Asahi Earnings: Volume Growth and Price Hikes in Japan and Europe Lift Profits

Narrow-moat Asahi Group Holdings’ double-digit business profit growth in the first quarter was ahead of our expectation and the company’s internal targets thanks to continued price hike benefits, premiumization, positive volume growth in Europe and Japan, and rigorous cost control. Solid domestic profit growth reinforces our thesis that beer tax cuts will prompt consumers to shift to beer, a product in which Asahi holds a commanding lead and enjoys a moat from cheaper beerlike alternatives. Despite nearly double-digit volume contraction in Oceania, volume seems to have returned to growth in April. Given persistent uncertainty surrounding consumer sentiment and input costs in the core markets, we have maintained our full-year forecasts and fair value estimate of JPY 6,600. We continue to view Asahi’s shares, trading at a 16% discount to our intrinsic value, as undervalued. Our profit forecasts for 2024 are 2%-3% above the guidance.