Welcome!

We've spun the wheel for the Developed Asia-Pacific bucket (~600 companies). The ticker has landed on a company that is almost certainly running inside a factory near you right now. And almost nobody outside those factory walls has ever heard of it.

Before we dive in, a reminder of what the index itself has delivered over time.

Every week, we pull one company at random from the FTSE All-World with ~4,200 companies representing 90% of global stock market wealth. We share the index's long-term returns as a reminder of why we're here: the long game. New to the newsletter? Start here.

Founded in 1974 in Osaka, Japan. Listed on the Tokyo Stock Exchange.

You've never heard of Keyence. But Keyence has probably touched something you used today.

The car you drove. The pill you swallowed. The package on your doorstep. Somewhere in the factory that made it, a Keyence sensor, camera, or laser checked that everything was correct before it reached you. They are the invisible quality control layer of global manufacturing, embedded in over 350,000 applications across 110 countries.

A few key facts:

We'll come back to that fifty-two percent operating margin a bit later.

The short answer: the products that make sure other products aren't broken.

Sensors. Tiny devices mounted on production lines that detect presence, position, and distance. A sensor checks if a bottle cap is fitted. Another detects a 0.1mm misalignment on a circuit board. Keyence makes hundreds of variations for every conceivable manufacturing scenario.

Machine Vision Systems. Industrial cameras paired with AI software that inspect products at high speed. Reading barcodes, spotting defects, verifying labels, measuring dimensions. All in milliseconds. Think of it as a quality control department that never sleeps, never blinks, and never has a bad day.

Laser Markers. Industrial lasers that permanently etch serial numbers, lot codes, and expiry dates onto products. When you see a QR code burned into a metal component, Keyence likely put it there.

Measurement Instruments. Laser and optical tools capable of measuring to sub-micron accuracy. Used in aerospace, automotive, and semiconductor manufacturing, where a tolerance of 0.001mm is not unusual.

Barcode Readers. Not the handheld kind in supermarkets. The kind mounted inside conveyor systems, scanning a thousand items per minute without a human in sight.

Digital Microscopes and Safety Equipment. From R&D labs inspecting electronics to the light curtains that stop a machine the instant a human hand gets too close.

The customers span nearly every major industry: automotive, semiconductors, pharmaceuticals, food and beverage, logistics. If something is assembled in a factory at scale, there is probably a Keyence product somewhere in the line.

Most industrial manufacturers earn operating margins of 10-15%. Keyence earns 52%.

For context, Apple — one of the most profitable consumer companies on earth — earns around 30%. Keyence is a Japanese industrial hardware company, and it out-earns Apple on margin. How?

Two structural decisions made at founding, and never reversed.

No factories. Keyence designs every product but outsources all manufacturing to contract partners. Zero assembly lines. Capital expenditure last year was roughly $100M against $7B+ in revenue. They invest in brains, not buildings. This is called a fabless model. Better known in semiconductors, almost unheard of in industrial equipment.

No distributors. Ever. Keyence sells exclusively through its own sales engineers, who visit factories directly. In most industrial companies, distributors capture 30-50% of the margin. Keyence keeps all of it. But there's a second benefit: those same sales engineers return from factory visits with customer problems which feed directly into the next product. The sales force is also the R&D intelligence network.

The result is a gross margin of ~80% and an operating margin of ~52%, sustained for over two decades.

One more number: ~70% of Keyence's new products are classified as "world's first" or "industry's first" technologies. New products consistently account for around 30% of annual revenue. The innovation pipeline makes the business extremely difficult to commoditize.

Takemitsu Takizaki founded the company at 28, after two previous business failures and without a university degree.

After his second bankruptcy, he arrived at a principle that would define Keyence for fifty years: maximise operating profit margin as the supreme management criterion. Not revenue. Not market share. Margin.

He once divested a business unit earning a healthy 20% operating margin because the sensors division was doing 40%. If it diluted the margin, it went. He built the company around what it would never do: own factories, use distributors, make bespoke products. Companies with existing factories and distributor networks cannot undo that structure. Keyence's advantages come from what it never had.

He also created an unusual culture: a significant portion of profits is distributed as employee bonuses. Average annual compensation at Keyence is reportedly the highest of any large company in Japan. With 12,000 people generating $7B+ in revenue (~$600,000 per person) the company can afford to share some of it.

Keyence's earnings per share have compounded at roughly 13% per year over the past 20 years.

$10,000 invested 20 years ago would be worth approximately $115,000 today. In a Japanese industrial company that makes sensors.

The market has noticed. Valuation is not cheap at a P/E of ~35x. But with zero debt, plenty of cash, and margins that would make a software CEO envious, the premium is not hard to understand.

The tailwinds are structural. Every factory that automates needs sensors. Every EV battery cell needs to be inspected. Every pharmaceutical blister pack needs its label verified. Global manufacturing is entering a phase where automation is not optional and Keyence is the company that makes automation possible at the granular level.

The risks are real too. Around 25-35% of revenue is tied to semiconductor manufacturing, a cyclical industry that cuts capex when times are hard. A strengthening yen reduces reported profits on 65% of its overseas revenues. And lower-cost Chinese alternatives are beginning to appear at the lower end of the market.

But Keyence has been navigating those risks for fifty years, compounding earnings at a rate that most technology companies would envy. All from a city in western Japan, with no factories, no debt, and no middlemen.

We're glad it's in our portfolio. We had absolutely no idea it was in there. Did you?

Data and images sourced from Keyence Corporation Annual Report 2025.

Next week, we’ll be looking at a company from Emerging Markets.