Yakult Earnings: Domestic Strength Led by Yakult 1000 Lifts Profits and Offsets Asia Weakness

Narrow-moat Yakult 2267 beat its profit guidance as expected and fourth-quarter operating profit came in largely in line with our forecast. Continued strength in Yakult 1000/Y1000 in Japan, combined with favorable currency movement, remains the profit driving force. Yet, the double-digit volume decline recorded in Indonesia and China (first quarter, preliminary) suggests limited profit growth in Asia in the first half despite price hike endeavors.

We have raised our fair value estimate to JPY 9,400 from JPY 8,900 after rolling our forecasts to the new fiscal year and adjusting the foreign exchange assumptions. Our new intrinsic value indicates that shares are fairly valued.

Yakult has raised its midterm plan guidance for fiscal 2024 ending March 2025, raising sales by 25.5% and operating profits by 41% from the initial targets. The forecasts, factoring exchange rates at the current level through the next two years, seem optimistic. While we are confident that Yakult 1000/Y1000 expansion and rebound in China will bolster profit growth through 2025, whether it will be able to retain most of the customers acquired during the boom of Yakult 1000/Y1000 is a key risk to our forecasts and the guidance. We think consumers often reduce consumption after using the same products for a while as products becomes less effective over time, or they switch to other products when new offerings with new health claims and benefits become available. Our operating profit forecast for the midterm plan ending March 2025 is about 6% below the revised guidance as we have factored in yen appreciation from fiscal 2024 based on our in-house foreign exchange assumptions. Moreover, Yakult has a history of raising profit targets at the peak of sales, but failing to meet the renewed guidance.