Risk Reward Update

Research evidence excerpt

Risk Reward Update

UpdateM

RiskRisk RewardReward– Japan -TobaccoJapan(2914.T)Tobacco (2914.T)

Expect overseas pricing to drive earnings longer term and RRP growth globally

PRICE TARGET ¥7,000 OVERWEIGHT THESIS

PT based on F12/27e adj. EBITDA x EV/EBITDA 9.9x. Assumes medium-term adj. OP CAGR We think the following factors offer scope

(constant FX) accelerates to 9% (and continues in mid-to-high single-digits thereafter) as for further stock upside: 1) We expect rising

bolstered investment in global RRP business peaks out and international earnings continue to ASP to drive firm earnings expansion ahead,

grow driven by sustained price hikes. We use a sum-of-the-parts evaluation to arrive at 9.9x particularly in overseas business. 2)

EV/EBITDA (International business ex-Russia 12.5x, Russia 8x, Japan 7x). Consolidation in the tobacco industry makes

it relatively easier to increase prices, and

¥6,687 tobacco by its nature is a product where

Consensus Price Target Distribution ¥6,100.00 ¥7,300.00 price increases carry relatively little risk of

MS PT dampening demand; 3) Market concerns

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates over business continuity in Russia look to

have subsided (potential for a greater

rerating if conditions normalize). 4) With

RISK REWARD CHART global RRP investment peaking out, earnings

growth is likely to accelerate medium-term.

¥9,200¥9,200(+42.39%)¥9,200(+42.39%)(+42.39%) 5) Earnings growth can be expected to bring

JPY about increased dividends in the

medium/longer-term.

¥7,000¥7,000(+8.34%)¥7,000(+8.34%)(+8.34%) Consensus Rating Distribution

¥6,461¥6,461¥6,461

6000 77% Overweight

23% Equal-weight

0% Underweight

4000 MS Rating

¥3,650¥3,650(-43.51%)¥3,650(-43.51%)(-43.51%) Source: Refinitiv, Morgan Stanley Research