Kao's Domestic Outlook Improving but Q4 Profit Guidance Challenging; Cutting Our 2022 Forecasts

Wide-moat Kao posted mixed third-quarter results. Profits fell short of our expectations as unfavourable product mix in beauty and healthcare sales appears to have led to widened margin contraction. Conversely, the domestic toiletry sales, and in particular the moaty laundry detergent category, continued to improve quarter on quarter. While management has maintained its full-year profit guidance, hoping that accelerated domestic growth momentum and greater price hike benefits will help it catch up during the fourth quarter, we think the gap is too large to close.