Shimano Earnings: Outlook Intact Despite Ongoing Headwinds and Product Recall

While wide-moat Shimano’s September-quarter results showed weakening demand and additional expenses from a product recall, our outlook is largely unchanged, and we therefore maintain our fair value estimate at JPY 23,500 per share. We project 2024 revenue to remain flat, after a 26% year-on-year decline in 2023, as major OEM customers take at least until the first half of 2024 to digest excess inventory. Based on the company’s estimates, market bicycle inventories remain high in all of its key markets except China, as original equipment manufacturers and retailers overestimated demand during the pandemic-induced bicycle boom. Despite this, we believe Shimano shares are undervalued because the market is underestimating the company’s medium-term top-line recovery. We continue to forecast a 7% revenue compound annual growth rate between 2024 and 2027, driven by future bicycle upgrades, e-bike adoption, and government policies that promote cycling in Shimano’s largest market, Europe.