Nomura initiates Sakura Internet stock with neutral rating on cloud growth

Nomura/Instinet initiated coverage of Sakura Internet (3778:JP) with a neutral rating and a JPY3,975.00 price target, citing data center operations and GPU server leasing. The firm projects EBITDA reaching ¥23.0 billion by March 2029, driven by GPU server sales, despite near-term profit pressure from increased depreciation. Nomura's target price is based on a 6.75x EV/EBITDA multiple, referencing the Russell/Nomura Small Cap average, with successful government cloud development identified as a potential catalyst.

Analysis

Nomura/Instinet has initiated coverage on Sakura Internet Inc. (TYO:3778:JP) with a neutral rating and a JPY3,975.00 price target, primarily based on the company's data center operations and expanding GPU server leasing services. Despite a recent share price decline in March, attributed to Nomura's projection of an 8% year-over-year decrease in operating profits due to heightened depreciation costs for GPU servers, the outlook for fiscal year 2029 is more optimistic. Nomura forecasts Sakura’s EBITDA to reach ¥23.0 billion and operating profits to hit ¥12.2 billion by March 2029, largely driven by increased sales from GPU server leasing. The JPY3,975 target price is derived using a 6.75x EV/EBITDA multiple applied to fiscal year 2029 estimates, a benchmark reflecting the Russell/Nomura Small Cap (excluding financials) average, indicating that significant returns from current GPU investments are expected in the longer term. A key potential catalyst for future share price appreciation is the successful development of Sakura’s government cloud service, for which it currently receives government aid. However, it's noted that InvestingPro's AI analysis did not identify Sakura Internet as a top undervalued stock, suggesting a degree of caution regarding its current valuation.

Key Decisions for Investors

• Investors should acknowledge the neutral rating, reflecting near-term profit pressures from GPU server depreciation against long-term growth potential; a hold stance may be appropriate.
• Monitor the company's ability to translate GPU server investments into projected sales and EBITDA growth by FY2029, as this is central to Nomura's valuation.
• Track developments in Sakura’s government cloud service, as its successful expansion is highlighted as a significant potential catalyst for share price upside.
• Consider that the JPY3,975 price target is based on long-dated FY2029 projections, implying a multi-year investment horizon, and note that external AI valuation tools like InvestingPro do not currently flag it as a top undervalued opportunity.