Unicharm Earnings: Profit Growth Leaps as Cost Pressure Eases; Persistent Volume Decline a Concern

Narrow-moat Unicharm missed its profit guidance as we had expected. The full-year core business profit came in slightly higher than our expectation but was 9% below its guidance. The results echo two concerns that we have raised: slowing feminine care premiumization in China and fierce competition in Southeast Asia. We have reduced our core profit forecasts for the period between 2024 and 2027 by around 3% after revising some assumptions, including foreign exchange rates, but raised net profits by 1%-2% after lowering tax rates. The adjustments, along with increased time value of money, lifted our fair value estimate to JPY 4,600 from JPY 4,400. The guidance for 2024 looks somewhat optimistic as price hike benefits are likely to abate while currency may turn into a headwind. We continue to view shares, trading at 14% premium to our intrinsic value, as overvalued.