Daifuku Earnings: Strong September-Quarter Intralogistics Orders to Mitigate Headwinds

We maintain our fair value estimate of Daifuku at JPY 3,500, after adjusting our projection based on the September-quarter results. The warehouse/cleanroom automation space has been facing headwinds, as the total September-quarter orders declined 13% year on year. However, we think orders have bottomed, as this was still a 26% sequential increase. Quarterly orders for the intralogistics, or IL, segment were stronger than expected with a 34% year-on-year increase, compared with negative 37% in the June quarter. While global warehouse automation demand continues to be sluggish, the impact was mitigated by large-scale seasonal renovation/upgrade projects by existing customers in North America and the weak Japanese yen. We maintain our outlook that automation investments will pick up in the first half of fiscal 2024, and project Daifuku’s revenue to grow 7.4% year on year in 2024 (up from 6.7% previously) after remaining flat in 2023, followed by 6.6% CAGR between 2023 and 2027. We believe the market is underestimating Daifuku’s medium-term growth potential, driven by secular trends such as the shortage of skilled labor in Japan and the further penetration of warehouse automation in the U.S./Asia.