No Major Surprise in Daikin’s Second-Quarter Fiscal 2020 Earnings; Shares Remain Overvalued

No-moat Daikin reported second-quarter fiscal 2020 (year ending March 2020) earnings, with operating profit rising 2% year over year to JPY 78.7 billion. The results were in line with our expectation with first-half net profit increasing 5% year over year to JPY 118.5 billion. We keep our estimates largely unchanged, but we increase our fair value estimate to JPY 10,400 per share from JPY 10,200 as we roll our DCF-based valuation by one quarter. In our view, Daikin’s shares remain overvalued, as we believe the firm’s earnings growth is losing momentum. We project earnings CAGR of 4% in our explicit five-year forecast, compared with the historical three-year CAGR of 11%. The firm guided that net profit will grow 3% year over year in fiscal 2020.