Global leader in automation
Keyence is at the forefront of the automation industry with its sensors, laser markers and machine vision systems. The company has delivered excellent capital growth for investors. It has generated stable free cash flow and high returns on invested capital; and both sales and net profit per employee are among the highest in the industry.
We have been shareholders of Keyence in our Japan portfolios since 2015 and believe the company is well positioned to reap the benefits of the growing automation trend.
There are a few key reasons for its superior profitability metrics and long-term steady returns. Keyence’s production is fabless (meaning it does not own factory plants) and its resources are concentrated in research and development (R&D), and sales and marketing. Due to its low fixed cost structure, Keyence generates high return on invested capital and earnings are typically resilient during a downturn. This also enhances its long-term competitiveness.
Keyence’s direct sales model (as opposed to a distributor sales model), enables the company to benefit from a virtuous feedback loop with its clients. Its extremely capable and technical sales consultants often design products to meet a client’s requirements before the client even knows what they need! This strong ability to innovate on product design translates into high (more than 80%) gross profit margins.
High employee productivity and competitive remuneration
Source: Company data, Bloomberg and Alliance Bernstein as at March 2020.
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