PPIH Likely to Beat Profit Guidance on Solid Same-Store Growth and Margins; Shares Overvalued

We are raising the fair value estimate of narrow-moat Pan Pacific International Holdings, or PPIH (previous Donki) to JPY 1,950 from JPY 1,750 after our discussion with management and better-than-expected same-store sales growth. We think PPIH’s sourcing capability, a key element of its moat sources, was reinforced during the pandemic crisis in which it was able to secure sought-after daily supplies to keep customers coming back to the stores. Additionally, the extensive range of product offerings which enables one-stop shopping also worked in PPIH’s favor during the pandemic as consumers cut trips to the stores. Nevertheless, we view the stock as overvalued, trading at a 20% premium to our fair value estimate.