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Kao Corp 4452

Morningstar Rating
JPY 6,756.00 0.00 (0.00%)
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Company Report

Kao Earnings: Profits Triple, Lifted by Price Hikes, Lower Costs, and Restructuring Benefits

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.

Price vs Fair Value

4452 is trading at a 723% premium.
Price
JPY 6,756.00
Fair Value
JPY 6,813.00
Uncertainty
Medium
1-Star Price
JPY 83,849.00
5-Star Price
JPY 8,331.00
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Expansion into prestige skincare and removal of beauty consultants from domestic midpriced brands should help lift cosmetics profit margins and increase chances to accelerate growth in China.

Bears

Kao’s cosmetics business will continue facing difficulties in capturing the prestige skincare growth opportunities in China, reflecting a lack of strong premium brands in its brand portfolio.

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News

Trading Information

Previous Close Price
JPY 6,756.00
Day Range
JPY 6,681.006,796.00
52-Week Range
JPY 5,145.007,064.00
Bid/Ask
JPY 6,743.00 / JPY 6,757.00
Market Cap
JPY 3.14 Tril
Volume/Avg
1.3 Mil / 1.7 Mil

Key Statistics

Price/Earnings (Normalized)
42.67
Price/Sales
2.03
Dividend Yield (Trailing)
2.22%
Dividend Yield (Forward)
2.25%
Total Yield
2.22%

Company Profile

Kao is the largest household and personal care product manufacturer in Japan with a footprint across Asia, Europe, and the Americas. Japan remains its largest market, contributing about 60% of sales and an estimated 70% of profits with several leading brands including Attack and Biore. Initially a soap producer established in the 1890s, Kao has expanded into cosmetics, disposable hygiene products, and chemicals, in addition to its home care and toiletry products. Asia, the largest overseas market contributing 20% of group sales, is a key growth driver, led by expansion in China and Indonesia. It has also acquired several Western skin and haircare brands including Jergens, John Frieda, Curel, Molton Brown, and the latest, Oribe.
Sector
Consumer Defensive
Industry
Household & Personal Products
Stock Style Box
Large Core
Total Number of Employees
42,450

Competitors

Valuation

Metric
4452
KMB
CL
Price/Earnings (Normalized)
42.6720.2228.16
Price/Book Value
3.1545.00337.52
Price/Sales
2.032.323.96
Price/Cash Flow
18.0815.4122.80
Price/Earnings
4452
KMB
CL

Financial Strength

Metric
4452
KMB
CL
Quick Ratio
1.100.470.54
Current Ratio
1.780.811.06
Interest Coverage
22.208.0717.09
Quick Ratio
4452
KMB
CL

Profitability

Metric
4452
KMB
CL
Return on Assets (Normalized)
3.52%13.44%17.12%
Return on Equity (Normalized)
6.21%303.53%1,833.55%
Return on Invested Capital (Normalized)
4.63%27.67%31.42%
Return on Assets
4452
KMB
CL
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