Asahi: Second Round of Price Hikes to Lift Margins of Domestic On-Trade Beer a Positive Surprise

Narrow-moat Asahi’s 2502 announcement of 6%-10% price hikes on mainly on-trade beers and selected off-trade beer and beerlike items was a positive surprise. The price hikes, scheduled for October 2023 in conjunction with the second round of tax reforms, are expected to contribute JPY 10 billion in profits over a period of 12 months. As we have stressed, the tax cuts present a rare opportunity for brewers to hike beer prices. We welcome Asahi’s efforts to improve profitability of low-margin products and more importantly, to embrace a more flexible pricing strategy of its domestic brewery business that holds a commanding lead in the beer category. We have maintained our forecasts and fair value estimate of JPY 6,400, indicating 24% upside to our intrinsic value. The awaited price hikes will also benefit rival Kirin, where we see an 18% upside to our fair value estimate of JPY 2,600.

The new pricing strategy will not only enhance profitability of the domestic brewery business but also accelerate consumers’ shift to beer, Asahi’s core strength, from happoshu (low-malt beer) and new genre (no-malt beer). The products that will see price increases account for roughly 40% of its domestic beer and beer-like volume. Unlike the last round of price hikes that aimed at offsetting cost inflation, the newly announced one is meant to improve margins. The impact of price hikes on sales volume is likely to be marginal as the price hikes on beers will mostly offset the tax cut on beers, leaving the beer prices largely unchanged. On the other hand, while the price hike on happoshu (tax unchanging in coming October) may depress volume of happoshu, the narrowed price gap between beer and happoshu may encourage consumers to trade up to beer, although many consumers choose happoshu for its healthier offerings (containing no purine and no carbs).