Kirin’s Profits To Improve Along With On-Trade Recovery and Price Hikes

Narrow-moat Kirin’s first-quarter weakness was no surprise given the prolonged restrictions in Japan and Australia amid the omicron surge. Sluggish domestic and Australia brewery sales were drags on profits during the quarter in which sales grew 1.8% year on year while profits fell nearly 22%. We consider the weakness temporary and expect price hike measures in multiple markets including Japan, Australia, and North America, to offset additional cost increase in 2022. We have maintained our fair value estimate of JPY 2,500 and continue to view shares undervalued with 30% upside to our fair value estimate. We believe a strengthened product portfolio, specifically for the moaty domestic brewery business, with increased offering of innovative products, will shore up margin expansion although we have factored in limited upside from the new healthcare growth.