Unicharm Earnings: Pet Care Price Hikes Offset Asia Weakness Led by Decline in China and Thailand

Narrow-moat Unicharm’s first-quarter profits came in largely in line with our expectation despite uneven results with robust growth in petcare but 20% profit decline (currency neutral) in Asia. Sales grew 3% year on year (currency neutral, reported 8.1% growth) with core business profit down 9% (reported 5.1% decline). While management painted an optimistic outlook for the rest of 2023, we are wary of slow momentum of China’s feminine care sales, a key risk we have highlighted, and gradual price-hike progress of the personal care products. We have maintained our profit forecasts and fair value estimate of JPY 4,400, indicating 20% downside from the close price of May 8.