Yakult Earnings: Sluggish Domestic Demand More Than Offsets Overseas Strength; Retain Fair Value

Narrow-moat Yakult’s fiscal third-quarter results were below our estimates due to margin pressure in the domestic market. Overseas markets served as a partial offset thanks to growing volume and currency tailwinds. We fractionally lowered our fiscal 2024 (ending March 2025) operating profit estimate as we raised our fourth-quarter profit projection in overseas regions with the expectation that momentum will continue. We also maintain our 2025-28 forecasts for operating profit. As a result, we have left our fair value estimate unchanged at JPY 3,250 per share, which implies 19 times fiscal 2025 price/earnings, 10 times enterprise value/EBITDA, and a 2.1% free cash flow dividend. We view the shares as undervalued, but near-term sentiment could be suppressed by uncertainty around the domestic business.