Keyence Earnings: Record Revenue and Gross Margin Amid Macro Headwinds in Europe and China

Keyence marked another solid quarter with historically high December-quarter revenue of JPY 259 billion, or year-on-year growth of 7.7%, slightly behind our estimate of JPY 264 billion, or year-on-year growth of 9.7%. The shortfall from our forecast was mainly due to continuous slow capital spending amid the weak macroeconomic environment in Europe. Revenue from Europe and other grew merely 1.1% year-on-year helped by favorable yen depreciation. On the other hand, other markets continue to enjoy strong momentum, with Japan, the Americas, and Asia growing by 9.3%, 9.6%, and 8.3%, respectively, in the December quarter. The company delivered a remarkable gross margin of 83.7% in this quarter, and we expect to see the gross profit margin to be maintained or further improved as the impact brought by the price revision that took place in the September quarter of fiscal 2022 is not coming to an end yet. We are almost sure that Keyence's revenue will surpass JPY 1 trillion in fiscal 2024, together with a historically high gross profit margin of more than 84%. We make minor changes to our earnings forecasts and maintain our fair value estimate for wide-moat Keyence at JPY 63,700. The shares are fairly valued at this moment.