Tsuruha Holdings' near-term fundamentals remain solid; Goldman Sachs maintains Buy and ¥3,000 target price

Overview

This report is a company research update by Goldman Sachs on Tsuruha Holdings (3391.T). The report maintains a Buy rating and a 12-month target price of ¥3,000. Its core view is that the company's solid near-term fundamentals are sufficient to offset cost pressure from higher fuel adjustment charges and base electricity fees, while market focus may shift from short-term costs to the medium-to-long-term realization of synergies following the merger with Welcia Holdings.

Core views

Goldman Sachs believes that although Japanese retail stocks have broadly pulled back recently due to AI/technology stock momentum, inflation concerns, and sector capital reallocation, Tsuruha Holdings' fundamentals remain relatively solid. Same-store sales on a merged basis rose +4.1% YoY in March-April, above the pace implied by the company's 1H guidance; dispensing sales, seasonal products, and cosmetics sales were strong, and centralized management of promotional functions improved promotional efficiency. Goldman Sachs estimates FY2/27 electricity costs at about ¥40bn, up about ¥5bn YoY, but expects the above revenue and gross profit improvements to offset that pressure.

Analysis framework

The report evaluates the company across five dimensions: short-term operating data, cost breakdown, promotional efficiency, merger synergies, and relative valuation. On short-term operations, it focuses on same-store sales, customer traffic, dispensing sales, and category mix; on costs, it breaks electricity expenses into about 70% base tariff and about 30% fuel adjustment charges; on valuation, it derives the target price based on FY2/28 cash EPS and the 17x median P/E of major listed Japanese drugstore peers.

Methodology notes

• Valuation methodsRelative P/E valuation

  Calculate target price based on FY2/28 cash EPS and the median peer P/E

  Goldman Sachs uses FY2/28 cash EPS before goodwill amortization of about ¥172.1 and applies the 17x median P/E of major listed drugstore peers to maintain the 12-month target price of ¥3,000.

• Earnings forecastGSe revision

  Raise earnings forecasts based on a review of recent same-store sales, gross margin mix, and promotional expenses

  The report raises operating profit forecasts for FY2/27 to FY2/29 by +5%, +3%, and +1%, respectively, with the FY2/27 operating profit forecast increased from about ¥96bn to ¥101bn.

• M&A frameworkM&A Rank

  Goldman Sachs framework for assessing the probability of a potential acquisition

  The report discloses an M&A Rank of 3, indicating low probability and limited importance to the target price; the core M&A theme in this report is the operating synergies after the Tsuruha-Welcia merger rather than acquisition premium.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tsuruha Holdings (3391.T)

  Covered company in the report; Goldman Sachs maintains a Buy rating.

  Strengths

  Same-store sales growth is above the pace implied by guidance, while dispensing, seasonal products, and cosmetics are performing strongly; post-merger scale leadership and procurement synergy potential are significant.

  Weaknesses

  Same-store customer traffic declined YoY in March-April, and the roughly ¥5bn increase in FY2/27 electricity costs creates earnings pressure.

  Comparison

  Over the past three months, Japanese domestic-demand retail stocks have broadly pulled back; Tsuruha has fallen about 10%, less than some peers such as Kobe Bussan, PPIH, and Sugi Holdings.

  Risks

  Intensifying competition leading to weaker-than-expected sales or gross margin, cost inflation above expectations, and merger synergies below Goldman Sachs' expectations.

• Welcia Holdings

  Merged with Tsuruha Holdings in December 2025 and is an important source of scale expansion and synergy realization.

  Strengths

  Post-merger sales scale is about ¥2.3tn, with around 25% market share and a store network of about 5,600 locations covering all of Japan.

  Weaknesses

  Synergy realization depends on procurement integration, headquarters function integration, and operational execution.

  Comparison

  Post-merger scale exceeds the No. 2 player in Japan's drugstore industry and other competitors.

  Risks

  Procurement synergies, promotional efficiency, and systems integration progress may fall short of expectations.

Key data

• RatingBuyMaintain Buy rating.
• 12-month target price¥3,000Target price remains unchanged.
• Current price¥2,053Price disclosed on the report cover page.
• Implied upside46.1%Calculated based on current price and target price.
• FY2/27 operating profit forecast¥101bnGoldman Sachs raised it from about ¥96bn and believes it may exceed company guidance of ¥99.4bn.
• FY2/27 electricity cost estimateabout ¥40bnExpected to increase by about ¥5bn YoY, representing downside risk to guidance.
• March-April same-store sales on a merged basis+4.1% yoyAbove the +2.3% yoy pace implied by 1H guidance.
• March-April same-store customer traffic-1.5% yoyDespite the decline in traffic, improved promotional efficiency still had a positive impact on gross margin.
• Post-merger sales scale¥2.3tnThe report says the post-merger market share is about 25%, with about 5,600 stores nationwide in Japan.
• Three-year synergy outlookCompany target ¥40bn; Goldman Sachs expects ¥50bnThe main upside comes from procurement integration.

Impact & implications

The investment implication of the report is that while the share price is being pressured in the short term by the retail sector pullback and concerns over cost inflation, the market may reassess the company's medium-to-long-term earnings power if same-store sales, gross margin improvement, and merger synergies continue to materialize. Goldman Sachs views rising electricity costs as a clear cost pressure, but not enough to change its Buy rating, because sales momentum and improved promotional efficiency can offset the costs.

Risks

• Intensifying competition may result in sales growth or gross margin below expectations.
• Rising crude oil prices and fuel adjustment charges may push electricity costs above Goldman Sachs' assumptions.
• If base electricity contract terms deteriorate, profits could be squeezed further.
• Merger synergies may come in below expectations, especially if procurement integration benefits are insufficient.
• Valuation of Japan's domestic-demand retail sector may continue to be pressured by capital reallocation and inflation concerns.

What to watch

• Monthly trends in same-store sales, customer traffic, dispensing sales, and cosmetics sales.
• Actual changes in fuel adjustment charges and base tariff rates within FY2/27 electricity costs.
• Whether company FY2/27 operating profit guidance of ¥99.4bn is raised or exceeded.
• Progress in procurement integration, promotional efficiency, and headquarters function integration after the Welcia merger.
• Impact of changes in the median P/E of major listed Japanese drugstore peers on the target price.