Daikin’s Nine-Month Fiscal 2019 Earnings Aided by Chemicals and Others Segments; Shares Overvalued

There are no major surprises in no-moat Daikin’s nine-month fiscal 2019 (year ending March 2019) results, with net profit down 3% year over year to JPY 149.9 billion. We leave our forecasts largely unchanged, but we raise our fair value estimate to JPY 9,900 from JPY 9,600 to take into account the time value of money. In our view, Daikin’s shares remain overvalued, given the firm’s slower earnings growth going forward. We expect Daikin’s earnings CAGR to decelerate to 3% in our explicit five-year forecast, compared with the historical three-year CAGR of 16%, due to headwinds such as slower global economic growth, appreciation of the Japanese yen and slowdown in the China market.