Asahi Earnings: Japan On-Trade Rebound and Price Hikes Lift Profits; Overseas Volume Outperforms

Narrow-moat Asahi Group Holdings’ 2502 upward revision on profit was no surprise. Yet, contrary to rivals’ mid- to high-single-digit volume decline induced by inflation in Europe and Australia, Asahi’s volume decline appears to be more moderate thanks to share gain in many core markets. Despite 3%-4% volume decline, there is no clear sign of downtrading. Better-than-expected profits are attributable to greater-than-expected cost savings achieved by the domestic brewery business and favorable currency movement. The healthy performance echoes Asahi’s economic moat in beers in which it holds a commanding lead in many core markets. We have fine-tuned our currency and beverage price hike assumptions mainly for 2023, which leaves an immaterial impact on our fair value estimate of JPY 6,400. We continue to view Asahi shares, trading at 15% discount to our intrinsic value, as undervalued. Asahi is on track to achieve core business profits exceeding the pre-COVID-19 level in 2024.

Second-quarter sales grew 6.4% (currency neutral estimated 4.2% growth) year on year while business profits (gross profits minus selling, general, and administrative expenses) rose 6.5% (currency neutral estimated 3.4% growth), stemming from improved on-trade volume in Japan and price hikes. Average selling prices expanded by a low double percentage from 6.6% of the previous quarter in Japan, boosted by a change in the product mix and rebate. Specifically, domestic on-trade volume of beer and liquor has been trending above Asahi’s projection. Increased sales contribution of products offering less rebate also lift ASPs. In contrast, ASP expansion narrowed in Europe and Australia quarter on quarter, mainly due to slowing on-trade growth resulting from higher comps.