Kao's Sizable Profit Miss Disappointing; Awaiting Signs of Improved Execution

Wide-moat Kao’s fourth-quarter result is disappointing, but a concrete plan presented by the CEO on measures to reinvigorate growth is encouraging. While we had expected profits to fall short of its full-year guidance, the 15% shortfall (excluding a JPY 7 billion impairment) in operating profits is much wider than our expectation of a mid-single-digit miss. Kao will take price actions on selected products from March although cost inflation will remain a drag on profits into 2022. Management guides 5% growth in the top line and more than an 11% increase in operating profits for 2022, anticipating a gradual recovery in cosmetics sales and double-digit growth in Asia to lift growth.