Jefferies cuts Pola Orbis price target to JPY1,050, retains underperform

On Tuesday, Jefferies analyst Mitsuko Miyasako revised the price target for Pola Orbis Holdings Inc. (TYO:4927:JP) (OTC: PORBF) to JPY1,050, down from JPY1,150, while maintaining an Underperform rating on the stock. The adjustment reflects concerns over the company’s performance, particularly in its consignment sales in Japan, which did not show a stable recovery in the fiscal year 2024.

Miyasako highlighted that Pola Orbis’ consignment sales, a key revenue stream, experienced consecutive year-on-year declines across all quarters of fiscal year 2024, with rates dropping by 13%, 9%, 5%, and 6% respectively. This trend indicates a challenging environment for the company’s main business segment.

Additionally, while Derma and Sustainability brands under Pola Orbis have gained popularity due to a surge in demand for natural organic and skin safety products, alongside growing environmental consciousness, the company faces stiff competition. Global players like L’Oreal are actively acquiring similar brands, which aids in their scaling and poses a threat to Pola Orbis’ market share.

The analyst also adjusted the operating profit (OP) estimates for the company, reducing the forecast for fiscal year ending December 2025 to 14.1 billion yen, a slight increase of 2.3% year-on-year but down from the previous estimate of 17.0 billion yen. The consensus forecast was 14.6 billion yen. For fiscal year ending December 2026, the OP estimate was lowered to 16.0 billion yen, marking a 13.3% increase from the previous year but below the prior forecast of 18.3 billion yen and consensus of 17.1 billion yen.

The downward revisions in forecasts are attributed to several factors, including intensified competition from drugstores and retailers, which impacts Pola’s consignment sales that account for 60% of sales within the brand. Additionally, the growth of ORBIS is slowing, and there are structural challenges leading to sluggish sales of Jurlique, a brand under Pola Orbis’ portfolio. These factors contribute to the analyst’s decision to lower the price target and maintain the Underperform rating on Pola Orbis Holdings Inc. stock.

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