Uny's Surprising Strong Performance Lifting PPIH's Profits and Guidance; no Change in FVE

Narrow-moat Pan Pacific International Holdings (PPIH, previously known as Donki) beat its interim guidance and revised up its full-year guidance as we had expected but the degree of upward revision, nearly 6% in operating profits, is somewhat greater than our expectation even though the revised targets are based on relatively conservative assumptions. The positive earnings surprise came from Uny, the acquired general merchandize store chain. We have revised our margin assumptions mainly on Uny to reflect expectations of earlier margin normalization of the GMS chain, which has little impact on our fair value estimate of JPY 1,750. Our revised full-year profits are now a touch above the company’s guidance for fiscal 2020 ending June. We will continue to monitor the development of margin expansion of the GMS chain and the converted dual brand stores, as well as the same-store sales trends. The shares are trading close to our fair value estimate and thus we view the shares as fairly valued.