Makita: Initiating Coverage of Japan’s Largest Power Tool and Outdoor Power Equipment Manufacturer

We initiate Makita with a narrow economic moat rating, supported by its globally recognized brand/reputation and service network. Our fair value estimate of JPY 4,600 factors in a near-term revenue decline in fiscal 2023 (ending March 2024) due to inventory adjustments in the distribution channels, followed by a recovery from the second half of fiscal 2024. We believe its shares are undervalued, as the market is underestimating the company's medium-term prospects. As residential housing construction activity recovers, we expect more tradespersons to upgrade to Makita's higher-priced 40-volt product line, and as governments promote the reduction of carbon emissions, we anticipate increased adoption of outdoor power equipment by professionals. Further, we expect the significant increase of new power tools/outdoor equipment purchases during the pandemic-driven boom to translate to higher repairs, spare parts, and accessories sales.