Daifuku's Quarterly Margin Affected by China Lockdown but Received Record Orders; Maintain FVE

Daifuku’s June quarter operating margin fell to 7.9% from 8.7% last year, which fell short of our expectation; however, orders remain strong and our medium-term outlook remains largely intact. Margins were affected by 1) additional expenses from a large-scale flat-panel-display cleanroom, or FPD CR, project in China coming to a halt during the lockdown, and 2) higher-than-expected project costs (includes components/labor/logistics). While we do not foresee further material costs from the FPD project, we now expect higher project costs (especially labor) for the next two years. After considering this and reassessing our depreciation estimates, we lower our fiscal 2022 and 2023 (ending March) operating margin projection to 10.2% and 11.5%, respectively, from 10.5% and 12.0%. In spite of this, our midcycle operating margin assumption of 13.0% in 2026 remains unchanged, and we therefore maintain our fair value estimate of JPY 10,500.