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

Daifuku’s 6383 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.

As for the cleanroom business, or CR, we now project 2023 segment sales to decline 5.5% year on year, down from 5% growth previously, due to semiconductor-related projects from existing orders being delayed to 2024. The segment’s March quarter orders declined 49% year on year, but we think this was inevitable given the high upfront purchases by foundries last year and the slowdown in semiconductor production. While we expect CR orders to continue declining for 2023, with orders bottoming out in the fourth quarter, we nevertheless project segment sales to pick up in 2024 by 12.5% year on year (up from 10% after reflecting the project delays). Over the longer term, we project the segment’s sales to grow at a CAGR of 8% between 2024 and 2027, driven by production expansion of chips used for high performance computing and high-end mobile electronics.