On Wednesday, BofA Securities adjusted its stance on Japan Post Holdings (NYSE:POST) Co., Ltd (6178:JP) (OTC: JPHLF), raising the company's stock rating from Underperform to Neutral. The price target was set to ¥1,650.00, a slight decrease from the previous ¥1,700.00.
The revision reflects an anticipated improvement in Japan Post's operating profit, with expectations of a 30% increase in domestic postal rates scheduled for October 2024 and a further estimated 10% rate hike in the fiscal year ending March 2027.
The operating profit for Japan Post is projected to rise gradually, from ¥5.7 billion in the fiscal year ending March 2025 to ¥56.2 billion in the following year, and then to ¥65.5 billion in the fiscal year ending March 2027. This slow improvement is attributed to rising personnel and transportation costs, coupled with a decrease in mail volume.
Additionally, Japan Post is planning to diminish its ownership in Japan Post Bank, reducing its stake from 62% to just under 50% through an additional share offering. Despite this reduction, the bank's rapidly improving earnings are expected to bolster Japan Post's equity in its earnings.
The company's strategy does not currently include major mergers and acquisitions as a growth driver. Consequently, the amount allocated for share buybacks is anticipated to remain steady at ¥350 billion annually for the fiscal years ending March 2025 to 2027, assuming no significant mergers and acquisitions occur due to restrictions on the distributable amount of earnings.
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