Yakult Earnings: Sluggish Domestic Sales Are a Drag on Performance; Reduce Fair Value by 14%

Narrow-moat Yakult Honsha reported fiscal 2025 (ending March 31, 2025) second-quarter results that disappointed across revenue and profits. Management cut its fiscal-year guidance following sluggish volume across Japan and China as well as higher promotional expenses that dampened the profit outlook. While our previous projection was already below company guidance, we lowered our operating profit estimates further to JPY 60.7 billion, which is a touch below updated guidance of JPY 61.5 billion. We think volume weakness and elevated selling expenses will persist in the near term. We also reduced our 2025-28 operating profit estimates by 2%-5% and raised the weighted average cost of capital assumption to 6.4% from 5.3%. Therefore, we've lowered our fair value estimate by 14% to JPY 3,250 per share. We think near-term sentiment over the stock could remain weak.