No Major Surprise in Daikin’s Robust First-Half Fiscal 2019 Earnings; Shares Remain Overvalued

No-moat Daikin’s first-half fiscal 2019 (year ending March 2019) net profit of JPY 112.8 billion, up 11% year over year, was within our expectations. Although first-half earnings accounted for 60% of our full-year estimate, we leave our forecasts largely unchanged, given that this was in line with historical trend. We maintain our fair value estimate of JPY 9,600 per share, and we think Daikin’s shares remain overvalued, as we expect the firm’s earnings momentum to subside going forward. We project earnings CAGR of 3% in our explicit five-year forecast, compared with the historical three-year CAGR of 16%.