Fuel Margin Expansion Lifts Seven & I's Profits; U.S. Inflation, COVID-19 Surge in Japan Key Risks

It is no surprise that narrow-moat Seven & I revised up its full-year guidance on the back of the yen weakness, although escalating utility costs offset some profit increase. The strong operating profit growth, up 32% year on year, was boosted by expanded gasoline dollar margins (gross profit of fuel per gallon in dollar terms) in addition to the Speedway consolidation (full three months). We have further raised our operating profits by 6% to reflect the new yen rate of JPY 125 (company guidance JPY 127) for 2022. On the other hand, we have also increased our tax projection to reflect a more gradual kick-in of tax benefits of the Speedway deal. The adjustments, combined with increased time value of money, leave an immaterial impact on our fair value estimate of JPY 5,600.