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

Narrow-moat Asahi Group Holdings’ 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.