Shimano Earnings: Order Cancellations To Dent Near-Term Sales; Lowering FVE but Shares Undervalued

We lower our fair value estimate of Shimano to JPY 25,000 from JPY 27,500, after reflecting a larger impact from the inventory reductions by bicycle frame manufacturers/retailers. The company’s March-quarter revenue declined 12.5% from the previous year, and the company lowered its 2023 revenue guidance by 8%, suggesting that order cancellations were worse than expected. Consequently, we lower our 2023 revenue growth projection by about 9.5 percentage points to a 27.5% year-on-year decline (guidance revised to a 26.9% decline from 20.5% decline). However, despite the near-term headwinds, we believe Shimano’s shares have upside potential, as the market is underestimating the long-term growth opportunities, driven by government policies to promote cycling in Europe—such as through emission standards, bike lanes, discouragement of car usage/speeding, and subsidies, e-bike adoption, and future bicycle upgrades from the recent rise in new cyclists.