Asahi’s Profits to Leap After Cost Inflation Easing in 2024

The 2022 results and outlook presented by narrow-moat Asahi 2502 give us confidence that profits will leap in 2024. Despite marginal profit growth guidance for 2023, there were several positives in management’s presentation, including share gains in many core markets and continued premiumization amid a challenging operating environment. While the market fears that recession and inflation, particularly in Europe, could derail its premiumization strategies, the fourth-quarter results indicate limited impacts. We believe that the food and energy cost inflation will have greater impacts on lower-income earners and thus more noticeable volume decline in the value segment. We have raised our fair value estimate to JPY 6,400 from JPY 6,000 after raising our profit forecasts marginally from 2025 and rolling the forecasts to 2023. Our new intrinsic value indicates a handsome 40%-plus upside.

The guidance of a mere 1.5% growth in core business profits was no surprise as we have warned that persistent cost pressure will wipe out profit increase in 2023. Management projects a JPY 100 billion cost increase year on year in 2023, escalating from the JPY 85 billion increase in 2022, as the annual contracts of some key raw materials and hedging delay cost inflation. Nevertheless, we consider the midterm target (by 2024) of a high-single-digit growth (currency neutral) in earnings highly achievable, although we expect yen appreciation will depress growth. We have factored in yen appreciation by a high-single-digit percentage through 2026 based on our in-house forecasts. The dividend hike by JPY 2 to JPY 118 per share for 2022 and another JPY 2 hike for 2023 also revealed management’s confidence in the profit outlook beyond 2023. We anticipate cost pressure will moderate toward late 2023, while the beer tax cut scheduled for October in Japan will play in Asahi’s favor given its leading share in the category. Our profit projection for 2023 remains a touch above the guidance.