Some Signs of Cooldown in Bicycle Boom but Shimano’s Medium-Term Revenue Growth Prospects Are Intact

We retain our fair value estimate of Shimano at JPY 29,000, on the expectation that high-end bicycle/e-bike demand won't be as affected by ongoing headwinds as their lower-end counterparts. Continued demand for high-end bicycles in the September quarter has kept bicycle market inventory levels low (including those of Shimano’s customers), according to the company. On the other hand, demand for middle/entry-class bicycles has cooled, consequently leading to higher market inventory. While recessionary concerns will likely translate to some order decline across Shimano’s product line in the upcoming months, we remain convinced that high-end demand will not fall to pre-COVID-19 levels. In fact, over the medium term, future bicycle upgrades from the influx of new cyclists throughout the pandemic should support growth, and with its wide moat intact, we think Shimano's shares are undervalued.