Daikin’s Fiscal 2019 Results Within Expectations; FVE Increased Slightly to JPY 10,100

No-moat Daikin’s net profit of JPY 189 billion for fiscal 2019 (year ending March 2019), flat year over year, was in line with our expectations. After rolling forward our valuation model, we raise our fair value estimate slightly to JPY 10,100 from JPY 9,900. While the company’s ability to control cost and achieve record high operating profit are impressive, this has been priced in and further outperformance is not sustainable, in our view. We think the company is overvalued at the current stock price given its slowing earnings momentum, as we forecast Daikin’s earnings per share to grow at a CAGR of 3.5% over the next five years (versus historical three-year CAGR of 11.3%) on the back of headwinds such as uncertain global economic growth due to geopolitical frictions, appreciation of the Japanese yen and slowdown in the China market.