Japan Exchange Group Valuation Raised by 5% on Continued Stock Market Strength

We raise the fair value estimate for wide-moat-rated Japan Exchange Group 8697, or JPX, by 5% to JPY 2,420 per share, to reflect the upward revision of earnings guidance released on Sept. 25, 2023. Given the continuing strength in Japan’s stock market and trading activity through to the second quarter of fiscal 2023, JPX has upgraded the assumptions for average daily trading values and volumes for fiscal 2023 ending March 2024. Revenue is forecast to grow by 6% to JPY 143 billion and underlying EBIT is forecast to lift 12% to JPY 77 billion, equating to a 300-basis-point improvement in operating margin to 54%.

Trading values and volumes benefited from the Nikkei 250 Index’s 26% rise in the year to date. We upgrade our forecast for net income in fiscal 2023 by 7% to JPY 52.5 billion, up from the previous forecast of JPY 48.9 billion. The underlying EPS is upgraded to JPY 99.81, from JPY 88.03, reflecting a 13% growth from fiscal 2022.

JPX’s wide economic moat remains firmly intact. The exchange businesses are seeing a limited increase in operating expenses compared with the increase in trading revenue. This reflects the inherent operating leverage and positive volatility exposure within exchange businesses like JPX.

JPX increased its dividend guidance for fiscal 2023, unchanged from the fiscal 2022 level, and equates to a yield of approximately 2.3% based on the current share price.