Convenience store sector
Initiating coverage
Daisuke Kameyama, CFA
Research Analyst
(+81) 3 5156-6983
daisuke.kameyama@db.com
Deutsche Securities Inc.
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Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Coverage Change
Top picks
Lawson (2651.T),¥5,120 Buy
FamilyMart (8028.T),¥3,840 Buy
Companies featured
Lawson (2651.T),¥5,120 Buy
2008A 2009E 2010E
EPS (¥) 223 249 286
P/E (x) 18.4 20.5 17.9
EV/EBITDA (x) 5.0 6.1 4.9
Seven & i Holdings (3382.T),¥3,000 Hold
2008A 2009E 2010E
EPS (¥) 137 153 158
P/E (x) 23.2 19.6 19.0
EV/EBITDA (x) 7.4 6.0 5.7
FamilyMart (8028.T),¥3,840 Buy
2008A 2009E 2010E
EPS (¥) 172 204 225
P/E (x) 18.4 18.8 17.1
EV/EBITDA (x) 4.7 5.4 4.8
Global Markets Research Company
Overweight sector view; initiate coverage of three major firms
We initiate coverage of the convenience store sector with an Overweight view.
We initiate coverage of Lawson and FamilyMart with a Buy rating and Seven & i
Holdings with a Hold rating. Our ratings are based mainly on currently steady
earnings and stable medium-term growth potential.
Positive on firm earnings, stable growth, and shareholder returns
Earnings are currently firm thanks to an easing in industry competition, a tailwind
from consumer efforts to economize, a boost from the introduction of Taspo age
verification cards for cigarette vending machines, and individual company efforts
to bolster products and operations. Moreover, we believe stable profit growth is
possible over the medium term because the industry is resistant to business
cycles. We also take a positive view of dividend and capital policies that
emphasize shareholder returns.
Taspo rebound limited; growth potential for major chains from oligopolization
There are concerns about a negative reaction to the FY2/09 introduction of the
Taspo card system, but we do not believe this will have a significant negative
impact. Moreover, amid concerns about industry saturation, we believe major
chains still have room for growth through market oligopolization from mergers and
other actions.
Valuation
We set our target prices based on our FY2/09 EPS estimates and target P/Es
derived from expected rates of return based on risk free rate, risk premium, and
beta assumptions. We believe premiums on the TOPIX average are justified in
view of strong sale trends and relative resistance to domestic and overseas
business cycles and forex trends.
Risks
Downside risks include a decline in consumer efforts to economize, unseasonable
weather, strengthening of various regulations, and delays in industry shakeout and
integration.

Table of Contents
Sector view and valuation ................................................................ 3
Sector view ...............................................................................................................................3
Valuation ..................................................................................................................................3
Risks.................................................................................................... 4
Risks ........................................................................................................................................4
Industry overview.............................................................................. 5
Industry features and characteristics ........................................................................................5
Industry environment ................................................................................................................7
Key performance indictors for each company...........................................................................8
Earnings outlook................................................................................ 9
Earnings outlook .......................................................................................................................9
Company
Lawson ..................................................................................................................................13
Seven & i Holdings .................................................................................................................25
FamilyMart.............................................................................................................................40

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