Makita Earnings: Resilient Sales in Europe Lessened the Impact of Weak North America Sales

Makita's June quarter operating income of JPY 21 billion surpassed our previous estimate, as we had expected weaker sales/utilization levels in Europe (where approximately half of the company's revenue is generated) amid headwinds. Nevertheless, despite the 5% decline in overseas sales on a local currency basis, which suggests that power tool/outdoor power equipment demand remains sluggish, sales in Europe beat our expectation and were flat on a local currency basis. Based on a slightly improved outlook in Europe, we raise our fiscal 2024 (ending March 2025) operating income estimate by 7% to JPY 80 billion, underpinned by 2% revenue growth and 10.5% operating margin. However, we leave our fair value estimate unchanged at JPY 4,600, as we continue to expect headwinds in other key regions like North America and Asia before a demand recovery in fiscal 2025. We believe Makita's shares are fairly valued currently.