We derive our ¥53,000 target price by applying a PER of 35x to our FY8/27 EPS estimate. To derive our fair value PER we reference one standard deviation above the one-year forward PER average for the past 12 months. Considering the firm’s greater earnings growth potential relative to peers and its OP/cash flow generation capacity, we conclude that the current PER level, which is higher than that of global peers, is reasonable. However, expectations for high growth, particularly in the overseas Uniqlo business, are heavily priced in, and we see limited room for near-term multiple expansion.

If significantly different from our assumptions, the following factors could cause the shares to diverge from our target price: 1) political or and regulatory changes in countries where the firm operates stores, 2) raw material procurement including forex fluctuations and factory worker wage changes, and 3) inclement weather or changes in consumption trends.