Asahi Earnings: A Surge in Marketing Spending Curtailed Profits; Wage Hikes May Lift Alcohol Demand

Narrow-moat Asahi beat its full-year business profit target as we expected, and guidance indicating a marginal profit increase was largely in line with our expectations. Persistent cost pressure as well as increased digital and talent investment factored in our forecasts, rather than currency headwinds, and will cap profit growth. We have fine-tuned our assumptions, mainly on foreign-exchange rates, and we rolled our forecasts to 2024, which leaves an immaterial impact on our fair value estimate of JPY 6,600. We continue to view Ashai shares as undervalued, trading at an 18% discount to our new intrinsic value. Our thesis that consumers’ shift to beers from cheaper beer-like drinks, driven by tax cuts on beers in Japan, will play in Asahi’s favor, is intact. Yet, inflation impacts on sales volume, particularly in Europe, and currency movement are the key downside risks to its near-term profits.