Tsuruha Holdings (3391): Upgrade to Buy: Synergies emerging from 1Q; set to lead industry consolidation

Research evidence excerpt

Tsuruha Holdings (3391): Upgrade to Buy: Synergies emerging from 1Q; set to lead industry consolidation

Exhibit 11: Tsuruha/Welcia's combined PB sales will become the largest Exhibit 12: Both Tsuruha and Welcia had been pursuing PB expansion

in the drugstore sector even prior to the integration

Comparison of PB sales (¥mn) PB mix of major drugstore operators

Topvalu Genky

PPIH

Cosmos

Tsuruha + Welcia

Cosmos MatsukiyoCocokara

MatsukiyoCocokara

Tsuruha

Sugi

Welcia

Sugi Welcia

Sundrug

Genky

Kusuri no Aoki Kusuri no Aoki

- 300,000 600,000 900,000 1,200,000 0% 5% 10% 15% 20% 25% 30%

Source: BofA Global Research Source: BofA Global Research

BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Logistics: Longer term synergy opportunity, with AEON collaboration key area

to watch

Logistics-related initiatives are likely to take longer to generate synergies than NB and

PB products, as logistics networks and outsourcing partners differ by region and

operating company. Even MatsukiyoCocokara, which moved relatively quickly to

harmonize merchandising layouts and procurement arrangements, required significant

time to reorganize its logistics infrastructure. The company integrated logistics

operations in the Tokai region in FY2/24 and in Kyushu in FY2/25, and plans to integrate

the Kanto region going forward.

That said, logistics optimization should generate medium-term benefits through

improved store operations, lower opportunity losses, and better control of distribution

expenses. In addition, as Tsuruha Holdings strengthens its drug-and-food format, closer

collaboration with AEON on logistics initiatives, including the utilization of AEON's

process centers, is likely to become increasingly important.

Upside risk (1): Establishment of successful drug-and-food format