Elliott picks low-hanging AI and climate fruit
23/04/2026 13:00
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Hudson Lockett HONG KONG, April 23 (Reuters Breakingviews) - Between climate change and artificial intelligence-driven demand, it’s a good time to be in the cooling business, unless you’re Daikin Industries 6367.T. While western rivals have posted searing gains over the past two years, shareholders in Japan’s top producer of heat pumps and data centre-cooling technology have watched the stock remain basically flat. Now U.S. activist Elliott hopes to push President Naofumi Takenaka to boost returns through buybacks and integration of foreign businesses snapped up during his predecessor's acquisition spree. That looks like an easy win. Discontent has been brewing since former Chair Noriyuki Inoue, after more than three decades at the helm, stepped down in 2024 with a surprise parting bonus of 4.3 billion yen ($27 million), which won the support of only 68% of shareholders—perilously low by Japanese standards. Takenaka has since struggled to lift Daikin's shares. Little wonder the stock is up 8% after Elliott announced a stake in the air-conditioner maker, arguing the company was “materially undervalued by the market” and calling on the manufacturer to boost margins and shareholder returns, as well as review non-core businesses. To that end, Paul Singer's activist fund currently holds a stake of about 3% and believes the firm can buy back about 1 trillion yen of shares while better integrating the sundry American businesses snapped up during Inoue’s tenure, a person familiar with the matter told Breakingviews. There is a strong argument for streamlining. In the United States, Daikin has six separate air conditioning and refrigeration businesses spread across Kentucky, Minnesota, Florida, New York and Texas. The overall group is tipped to report an operating profit margin of 8.3% for the current fiscal year ending March 2027, per analyst forecasts compiled by Visible Alpha. That's well below expectations of over 16% and 19% for the current year at peers Johnson Controls International JCI.N and Trane Technologies 2IS.F, respectively. Boosting Daikin’s operating margin into the same ballpark, say around 14%, would only require cost cuts of about 280 billion yen, equivalent to just 6% of annual sales. That looks imminently doable within three to five years, especially against a backdrop of growing demand from proliferating data centres and intensifying heat waves. Indeed, Daikin is expected to lay out plans for an overhaul and buybacks next month in a medium-term management plan, the first under the current leadership. Elliott’s timely push, then, is not so much about changing the target’s direction as holding its feet to the fire. Follow Hudson Lockett on Bluesky and X. CONTEXT NEWS Elliott Investment Management said on April 16 it had taken a stake in Daikin Industries and wants the Japanese manufacturer of air conditioners to boost margins and shareholder returns, as well as review non-core businesses. A person familiar with the situation told Breakingviews the activist now holds a stake of about 3% in Daikin and believes the firm can buy back about 1 trillion yen worth of shares while better integrating its businesses in North America. Daikin is missing out on a hot streak for AC stocks https://www.reuters.com/graphics/BRV-BRV/gkvlkareqpb/chart.png (Editing by Robyn Mak; Production by Aditya Srivastav) ((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))