Unicharm Earnings: Sales Rebound in Asia Lift Profits but Recovery Looks Gradual

Narrow-moat Unicharm reported a mixed set of second-quarter results. While sales and profits rose 7.9% (2.2% currency-neutral) and 17.3% (11.3%), respectively, growth was largely lifted by a rebound from the first-quarter slumps in overseas core markets. Soft demand in China and intense price competition in Southeast Asia remain the key threats to its midterm growth prospect, while domestic price hike benefits are diminishing. We have lifted our minority interest and foreign-exchange assumptions. The adjustments leave an immaterial impact on our fair value estimate of JPY 4,600, indicating that shares are modestly overvalued. Our business profit forecast for 2024 is a touch above the company’s guidance. Whether it will be able to regain sales momentum, particularly in Asia, after the price hike and weak yen benefits fade in the second half will be our focus.