Unicharm Earnings: Price Hikes Lifted Profits but Persistent Asia Weakness Poses Risk

Narrow-moat Unicharm’s first-quarter profit rebound, with core business profits up 32% year on year (23% growth currency neutral), was above the company’s internal target and our expectation thanks to impressive price hike benefits in Japan. The domestic strength may bode well for Kao, our top pick of the Japan consumer coverage, which will report on May 9. On the other hand, persistent weakness in China and a steep sales decline triggered by intensified price competition in Southeast Asia are concerning. As we have project profit growth skewing toward the first half of 2024 given the timing of price hikes and a decrease in input costs, we have maintained our profit forecasts of which our net profit estimate is 6% above the 2024 guidance. Our fair value estimate of JPY 4,600 indicates that shares are fairly valued. Whether it will be able to regain sales momentum, particularly in Asia, after the price hike benefits start diminishing in the second half and whether price competition spreads to the feminine care category will be our focus.