Kirin Lifts Guidance on Pharma Growth and Currency Tailwind; Cost Pressure Weighs on Brewery Profits

Narrow-moat Kirin reported mixed second-quarter results. It reduced its guidance for its moaty brewery businesses, but the weakness was fully offset by strong pharma profits and currency tailwinds. Escalating costs continued to weigh on brewery and beverage profits, a trend that may not see reversal until the fourth quarter after domestic price increases kick in in October. We have tweaked our margin and minority-interest assumptions to reflect the pharma strength, which has an immaterial impact on our fair value estimate of JPY 2,500. After gaining more than 27% over the past four months, Kirin’s shares appear modestly undervalued with 12% upside to our intrinsic value. We suggest investors look at rival Asahi, which offers a more attractive valuation and greater benefits from Japan’s beer tax cuts through 2026.