Alcoholic Beverage and Health Science Segments to Drive Profit Growth for Kirin

Kirin is stepping up investment in pharmaceutical, health food, and cosmetics businesses due to secular volume decline in the domestic beer market. Management has completed the divestiture process of the low-return peripheral businesses and reembarked on the acquisition journey with Blackmores, the Australian nutritional supplements company and Fancl as the latest deals. However, the shift of strategic direction to wellness has raised uncertainty over Kirin’s long-term growth prospects, where execution plays a key role in integrating the acquired subsidiary and achieving margin expansion. We view Kyowa Kirin and Coca-Cola Beverages Northeast as two segments that have a more certain profit outlook over the next few years. However, the bumpy path associated with Kyowa Hakko may raise concerns about the returns of this 2019 acquisition.