Report by Azabu Research
Making waves again - Yamaha was trading at ~40x earnings when China decided to start cutting educational budgets that had been the bedrock of the world’s largest market for Classical pianos. The stock has since dropped 56% (vs. Topix up 37%). While earnings missed consensus estimates by an average of 25% over the subsequent 5 quarters, Mike Allen thinks the consensus has begun to overcompensate. The Chinese Piano market is not going to recover, but analysts are overestimating its importance - it probably accounts for less than 2% of Yamaha’s total sales - and are underestimating the company’s ability to cut costs and drive top-line growth through other avenues.