Company Reports

Like many other global leading household and personal care peers that have developed strong retailer relationships, Kao's key to improving ROICs is investing wisely in its product segments and countries. This boils down to whether the brands remain competitive in their categories and whether investments in marketing deliver satisfactory returns.

Kao delivered 9.4% revenue growth and 190 basis points of margin expansion year over year in the second quarter of fiscal 2026, driven by pricing, mix improvement, and foreign-exchange tailwinds. Management raised full-year revenue and operating income guidance.

Like many other global leading household and personal care peers that have developed strong retailer relationships, Kao's key to improving ROICs is investing wisely in its product segments and countries. This boils down to whether the brands remain competitive in their categories and whether investments in marketing deliver satisfactory returns.

Kao's first-quarter operating profit, excluding one-off land disposal gains, rose by 8% year on year, thanks to volume growth across fabric care, personal care, and cosmetics segments. Both domestic and international markets contributed meaningfully to earnings growth.

Like many other global leading household and personal care peers that have developed strong retailer relationships, Kao's key to improving ROICs is investing wisely in its product segments and countries. This boils down to whether the brands remain competitive in their categories and whether investments in marketing deliver satisfactory returns.

Kao reported 2025 full-year results, with revenue and operating profit increasing 3.7% and 11.9% year on year, respectively, driven by improved margins across the hygiene living care and cosmetics segments.

Like many other global leading household and personal care peers that have developed strong retailer relationships, Kao's key to improving ROICs is investing wisely in its product segments and countries. This boils down to whether the brands remain competitive in their categories and whether investments in marketing deliver satisfactory returns.

Kao's third-quarter revenue and operating profit increased 5.2% and 5.3% year on year, respectively, driven by strong profitability in the hygiene living care segment as well as sales recovery in the cosmetics segment.

Like many other global leading household and personal care peers that have developed strong retailer relationships, Kao's key to improving ROICs is investing wisely in its product segments and countries. This boils down to whether the brands remain competitive in their categories and whether investments in marketing deliver satisfactory returns.

Kao's fiscal second-quarter revenue fell 0.7% year on year, while operating profit increased by 6.5%.

Kao's first-quarter operating profit increased 42% year on year to JPY 31.2 billion, driven by margin expansion of the hygiene living care segment and reduced operating loss for the cosmetics business.

Like many other global leading household and personal care peers that have developed strong retailer relationships, we think Kao's key for improving ROIC is investing wisely in its various product segments and countries. This boils down to whether the brands remain competitive in their respective categories and whether investments in marketing deliver satisfactory returns.

Wide-moat Kao reported fiscal 2024 fourth-quarter results with revenue and operating profit exceeding our expectations. The chemical business drove top-line beat, while price hikes and premiumization in the fabric and home care segments in Japan also drove revenue above our forecasts. Meanwhile, profit margins for the cosmetics and chemicals segments were better than our forecasts, which drove full-year operating profit to exceed our estimate by roughly 4%. We think the structural reforms implemented in fiscal 2023 have improved operational efficiencies in the domestic consumer business and reduced exposure to underperforming overseas businesses. We increased our fiscal 2025 operating profit forecast by 3% to account for continued strength in the fabric care and chemicals segments. However, we left our medium-term earnings forecasts largely unchanged as we already baked in more pronounced margin expansion from fiscal 2026 onwards. As a result, we retain our fair value estimate at JPY 6,800 per share, which implies 28 times fiscal 2025 P/E and 12 times enterprise value/EBITDA. We view Kao’s shares as fairly valued.

Like many other global leading household and personal care peers that have developed strong retailer relationships, we think Kao's key for improving ROIC is investing wisely in its various product segments and countries. This boils down to whether the brands remain competitive in their respective categories and whether investments in marketing deliver satisfactory returns.

Wide-moat Kao Corporation reported third-quarter earnings with revenue slightly below our estimates, but operating profit was better than expected primarily due to gains from the sale of the beverage and pet care businesses. Kao’s earnings in the quarter continued to be compounded by sluggish performance in the Chinese cosmetics market, which we expect to continue through the end of 2024. As a result, we left our full-year operating profit estimates largely unchanged despite the stronger third-quarter numbers. We also retain our fair value estimate at JPY 6,800 per share, which implies 28 times 2025 price/earnings, 12 times enterprise value/EBITDA, and 2.3% dividend yield. We see Kao’s shares as fairly valued.

Like many other global leading household and personal care peers that have developed strong retailer relationships, we think Kao's key for improving ROIC is investing wisely in its various product segments and countries. This boils down to whether the brands remain competitive in their respective categories and whether investments in marketing deliver satisfactory returns.

We transfer coverage of Kao and Unicharm, with Kao retaining its wide moat rating but Unicharm’s moat upgrading from narrow to wide. We increased our fair value estimate for Unicharm from JPY 4,600 per share to JPY 5,700 per share and reduced our fair value estimate for Kao from JPY 7,600 per share to JPY 6,800 per share. Our fair value estimates for both companies imply fiscal 2024 earnings multiples that are largely consistent with their 10-year averages. We prefer Unicharm over Kao given the former’s laser focus on personal hygiene categories with ample opportunities in overseas markets. For Kao, we think the speed of turnaround for its cosmetics business remains uncertain and could remain a medium-term drag to operating margin.

Like many other global leading household and personal care peers that have developed strong retailer relationships, we think Kao's key for improving ROIC is investing wisely in its various product segments and countries. This boils down to whether the brands remain competitive in their respective categories and whether investments in marketing deliver satisfactory returns.

Wide-moat Kao again posted a robust set of second-quarter results, with sales up 6.8% (currency neutral 3.3% growth) year on year and core operating profits up 50% from a low base. Margin expansion of the domestic fabric and home care business and restructuring benefits of the diaper business lifted profits despite cosmetics headwinds in China. Management has raised the full-year operating profit guidance as expected, but the JPY 10 billion or 7.7% upward revision is somewhat above our projection. The new guidance is a touch above our forecasts after we finetuned our foreign exchange assumptions. The adjustment leaves an immaterial impact on our fair value estimate of JPY 7,600. Our projection that core operating profits will exceed the pre-covid-19 peak level in 2026, a year before management’s new target, is intact. We continue to view shares, trading at an 18% discount to our intrinsic value, as undervalued.

Wide-moat Kao’s robust profit rebound, with first-quarter core operating profits having nearly tripled, gives us confidence that Kao is on track to rebuild its margins and poised to beat its profit guidance. Despite the restructuring impacts and China headwinds, solid domestic recovery fueled margin expansion and profit growth. The results echo our thesis that Kao’s margins would leap after price hike benefits fully kick in while cost inflation eases. The volume growth achieved amid price increases in Japan also substantiates its moat underpinned by brand equity and research and development capabilities. We have fine-tuned our foreign exchange assumptions and marginally lift our fair value estimate to JPY 7,600 from JPY 7,500 to reflect increased time value of money. Our projection that core operating profits will exceed the pre-covid peak level in 2026, a year before management’s new target, remains intact. We continue to view shares, trading at 12% discount to the intrinsic value, as undervalued. Our operating profit for 2024 is 7% above guidance.