Yakult: Despite Earnings Miss, We Maintain Fair Value Estimate on Plans for Value-Added Products

Yakult Honsha's results for the March quarter were disappointing. Operating income of JPY 4.6 billion fell short of our expectation of JPY 8.5 billion as well as the JPY 7.5 billion in the year-ago quarter. Weak domestic sales and higher marketing costs continued to hurt margins. Although revenue in the Americas and Europe remained strong due to solid shipments and a weaker yen, this was not enough to offset the weakness in Japan. Despite the short-term headwinds, we are encouraged by Yakult’s new midterm plan, which intends to enhance profitability and capital efficiency through strategic investments and increased shareholder returns. Therefore, we maintain our JPY 3,250 fair value estimate. We believe the shares are about fairly valued.