Shimano Earnings: Capacity Utilization to Further Weaken Before Recovery Toward Year-End

Shimano’s weaker-than-expected guidance for fiscal 2024 and high inventory at the end of 2023 suggest that the company's inventory adjustment will take longer than we had previously anticipated. We now expect bicycle component sales to pick up in the December quarter, about two quarters later than we had expected, after channel inventories (which include bicycle frame manufacturers and retailers) normalize and new models begin to roll out. Based on the assumption of a weaker capacity utilization, we cut our fiscal 2024 operating income forecast by about 30% to JPY 54 billion, assuming a sales decline of 11.5% and an operating margin of 13.0%, lowered from flat sales and an operating margin of 17.4% previously. Consequently, we lower Shimano’s fair value estimate to JPY 22,000 from JPY 23,500. We believe the company's shares are currently fairly valued.