Analyst Note| Jeanie Chen |
Narrow-moat Calbee’s third-quarter profits continued to beat the company's internal targets and our expectations, thanks to improved sales of domestic potato chips and expansion in overseas margins. Despite better-than-expected earnings, management has maintained its guidance, given that weakening demand spotted in China and the United States might prompt additional promotional spending to boost sales. The China snack business, a potential growth engine on our radar, continued to achieve 20%-plus growth, but the pace has been decelerating quarter on quarter. We maintain our forecasts and JPY 4,000 fair value estimate as we are confident that the company will at least meet its full-year profit guidance. The development of snack growth in China will remain a key data point to watch over the next couple of quarters. We continue to view the stock as undervalued with 23% upside.