Kirin Forecasts Record Profit Amid Gain From F&N Sale

Kirin Forecasts Record Profit This Year on F&N Stake Sale Gain
Cans of Kirin Brewery Co. beer are arranged for a photograph in Kawasaki, Kanagawa Prefecture, Japan. Kirin has said it expects to sell 154 million cases of beer, low-malt beer, and beer-like drinks this year, 1 percent lower than last year. Photographer: Akio Kon/Bloomberg

Kirin Holdings Co., Japan’s largest beverage maker, dropped the most in 15 months in Tokyo trading after forecasting operating profit growth this year at less than a third of the five-year average.

The brewer fell 4.9 percent, the biggest decline since Nov. 10, 2011, to 1,171 yen as of the close in Tokyo trading. Operating income will probably rise 1.3 percent to 155 billion yen ($1.7 billion) this year, the company said yesterday in a statement after market hours.

Kirin’s operating profit growth forecast is about one-third the five-year average of 5 percent after spending at least $11.3 billion over the past four years on acquisitions to help offset declining demand at home, according to data compiled by Bloomberg. The company has said it would rely on partnerships and subsidiaries for growth in Southeast Asia after selling its 15 percent stake in food, beverage and real estate group Fraser & Neave Ltd. S$2 billion ($1.6 billion).

“The brand value attached to the domestic alcoholic and non-alcoholic beverage businesses has been diminishing,” Satoshi Fujiwara, an analyst at Nomura Holdings Inc., wrote in a report dated today. “We think it will be difficult to enhance brand value, and expect the company will have to change course at times and take a strict approach to cost controls.” He lowered his rating on the shares to neutral from buy.

Southeast Asia

Kirin also said it expects net income to rise 60 percent to a record this year as it books a gain from the sale of its stake in Fraser & Neave Ltd. Selling its holding and giving up on a plan to take over the Singapore-based food, beverage and real estate company jointly with Overseas Union Enterprise Ltd. leaves Kirin to plot a new course for growth in Southeast Asia.

The company doesn’t see major investment candidates in Southeast Asia, President Senji Miyake told reporters yesterday in Tokyo at a briefing to discuss earnings.

Net income will probably increase to 90 billion yen in 2013, the Tokyo-based brewer said in a statement yesterday. That compares with the 63.6 billion yen average of 16 analyst estimates compiled by Bloomberg before the earnings announcement.

The Japanese brewer will book a 47 billion yen gain before taxes for the year ending December 2013 from the sale, it said in a statement yesterday.

“Kirin reported reasonably good results,” Nigel Muston and Jeanie Chen, analysts at CLSA Asia-Pacific Markets, wrote in a report dated yesterday. “There was also some positive commentary on the possibility of buybacks.” They rate the shares “outperform.”

The beermaker expects free cash flow of 220 billion yen this year, according to the statement yesterday. The company will return some to shareholders and use part to pay back debt and make investments, President Senji Miyake told reporters yesterday in Tokyo.

Annual dividends will increase 24 percent to 36 yen a share this year from 29 yen in 2012, the company said.

Sales of beer, low-malt beer, and beer-like drinks in Japan last year fell 1 percent to 438 million cases as demand fell for an eighth straight year. Kirin had a 35.6 percent share, the largest after Asahi Group Holdings Ltd.

Kirin has said it expects to sell 154 million cases of beer, low-malt beer, and beer-like drinks this year, 1 percent lower than last year.

Kirin’s forecast assumes an 11 percent drop in operating profit at its beer business to 51.7 billion yen, Muston and Chen at CLSA wrote. “We remain concerned that Kirin seems to have no real solution to its falling market share in Japan both in beer and non-alcoholic beer other than ‘investing in its brands’ further in 2013.”

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