Shimano Inc. (7309.T) is a Japanese premium parts giant for bicycle components, fishing tackles, and rowing equipment. The company celebrates its 100th anniversary this year and is on Forbes’ Global 2000 list. Shimano operates in three business segments. Bicycle components, including freewheels, front gears, transmissions, brakes, and other bicycle components, account for 80 percent of the revenues and 83 percent of the profits.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] This segment grew by 73 percent, with profits increasing by 152 percent over the first half-year of 2021. The fishing tackle segment, including reels, rods, and fishing gears, accounts for 20 percent of the revenues and 17 percent of the profits. This segment grew by 38 percent, with profits doubling. The third segment can be neglected.
Europe is Shimano’s largest geographic market, accounting for 39 percent of its total revenues, followed by Asia with 34 percent, and Japan with 12 percent. The most substantial growth came from Japan with 10 percent, followed by North America with 9 percent in 2020.
Shimano was founded in 1921 and has its headquarter in Sakai/Osaka, Japan. The company has been listed on the first section of Tokyo’s stock exchange since 1973. Its shares can also be traded in Germany, the US, and Austria. Major shareholder is Minato Kosan KK, with ownership of around 9 percent. About 88 percent of the shares are in public hands.
With over 12,200 employees, Shimano reported revenues of 265bn JPY (2bn USD) and profits before tax of 74bn JPY (572m USD) during the first half-year of 2021. This is an increase of 65 and 87 percent respectively compared to the same period a year ago. The growth is mainly due to a high interest in cycling and fishing during the pandemic lockdowns. In 2020, revenues and profits increased by 4 and 19 percent, respectively. The operating margin of 26 percent is well above industry average. Shimano’s cash reserves increased by 12 percent to 343bn JPY (2.6bn USD), while debts and lease obligations have been reduced by 30 percent to 14m JPY (108 thousand USD) over the first half-year of 2021.
The company shows a healthy balance sheet with excellent profitability and financial strength. The equity ratio is at 89 percent, and the gearing, defined here as total liabilities to total equity, is at a low of 12 percent. Moody’s daily credit risk score for Shimano is as low as one, indicating a shallow credit default risk based on the day-to-day movements in market value compared to the company’s liability structure. The next earning results will be announced at the end of October.
Shimano’s shares have been in an uptrend since March 2020 and have gained more than 140 percent in value since, 43 percent increase alone this year. The company is currently priced at 36 times earnings, six times book value, and 35 times operating cash flow. The forward dividend yield is less than one percent. Only 4 out of 10 analysts currently have a ‘buy’ or ‘outperform’ recommendation on the stock.
Our conclusion: Shimano shows a solid financial position with excellent profitability and financial strength. The valuation is high and comes with a compounded annual growth rate for revenue and profits of only 4 and 12 percent, respectively, over the last three years. But the outlook for the global bicycle market is buoyant, with an expected growth rate of 7 percent over the next years.
The global cycling boom, triggered by the spread of COVID-19, maintained momentum this year. Demand for bicycles remains high in all markets. Industry insiders are confident that this trend will endure even after the pandemic eases. People will stick with leisure and exercise habits formed during lockdowns, especially if they continue working from home. And governments also have an interest in improving health and reducing city congestion. Shimano is taking advantage of this momentum by increasing production capacity at its two Nippon factories and investing in a new factory in Singapore. The company has revised its forecast lately based on the strong demand and expects net sales to increase to 500bn JPY this year.
Shimano is well-positioned in a strong competitive environment. Assuming a stable global economy, we expect the share price to increase at least 10 to 15 percent over the next 12 months.
AIS Rating: ★★★★☆
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 HY only |
|
|---|---|---|---|---|---|---|
| EPS (JPY) | 550 | 415 | 582 | 559 | 685 | 604 |
| Change (%) | (33) | (25) | 40 | (4) | 22 | 79 |
| DPS (JPY) | 155 | 155 | 155 | 155 | 355 | 118 |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* (%) |
ROE (%) |
LIAB./ Equity** (%) |
Div YLD (%) |
|---|---|---|---|---|---|---|---|
| 36 | 25 | 6 | 35 | 89 | 17 | 12 | 0.6 |
* Equity / Total Assets, ** Total Liabilities / Equity
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