Pandemic-Related Demand Boosting PPIH’s Profits; Current Success Not a Proxy for Asia Growth

Narrow-moat Pan Pacific International Holdings (PPIH, previously called Donki) is off to a good start in its new fiscal year, reporting nearly 10% growth in operating profit despite a tough comp from Don Quijote’s storewide sale event last September and a surge in the last-minute demand before the October 2019 sales tax hike. Although profits came in above our expectation and seem ahead of the company’s internal targets, the strength looks mainly related to the pandemic. We have made no change in our forecasts or our fair value estimate of JPY 2,000, implying 14% downside from the current price. Our profit forecasts for fiscal 2021 ending June are 4%-5% above guidance.