Yokohama Rubber Co (YORUF) has received a new Buy rating, initiated by Goldman Sachs analyst, Kota Yuzawa.
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Kota Yuzawa has given his Buy rating due to a combination of factors that highlight Yokohama Rubber Co’s potential for growth and its current undervaluation. The company holds a significant position in the off-highway tire market, capturing a 10% share, which is expected to contribute to 30% of its profits by FY12/25. This segment is projected to grow faster than the overall market, driven by increasing demand for agricultural tires, particularly with the rise of precision agriculture in developed regions and China.
Additionally, Yokohama Rubber’s financial outlook is promising, with anticipated annual top-line growth of 6% over the next three years, surpassing its Japanese competitors. The company’s shares are trading at a notable discount compared to peers, with a P/B of 0.5X and a P/E of 5X, suggesting substantial undervaluation. Despite increased interest-bearing debt from acquisitions, these investments have yielded positive returns, and the debt-to-equity ratio is expected to improve. However, potential risks such as fluctuations in crop prices, raw material costs, and US tariffs could impact earnings.
In another report released on June 17, Morgan Stanley also maintained a Buy rating on the stock with a Yen4,200.00 price target.