Today, Yaskawa robots can be found on the factory floor, welding and painting, or in electronics manufacturing, where they handle semiconductor chips. Even drug companies rely on robots because they’re faster and more precise than seasoned lab techs. And hospitals and nursing homes already use robots, especially in Japan, where there’s a labor shortage. Yaskawa says next year it will introduce a robot that will move a bedridden person to a wheelchair.

As the industry’s undisputed leader, Yaskawa will ride the global sales wave of industrial robots, which increased 27% to 225,000 in 2014, according to the International Federation of Robotics (IFR). That’s a dramatic leap from an average annual unit volume increase of 8% in the decade since 2004.

Yaskawa’s Vision

Yaskawa’s “Vision 2025,” published in April, lays out ambitious goals for the next decade. Financially, Yaskawa intends to double sales and operating income while increasing the dividend payout rate to 30% from its current 23%—there is room for this, as the stock currently yields only 1.2%, or 0.9% net of Japan’s 20.3% withholding tax.

Apart from hoping to create waku-waku (enthusiasm, excitement) in employees and customers, Yaskawa intends to push further into the field of medical robotics, applying the principles of mechatronics to the medical and welfare segments.

For the year to March 2016, Yaskawa projects sales to increase 9% and operating income 16%, although net income, which rose 46% in the year to March 2015, is expected to be flat. The company plans to expand its robot centers worldwide from 31 to 38, launch a third robot factory in September of this year and develop a new robot product line for 2016.

Yaskawa trades at 17 times earnings and at 16 times 4-Traders’ estimate of its earnings in the year to March 2017; the stock should be purchased in taxable accounts to take advantage of the tax treaty between the United States and Japan that affects dividends. At this reasonable valuation, the stock represents an excellent stake in our undoubtedly robotic future.

The Future of Robotics

Eventually, household robots—those that can clean the carpets and the pool, and even mow the lawn and watch the dog—will become more common, freeing up weekends to work on your golf game. But it’s still industrial robots that drive the market. The typical industrial robot sells for $100,000 to $200,000 including software. The IFR estimated the total market for industrial robots and associated equipment at $25 billion in 2011; the Japanese government believes it will reach $70 billion by 2025.

Medical robots are somewhere in between industrial and household robots; they can be expensive and difficult to operate but require a special ability to compensate for human fragility.

The industrial-robots market is strongest in countries where manufacturing dominates. China is the largest market, with 56,000 units sold in 2014, 54% more than in 2013. Chinese robot suppliers delivered 16,000 units, and international robot suppliers, such as Yaskawa, supplied 40,000 units. South Korea was the second-largest market, with 39,000 units, followed by Japan, the United States and Germany. Those five countries represented 75% of the market, with the top three markets, all in East Asia, accounting for more than half of world robot sales in 2014.

Yaskawa Electric was founded in 1915, and its principal business for many years was motion-control systems, a subsector of automation. Now, however, robotics provide about a third of the company’s sales and operating income.

As well as motion control and robotics, Yaskawa also offers a range of systems engineering products and services, which generated about 20% of sales in 2014. Geographically, 36% of Yaskawa’s sales come from Japan, 21% from China, 18% from the Americas, and 12% each from Europe and other Asian countries, with Chinese robot sales to the automobile industry having been especially strong in the year to March 2015. Yaskawa’s leadership in robotics alone makes it an enticing investment, but the company also has ambitious and achievable goals, other automation businesses and a reasonable valuation.

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