Passion-Themed Card Expansion Will Drive Long-Term Earnings Upside

Catalysts

About Marui Group

Marui Group operates an integrated retail and FinTech platform that combines shopping, credit cards and services to support customers everyday passions.

What are the underlying business or industry changes driving this perspective?

• Rapid expansion of passion themed EPOS cards, including high LTV Suki and Pet Cards, is unlocking a large base of younger, emotionally engaged customers nationwide, supporting sustained growth in credit card transaction volume and fee based revenue.
• Shift in store mix toward experiential and non retail tenants, alongside large scale Suki events with much higher spend and member acquisition productivity, is structurally lifting tenant and event revenues and improving retail segment operating margins.
• Earlier than planned increases in installment, revolving and foreign currency settlement fee rates, combined with stable customer usage, are raising FinTech unit economics and underpinning steady growth in operating profit and net income.
• Scaling of proprietary high margin Suki merchandise across events, e commerce, wholesale partners and cross border online channels is poised to transform a small in house line into a multi billion yen business, enhancing gross margins and earnings leverage.
• Open innovation around Suki businesses and continued investment in UX, data and AI to personalize apps and services are deepening main card adoption and share of wallet, supporting higher lifetime revenue per customer and structurally stronger ROE and EPS.

Assumptions

This narrative explores a more optimistic perspective on Marui Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Marui Group's revenue will grow by 9.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.0% today to 11.7% in 3 years time.
• The bullish analysts expect earnings to reach ¥40.5 billion (and earnings per share of ¥226.71) by about December 2028, up from ¥29.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥34.4 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, up from 19.0x today. This future PE is greater than the current PE for the JP Consumer Finance industry at 12.4x.
• The bullish analysts expect the number of shares outstanding to decline by 1.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The FinTech segment is benefiting from higher installment, revolving and foreign currency settlement fees. However, this tailwind depends on customers tolerating rising borrowing and transaction costs over the long term and on regulators not intervening. A reversal in either could dampen card usage growth, compress fee income and slow earnings momentum.
• Tenant and event revenue are increasingly driven by large scale, passion themed Suki events and experiential tenants. If consumer enthusiasm for these formats normalizes over time or hit rates on new concepts decline, store traffic and event productivity could fall, eroding retail revenue growth and pressuring segment operating margins.
• The strategy relies on rapid expansion of Suki themed EPOS cards, high LTV younger members and further penetration into regional markets. Any saturation of the passionate fan base, intensifying competition for cardholders or slower than expected regional scaling could cap transaction volume growth and limit improvements in net income.
• Plans to grow high margin in house Suki merchandise from hundreds of millions of yen in sales today to JPY 12 billion by FY 2031 assume successful product development, inventory discipline and strong cross border demand. Misjudging trends, overextending SKUs or weaker than expected overseas appetite for Japanese content could lead to markdowns, lower gross margins and weaker earnings leverage.
• Balance sheet risk is rising as operating receivables and total assets expand while the equity ratio declines. Combined with higher interest rates and ongoing securitization, this heightens funding and credit risk in a downturn and could raise financial expenses faster than anticipated, constraining ordinary profit and net income growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Marui Group is ¥4300.0, which represents up to two standard deviations above the consensus price target of ¥3461.11. This valuation is based on what can be assumed as the expectations of Marui Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥4300.0, and the most bearish reporting a price target of just ¥2700.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be ¥347.2 billion, earnings will come to ¥40.5 billion, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of ¥3082.0, the analyst price target of ¥4300.0 is 28.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.