Asahi Group Holdings Ltd is a Japan-based holding company. It operates in Japan, Europe, Oceania, and Southeast Asia, which contribute to 49%, 25%, 23% and 2% of group revenue respectively in FY23. In Japan, alcohol beverages, non-alcohol beverages, and food. In Europe, it sells alcohol and non-alcohol beverages with its key markets being Czech Republic & Slovakia, Poland, Romania, Italy, and the UK. In Oceania, it sells mainly beer, ready-to-drink (RTD) beverages, and cider. In Southeast Asia (SEA), it sells non-alcohol beverages and owns the Pepsi bottling business in Singapore with key markets being Malaysia & Singapore, Philippines, and Indonesia. Besides its flagship Asahi Super Dry, other international beer brands under the group includes Pilsner Urquell, Peroni Nastro Azzurro, Grolsch Premium Pilsner, Victoria Bitter, Foster’s Lager, Pure Blonde, etc.
Investment Overview
Leveraging its five global brands for growth outside a shrinking Japanese market. Beer-type beverage market has and is expected to continue its long-term declining volume trend in Japan. To achieve growth, it entered the Oceania market in 2009 and Southeast Asia market in 2011. Thereafter, the Asahi Group has progressively built up its international presence with its acquisition of Anheuser-Busch InBev’s beer business in Western Europe and Central Europe in 2016 and 2017, respectively. This was followed by the acquisition of Carlton United Breweries (CUB) in 2020, further increasing its presence in Oceania. As of FY23, revenue contribution from Japan accounts for only 49% of Group, down from more than 90% in 2009. Asahi is focused on building upon five global premium beer brands – Asahi Super Dry, Peroni Nastro Azzurro, Kozel, Pilsner Urquell, Grolsch to expand and roll out in the global market. Asahi Super Dry is the most popular beer brand in Japan and has seen growing popularity globally. The brand’s volume growth in the international market was at +35% y-o-y in FY23. The strong volume growth was supported by partnership with major sports brand and sporting event, such as the Rugby World Cup 2023 held in France (Sep to Oct-23), which contributed to +60% y-o-y sales volume growth in 3Q23 and +26% in 4Q23.
Guided for double-digit earnings growth largely from one-off gains with mid-single digit core operating profit growth driven by its Oceania business. For FY24F, Asahi has targeted +16.1% earnings growth largely on one-off gains from asset sale as part of its supply chain restructuring and absence of integration costs with the completion of the CUB acquisition integration. At the core operating profit level, it is expecting a more moderate +2.8% y-o-y growth with Oceania delivering +8.3% y-o-y growth through premiumization and improved operational efficiencies.
Building up a strong shareholder returns track record. Asahi has been steadily increasing its dividend payout at a rate of 5.7% CAGR for the past 5 years with expected FY24F dividend increase of 9.1% and higher payout ratio of 38% (vs. 2023: 37%). The company has committed to steadily increase dividends with a targeted payout ratio of 40% by 2025.
Revised TP higher to JPY6,700 (from JPY6,600); maintain BUY. We see significant international growth potential for the Asahi Super Dry brand and cost optimisation upside from the new Singapore procurement center which commenced in Jan-24. We assigned 17.2x PE ratio on its FY24F earnings, +2.5 standard deviation above its 5-year forward average PE, a premium on sensible execution and shareholder friendly capital return policy.
Risks
The key risks are slower consumption outlook in its key markets and growth from its international markets, in particular Europe as well as Oceania and the pace of benefits from its global procurement center could be closely watched given projected annual savings of US$100m per year.
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Japan Equities Analysis
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