Z Holdings: Synergies From the Line Integration Appear Earlier Than Expected; Raise FVE to JPY 700

We refreshed our earnings forecasts and raise Z Holdings’ fair value estimate to JPY 700, as we expect the synergies with the acquired Line business will be greater than we had previously expected. Z Holdings currently owns several platforms with tens of millions of domestic active users, such as Yahoo Japan (55 million monthly active IDs), Line (89 million monthly active users), and PayPay (42 million registered users), and we believe the collaboration between them will contribute to achieving higher revenue growth than before. In addition, we also expect synergies in cost reduction in the short run (the company forecasts JPY 10 billion for this fiscal year). Overall, we raised our average annual revenue growth assumption for the next five years to 12.9% from 11.5% and our operating margin forecast for fiscal 2025 (financial year ending March 2026) to 15.2% from 13.0%. As a result, our operating income forecasts for fiscal 2021 and 2025 are lifted to JPY 195 billion from JPY 170 billion, and JPY 335 billion from JPY 270 billion, respectively. Although we highly appreciate the upbeat growth momentum, we view that the market’s expectation is somewhat too high and thus Z Holdings’ shares are currently slightly overvalued.