion, the highest quarterlylevel in history, boding well for the upcoming FY1Q results; (4) better-than-expected customer interest in AI robots, although lacking quantified metrics; and(5) reassumption of share buybacks. However, negative factors include: (1) somepre-ordering in FY4Q which could weigh on orders in upcoming quarters; (2)limited execution of the last buyback program; and (3) subdued profitability, asFY3/26 sales reached a record high but net profit was only the fourth highest inhistory. FANUC is trading at a FY26E P/E of 34.8x, higher than its long-termaverage of 30x. We view the shares as fairly valued. We raise our estimates andlift our target price to ¥7,000. Reiterate our HOLD recommendation. FY3/26 results ahead of expectation and guidance; Sales reaching a record highbut net profit only the fourth highest level in history In4Q FY3/26, FANUC reportedsalesof ¥234.5bn (+11% YoY),operating profitof¥56bn (+16% YoY; 23.9% OPM) andnet profitof ¥49.7bn (+11% YoY; 21.2% OPM).Compared with Factset consensus(Figure 1), sales/ operating profit/ net profit allcame in ahead of expectationby 6%/ 13%/ 13%, respectively. nBysegment, FA (Factory Automation)sales growth remained strong at+26% YoY while Robot sales showed growth acceleration to +16% YoY inFY4Q.nByregion, Europe, Americas and China all delivered strong sales growth at+28%/ +25%/ +20% YoY, followed by Japan at +15%, while Other Asiadeclined -32% in FY4Q. Overall inFY3/26, results alsoexceeded the company's guidanceby +2%/ +6%/+5% for sales/ operating profit/ net profit, respectively (Figure 11).FY revenue hasreached a new record high levelof ¥857.8nm. Although net profit also grewpositively, profitability remains lower than previous peak levels andnet profit of 27 April 2026MachineryFANUC ¥166.5bn was only the fourth highest level in history(Figure 8). Strong FY4Q orders at +19% YoY to ¥252bn, the highest level in history FY4Q orderswere ¥252bn, the highest level in history. The growth was+19% YoYwith 1.07x book-to-bill. By segment: nFAorders delivered impressive growth of+40%YoY.This hasoutperformedthe strong trend of the Japan machine tool orders.nRobotorders grew+11% YoY. FANUC benefited from the demand shiftfrom EV to hybrids across Japan, the US and China. Additionally, generalindustry demand in China increased significantly.nRobomachineorders growth reverted to positive growth of+17% YoY,thanks to IT- and connector-related demand for Roboshot, and IT-relateddemand for Robodrill. By region: nChina ordershave been growing positively by double-digits for eightconsecutive quarters and the growth further accelerated to+55% YoY inFY4Q. This is because demand for machining equipment is surging drivenby demand from semiconductors, data centres, humanoid robots, medicalequipment and NEV. Management believes there could besome pre-orderingfor FANUC's CNCs for machining equipment. nAmericasorders growth slowed to+1% YoY in FY4Q. Some customersremain cautious due to the high interest rate, but management is seeingdemand from general industry segments, such as data centre-relatedindustries. Japanorders accelerated to +29% YoY. nEuropeorders grew +19% YoY. FY3/27E guidance: In line with market expectation; taken positively, consideringFANUC's conservative guidance history ForFY3/27E, FANUC targets sales of ¥909.6bn (+6% YoY), operating profit of¥212.2bn (+16% YoY; 23.3% OPM) and net profit of ¥184.9bn (+11% YoY; 20.3%NPM). This is broadly in line with the market consensus. However, consideringFANUC's history of providing conservative guidance, we expect the market to takethis positively. We seeupside to the targets. We forecast sales of ¥956.4bn (+11.5% YoY),operating profit of ¥220bn (+20% YoY; 23% OPM) and net profit of ¥195bn (+17%YoY; 20.3% NPM). We factor in +5ppts of FX tailwinds for sales for the year. Management does not expect the same level of orders to continue, as the tightnessof the supply chain and some pre-ordering. The company is seeing cost inflationand has factored in the potential higher impacts of higher cost from the continuanceof the Middle East tension in its FY guidance. In some areas, FANUC has passed onthe higher cost to customers. There has been limited impact from the Middle Eastsituation. Physical AI robots: more orders than management initial expectation 27 April 2026MachineryFANUC FANUC offers AI robots utilising their CRX collaborative robots thr