Unicharm Earnings: China Weakness a Drag on Profits, Wiping Out Price Hike Benefits and Cost Savings

Narrow-moat Unicharm posted weaker-than-expected third-quarter core business profits, down 6.2% year on year. A more than 30% decline in China’s feminine care, a key profit growth driver and highly lucrative market, is attributable to the sluggish performance. The result reaffirms the risks of China feminine care growth we have flagged. While management has maintained the full-year profit guidance, we think the gap is too large to close in the fourth quarter. We have further slashed our core profit estimate for 2023 by nearly 10% but maintained the net profit forecast after factoring in JPY 12 billion insurance proceeds of the factory fire in India. The adjustments leave an immaterial impact on our fair value estimate of JPY 4,400, indicating 15% downside from the close of Nov. 7. Our core profit projection for 2023 is 12% below the company’s target.