Daifuku: Revising our Morningstar Uncertainty Rating to Medium

We assign Daifuku 6383 a Morningstar Uncertainty Rating of Medium, based on our revised expectations of material handling equipment demand for warehouses, factories, and airports. Although the pandemic-induced e-commerce demand had previously led to a surge in orders and increased the uncertainty for its intralogistics business, we expect demand will be relatively stable after the current postpandemic slowdown from 2024 onward. Further, the company’s balanced exposure to various customer industries and stable service income (which makes up approximately 20% of intralogistics sales and above 45% of automobile/airport sales) will mitigate the impact of demand fluctuations in highly cyclical industries.

On the other hand, we think the uncertainty of its cleanroom business, which we estimate to be about a third of total operating income, remains high. With flat panel display exposure to be far less than its 2018 peak, we expect medium-term sales to be almost entirely based on semiconductor production trends. Consequently, this hinges on the capital expenditure plans by leading chip manufacturers/foundries, geopolitical dynamics related to semiconductor production, and the ability to land new orders outside its existing customer base, which will require expansion in the United States and China.

Daifuku is primarily exposed to foreign currency exchange rate fluctuations in the U.S. dollar, Chinese yuan, and Korean won, relative to the Japanese yen, but the degree varies greatly by segment. While the majority of intralogistics sales come from Japan, about 25% of its sales come from North America, making it sensitive to the Japanese yen/U.S. dollar exchange. On the other hand, the cleanroom and airport segments have concentrated exposure to Asia ex Japan (Korea, China, and Taiwan), and North America respectively, making them more vulnerable to swings in the rates of their respective currencies.