Interesting MV for Asahi’s Cafe Latte Water!
Check this music video out… it is so entertaining and full of character!
Straits Times covered Asahi Group in two separate articles:
- FairPrice to bring in more stocks of sold-out Japanese transparent milk tea.
- After clear milk tea, Asahi introduces transparent coffee in Japan.
Will their milk tea be a fad or something more permanent? Asahi is known for selling beverages that include soft drinks and alcohol. To add on, Asahi beer has #1 share in Japanese beer market… I went to take a quick look.
It seems like they have been expanding into overseas lately and it is showing up in their results for Q1 FY2018.
- Overseas sales are 36.2% of total revenue
- Core operating profit (overall) grew 60.5% QoQ while core operating profit (overseas) grew by 453.5%.
(latest share price of Asahi Group, screengrab from Google Finance)
Was it pure organic growth or through M&A? The answer is M&A… meaning there is a one-time jump in sales and revenues. The current CEO Naoki Izumiya is taking advantage of the low debt interest environment to pursue an aggressive M&A strategy. He acquired 12 businesses, some of them with the presence in Europe. At the same, he disposed off some unprofitable businesses to improve the overall profitability.
A quick look using Morningstar figures, while the gross profit margins came down, he was able to reduce Asahi’s SGA % even further. Therefore, the EBIT margin shot up.
Despite loading up so much debt (current net debt to equity at 103%), its ROE is approx. around 12% now. I did a very rough adjustment for one-off items. Given its size at $24b USD, 12% ROE is may not provide the compounding effect for a long-term multi-bagger result. Fundamentally, I also looked at its recent asset turnover (sales/total assets), it does seem that it is dropping as well. So my guess is overseas M&A financed by debt is pushing the earnings of the company.
Not sure how sustainable it is… I decided to give it a skip.