Daifuku Earnings: Expecting Weak Sales Growth in 2023 but Shares Remain Undervalued

Daifuku’s fiscal 2023 (ending March 2024) revenue growth guidance of 0.5% year on year was below our expectations, largely due to weaker-than-expected sales in the Intralogistics business, or IL, which is the company’s largest business. As the segment will be affected by weak e-commerce investment globally this year, we now project IL sales to decline 7% year on year (down from 5% growth previously), which is largely in line with guidance. IL orders declined sequentially by 28.5% in the March quarter, which was worse than the typical seasonal decline. While we expect continued headwinds over the near term, we think IL orders will pick up in the fourth quarter. Moreover, our longer-term outlook remains intact, and we therefore maintain our fair value estimate of JPY 3,500. We believe the market is underestimating IL’s medium-term prospects, as a skilled labor shortage in Japan and room for further penetration of warehouse automation in the U.S./Asia provide opportunities for Daifuku. As such, we think the company’s shares are undervalued.