Asahi Earnings: Japan's On-Trade Rebound and Price Hikes Lift Profits; Overseas Downtrading a Risk

Narrow-moat Asahi Group Holdings posted a solid set of third-quarter results with sales up 10.2% and core business profits up 12.6%. Growth was boosted by domestic strength and improved volume in Oceania in addition to price hikes and favorable currency movement. We have fine-tuned our currency assumptions and raised profit projections mainly from 2025 and beyond to reflect our expectation of a delayed cost decrease to 2025 from 2024 and additional cost savings contributed by various initiatives including global procurement and Oceania’s transformation plan. We’ve accordingly raised our fair value estimate to JPY 6,600 from JPY 6,400 and view shares as undervalued. Currency and downtrading induced by inflation, particularly in overseas markets, will remain downside risks to our profit forecasts although we have factored in 12%-15% appreciation of the Japanese yen against other currencies through 2026.