Increased Costs and Investment To Cap Kirin’s Near-Term Growth; Awaiting Beer Price Hikes in 2023

We have reduced narrow-moat Kirin’s earnings forecasts by 2%-7% for the five-year explicit period to reflect increased costs and investment, particularly for 2021 and 2022. Yet, the adjustments, partially offset by increased time value of money, leave an immaterial impact on our fair value estimate of JPY 2,500 as some of the additional expenses are non-cash items (impairment losses). Our revised business profit and earnings forecasts for 2021 are 3% and 10% below the company’s guidance, respectively. We do not think COVID-19 and the Myanmar dispute will undermine Kirin’s moat, which is underpinned by the research and development and marketing capabilities of the brewery businesses. Yet, in a worst-case scenario that Myanmar Brewery is liquidated and cash repatriation fails, we project the event will depress our fair value estimate by about 4%-5%.