On-Trade Recovery Lifts Asahi's Profits; Solid Growth of Lucrative Off-Trade Beers a Positive

Narrow-moat Asahi’s profit growth swung back to positive territory in the second quarter thanks to the on-trade recovery and healthy growth in domestic off-trade beer, a key moat source. On the other hand, cost increases continue to escalate and are likely to reach JPY 80 billion for 2022. The group maintained its full-year guidance, expecting currency tailwinds to offset the profit shortfall caused by cost inflation and volume declines. While profits were in line with internal targets, the solid performance of domestic off-trade beer sales instills confidence in our thesis that Japanese consumers’ shift to beers driven by tax cuts will work in Asahi’s favor, given its commanding lead in the beer category. We maintain our fair value estimate of JPY 6,000 per share, indicating attractive 33% upside to our intrinsic value.