We set our target price for Brother at ¥2,700, equating to an end-FY3/26E PBR of 0.9x. Over the past five years Brother shares have traded in a PBR range of 0.8x-2.0x, but excluding periods when the PBR was low in the initial phase of the pandemic and multiple mainstay businesses were together posting earnings declines, a PBR of 1x has marked the bottom. Looking at Brother now, although buybacks are providing support, we think expectations for fundamentals are unlikely to rise with simmering concern about tariff impact and macroeconomic slowdown weighing. Therefore we think a PBR of 0.9x, near the bottom of the historical range, is appropriate.

Upside risks to our target price include yen weakness, a share increase for the printer business, a recovery for industrial equipment, expansion in the earnings contribution from Domino, disposal of non-core assets and low-margin businesses, and bolstering shareholder returns via surplus cash. Downside risks include yen strength, lower share and concerns of increased price competition in the printer business, a decline in industrial equipment order momentum, and an acquisition that the market does not support.