Shimano Earnings: Headwinds to Continue but Current Demand Not as Weak as Expected

Although wide-moat Shimano’s March-quarter revenue decline of 20% year on year suggests continued headwinds, we had previously estimated a steeper decline. While bicycle component sales have been affected by the continued high channel inventories (including bicycle frame manufacturers/retailers), this was partly mitigated by resilient demand for high-end road bikes in China, Germany, and Benelux. With sales and capacity utilization not deteriorating as much as we had thought, we raise our fiscal 2024 operating income estimate by 17% to JPY 63 billion, which assumes a revenue decline of 7% and operating margin of 14.3%. Nonetheless, we maintain our fair value estimate at JPY 22,000 per share, as the upward near-term revision is offset by slightly lower medium-term operating margin estimates, due to higher labor costs as well as fixed costs from its record capital expenditure this year.