PPIH Earnings: Discount Stores Continue to Be Key Profit Driver; Fair Value Retained

No-moat Pan-Pacific International Holdings reported fiscal 2024 full-year results that moderately exceeded our revenue and operating profit estimates, primarily due to discount store business. The incremental operating profit for fiscal 2024 was also mainly driven by the discount store segment, as the increased profitability of the general merchandise store segment was largely offset by worsening margins of overseas business. We fractionally lowered our fiscal 2025 sales projection due to a more conservative outlook for overseas business. Still, we raised our operating profit projection by 5% with a more constructive view for the domestic discount stores segment. We kept our fiscal 2026 to 2028 estimates largely unchanged and retained our fair value estimate at JPY 2,970 per share, which implies 20 times fiscal 2025 P/E, 11 times enterprise value/EBITDA, and 1.1% dividend yield. We are more conservative than management on tax-free sales targets for fiscal 2027, and we see shares as overvalued.