Kirin Earnings: Pharma Growth Lifted Profits; Uncertain Health Science Prospect Remains a Concern

Narrow-moat Kirin beat its full-year business profit target as we had expected, although the result slightly fell short of our forecast. The further write-down of Kyowa Kirin’s assets stemming from a worsening profit outlook for specialty ingredients doesn’t bode well for its health science growth strategies. The guidance of flat business profit, depressed by persistent cost pressure and increased investment for 2024, looks cautious. We have fine-tuned our assumptions after rolling our forecasts to 2024, which leaves an immaterial impact on our JPY 2,600 fair value estimate. Our business profit projection for 2024 remains a touch above the guidance. As we have stressed, turning Kyowa Hakko into profitability will help alleviate market concerns that have been weighing on Kirin’s share performance. We continue to view shares, trading at 19% discount to our intrinsic value, as undervalued.