Pandemic Hits Pan Pacific's Sales and Profits as Tourists Vanish; Shares Overvalued

Narrow-moat Pan Pacific International Holdings reduced its full-year guidance after its core discount store chain, Don Quijote, posted a double-digit decline in comparable-store sales for the second month in a row. The downward revision was triggered by a sharp drop in foreign tourist demand. Despite the headwind, we think PPIH’s sourcing capability, a key element of its moat sources, was reinforced during the pandemic crisis, during which it was able to secure sought-after daily supplies. We have marginally revised our same-store growth assumptions mainly for Donki, which has little impact on our fair value estimate of JPY 1,750 per share. Our revised full-year profit forecast remains a touch above the company’s guidance for fiscal 2020 ending June.