Daikin: Reinitiating on Japan’s Largest Air Conditioning Firm With Narrow Moat; Shares Fairly Priced

We resume our coverage of Daikin Industries, Japan's largest heating, ventilating, and air conditioning company, with a fair value estimate of JPY 25,000 per share and a fiscal 2024 (ending March 2025) price/earnings of 26.3 times. We also assign the company narrow moat, Medium Uncertainty, and Standard Capital Allocation ratings. As Daikin actively expands overseas through acquisitions, the North America region is its largest earnings contributor, followed by China and Japan. Despite sluggish global demand, Daikin delivered robust 10.4% revenue growth for fiscal 2023. That said, the 8.9% operating margin missed its prior guidance of 9.4%, which the company ascribed to sales volume contraction and fixed costs expansion, partly offset by selling price hikes and the Japanese yen’s depreciation.