Kirin Earnings: Profits Soar on Beverage and Pharma Growth and Weak Yen but Outlook Lackluster

Narrow-moat Kirin posted robust second-quarter profit growth with core business profits up 44% (positive 28% currency neutral, positive 24% excluding currency and Blackmores) year on year. Double-digit profit growth was achieved across the core beverage and pharmaceutical subsidiaries, while Kyowa Hakko, a drag on profits since 2020, turned profitable. Yet, the profit downward revision on Lion and Kyowa Hakko indicates less successful restructuring outcome. As we have stressed, turning Kyowa Hakko profitable is critical to restore market's confidence in Kirin's strategic pivot and management's execution capability. We have marginally adjusted our forecasts, which leaves an immaterial impact on our fair value estimate of JPY 2,600. We view shares, trading at 23% discount to our intrinsic value, as undervalued. Our 2024 net profit forecast is 4% above the guidance of 1.2% growth.