Daifuku Faces Near-Term Headwinds, but Longer-Term Outlook Intact

While Daifuku’s 6383 companywide orders in the December quarter grew 14.6% year on year, supported by the weak yen, orders in the cleanroom business declined 23.5% after seven consecutive quarters of annual growth. This was inevitable, given the record orders last year and the recent slowdown in capital spending for semiconductors. As chipmakers hold back on investments, we expect headwinds for Daifuku in 2023. However, we retain our fair value estimate of JPY 10,500, as our longer-term outlook remains intact. With a record of supplying high-end semiconductor handling equipment (for 5 nanometers and below) to leading foundries, the wide-moat company is strongly positioned to grow along with secular demand for high-performance computing and high-end mobile chips. We therefore expect cleanroom orders bottoming out will serve as a catalyst for the stock.

The latest guidance implies a steeper year-on-year decline of 51% in cleanroom orders in the fourth quarter of fiscal 2022, ending March, suggesting that orders will revert to 2020 levels. We lower our cleanroom sales growth assumption in fiscal 2023 to 5.0% from 8.0% year on year (after 33.0% growth in 2022) after reassessing the segment’s top-line growth. However, unlike the previous downcycle, order backlog is at record levels, which we expect will prevent sales from declining in 2023. Over the longer term, we project a 9% compound annual growth rate between 2023 and 2026, assuming chipmakers increase capacity to meet advanced semiconductor demand from fiscal 2024 and onward.