Kirin's Marketing Investment Bad for Short-Term Profits but Crucial to Long-Term Margin Expansion

Narrow-moat Kirin’s second-quarter profits fell short of our expectations as a sizable increase in marketing investment dragged on profits of the domestic beer and pharmaceutical businesses. The unexpected downward revision of its full-year guidance was mainly attributable to a worsening outlook in Myanmar Breweries. Despite short-term profit pressure, we deem the investment necessary to sustain long-term growth of new alcohol products/services. The new innovative products launched over past quarters have produced results, achieving sales growth and share gains. We consider the outcomes as proof of Kirin’s moat underpinned by research and development and marketing capabilities exhibited in the beer business.