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On Thursday, Morgan Stanley (NYSE:MS)’s analysis led to a revised price target for Isetan Mitsukoshi Holdings Ltd (3099:JP) (OTC: IMHDF), now set at ¥3,200.00, down from ¥3,700.00. Despite the reduction, the firm maintains an Overweight rating on the stock. The adjustment reflects a new valuation based on a price-to-book (P/B) ratio of 1.8 times the estimated book value per share at the end of fiscal year 2026. This is a decrease from the previously used P/B ratio of 2.0 times.
The analyst at Morgan Stanley highlighted an increase in operating profit (OP) forecasts by 4% for fiscal years 2025 and 2026, and by 2% for fiscal year 2027. The growth assumptions are based on an anticipated 7% annual increase in foreign visitor numbers starting in 2025. For the third quarter of fiscal year 2025, covering October to December 2024, the firm projects an operating profit of ¥24.4 billion, which is higher than the FactSet consensus estimate of ¥23.7 billion.
The revised price target calculation also takes into account the correlation between return on equity (ROE) and the P/B ratio since fiscal year 2011, excluding the period from fiscal year 2020 to 2022 when the COVID-19 pandemic significantly impacted the company’s performance. The analyst suggests that the lowered P/B ratio used for the price target reflects a moderation in the key earnings growth drivers for Isetan Mitsukoshi.
Additionally, the report acknowledges the rising value of prime real estate owned by Isetan Mitsukoshi, attributing the increase to sustained inflation. However, the analyst notes that the appreciation in property value is not unique to department stores but is a broader market trend.
The Overweight rating by Morgan Stanley indicates that the firm still sees Isetan Mitsukoshi as a favorable investment, albeit with a more conservative price target that accounts for the evolving business landscape and market conditions.
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