Analyst Note| Jeanie Chen |
Narrow-moat Asahi beat its full-year profit target as expected but the core business profits came in 10% above of our estimate (14% above the guidance) thanks to solid performance posted by newly consolidated Carlton United Breweries, or CUB. Management guides to nearly 30% growth in the core business operating profits for 2021, anticipating gradual recovery of on-trade demand from the second quarter. We have fine-tuned our forecasts after rolling to the new fiscal year, which has an immaterial impact on our fair value estimate of JPY 5,100. Our operating profit estimate for 2021 is a touch above the company’s guidance. The attempts to build a new low-alcohol market in Japan and launch an innovative beer product in a can which serves as a beer mug will be key developments to watch in the domestic market. We consider that Asahi’s moat, along with favorable taxes on beer, will support its efforts to cease the downward trend. We view shares as undervalued, trading at a 13% discount to our fair value estimate.