Kirin Earnings: Upfront Investment and Kyowa Hakko’s Widened Losses Curbed Profit Growth

Narrow-moat Kirin posted mixed first-quarter results with solid growth in the domestic brewery, US soft beverage, and pharmaceutical businesses but deteriorating profitability of Kyowa Hakko Bio (health science). The downside risk posed by Kyowa Hakko may offset the strength of the other businesses given the lack of a solution to restore profits over the short term. We have maintained our forecasts and fair value estimate of JPY 2,600. We continue to view shares as undervalued, indicating 12% upside to our intrinsic value. Our profit forecasts are a touch above the guidance of flat business profits year on year.