Shimano Earnings: Inventory Reduction of Bicycle Makers and Retailers To Hurt Sales; FVE Cut 6%

We lower our fair value estimate of Shimano to JPY 23,500 from JPY 25,000, as we now expect weaker near-term sales in Europe (making up over 65% of bicycle components revenue) and a longer period of inventory reductions by bicycle frame manufacturers/retailers. In Europe, the market inventory of completed bicycles is high, contributed by overstocking to meet anticipated demand for high-end bicycles/e-bikes as well as weaker retail sales. This suggests high-end bicycle/e-bike demand is not as resilient as we previously thought; therefore, we think the inventory levels of major original equipment manufacturers remain heavy and will take about another year for their bicycle inventories to be digested. While weaker yen assumptions will offset our lower demand expectations, we now project Shimano’s bicycle components sales to decline 32.5% year on year in 2023 and only grow by 1.5% in 2024 (versus a 31% decline in 2023, followed by 10% growth in 2024 previously). We believe shares are fairly valued.