Japan Tobacco Earnings: Pricing Stayed Firm, but Adverse Foreign-Exchange Movement Curtailed Profits

Wide-moat Japan Tobacco, or JT, raised dividends on the back of better-than-expected net profits, although adjusted operating profit came in a whisker below its revised full-year guidance and our forecasts. Strong pricing—a product of its moat, underpinned by brand equity of combustible cigarettes—remains the key profit driver. The results ratify our thesis that pricing will uphold JT’s profits and margins. Management guides for flat adjusted operating profits (currency neutral) or a 3.6% decline in operating profits on a reporting basis for 2024, given the weakness of the ruble. Our operating profit forecast for 2024 is a touch below guidance, given our expectation of yen appreciation.