No Major Surprise in Daikin’s Second-Quarter Fiscal 2020 Earnings; Shares Remain Overvalued

Daikin is one of the world’s largest heating, ventilating, and air conditioning, or HVAC, companies. The air conditioning segment contributed 90% of the firm's total revenue in fiscal 2019 (ending March 2019), while the division’s revenue mix is well diversified geographically, with the Americas, Japan, China, and Europe contributing 29%, 22%, 15%, and 15% of revenue, respectively. Over the past few years, Daikin saw strong earnings growth, mainly thanks to robust revenue growth in China, its acquisition of U.S. HVAC company Goodman, and the depreciation of the yen. Meanwhile, Japanese operation grew slowly with low profitability, owing to stagnant HVAC demand.