Rakuten Bank: Resuming Coverage at EW: EPS Dilution Mostly Priced in, Mid/Long-term Synergies Still Unclear

Research evidence excerpt

Rakuten Bank: Resuming Coverage at EW: EPS Dilution Mostly Priced in, Mid/Long-term Synergies Still Unclear

IdeaM

RiskRisk RewardReward– Rakuten- RakutenBank (5838.T)Bank (5838.T)

EPS dilution is priced in, but lacks near-term catalysts for multiple expansion

PRICE TARGET ¥6,330 EQUAL-WEIGHT THESIS

F3/28e Company guidance-based post-reorganization EPS of ¥353 × 18x P/E ▪Rakuten Bank is Japan’s No.1 digital bank

We use a P/E-based valuation for Rakuten Bank. Our target multiple of 18x represents an with core competencies in group synergy,

approximately 15% discount to the average forward P/E of our covered global fintech combining finance & specialized tech. We

companies (approximately 21x). We believe a valuation discount is warranted relative to expect the company to achieve solid growth

comparable U.S. companies, reflecting Japan's lower economic growth profile versus global from rising transactions as more clients use

peers. Rakuten Bank as their main account. We

think the firm can achieve high ROE through ¥7,707

an earnings structure with high operating

Consensus Price Target Distribution ¥5,500.00 ¥9,500.00 leverage.

MS PT

re-rating potential will likelySource: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates ▪Further

depend on additional disclosure following

the organizational realignment. Investor

focus is likely to be on quantified synergy

RISK REWARD CHART benefits at the 2Q results and the release of

post-integration financial statements at the

3Q results.

JPY

¥8,070¥8,070(+42.08%)¥8,070(+42.08%)(+42.08%)

Consensus Rating Distribution

57% Overweight

¥6,330¥6,330(+11.44%)¥6,330(+11.44%)(+11.44%) 43% Equal-weight

6000 ¥5,680¥5,680¥5,680 0% Underweight

MS Rating

4000 Source: Refinitiv, Morgan Stanley Research