Meiji's Profit Downtrend Unlikely to Reverse Without new Probiotic Products; New Guidance Cautious

Narrow-moat Meiji’s profit downward revision, lowered by more than 5%, was above our expectation while the announcement of the JPY 30 billion share repurchase program was a surprise. It appears that management has taken a much more cautious stance on the second-half outlook because of continued contraction of lucrative probiotics and yogurt sales and accelerating cost inflation. As we have cited, a large-scale new product launch is crucial to reverse the downward trend of probiotic yogurt sales given changes in the operating environment including competition and consumers' preferences. We have adjusted our profit estimates for mainly 2021 and 2022 to delay the impact of the new probiotic launch and factor in added input cost increase.