Asahi (ASABRE; Baa1 S, NR) {2502 JT Equity}; €Benchmark 5 & 8y Mandate

We see margins lower than comp's (though Moody's sees it comparable to peers) and no US exposure is worth noting given it has a history of debt funded brand acquisition to enter new markets. Most recent example is 2020 acquisition of Carlton (CUB) from AB-InBev for $16b to enter Australian markets - pushed leverage up to 6* & took ~3yrs to come down to pre-acquisition levels - ratings were left unchanged through the spike. Bar acquisitions we don't see near-term rating action in either direction.

• Recent results; €17b in sales, gross profit of €6b (at margin of 64%), adj. operating income at €1.6b (~9% margin), adj. EBITDA of €2.4b & adj. FCF of €1.5b. It targets ¥250b/yr (~€1.5b/yr) in FCF.
• BS: Healthy headline metrics against €8.6b in net/gross debt (cash on hand small €360m) - leaving leverage against adj. EBITDA at 3.1* (target "around 3* or less"). Dividends have historically not been significant - was €350m last year/34% payout ratio - its targeting a lift to 40% by 2025.
• Guidance; It sees the phased beer tax reduction (2020,2023 & 2026) as a tailwind for Asahi in Japan (~€4.9b of sales). Analyst seem to expect a slow down in revenue growth for the group (though remaining positive) - margin improvement is baked into forecasts - not much clarity on the drivers.
• Vs. peers; close brewer comp's also have a slowdown baked in - to mid single digit (organic) growth over next 3 years -Asahi growth assumptions do seem lower than market. Company runs strong gross margin but vs. peers like AB Inbev, Carlsberg & Heinekan, operating & EBITDA margins are well lower. Strongest market for it is Japan (mgmt reporting 49% market share) & Australia (46% market share) - exposure to NA and Asia outside Japan is negligible/none - no US is similar to Carlsberg sales exposure.
• Rating Risks; Moody's completed a period review on 27th March and affirmed it at Baa1 Stable. It is single rated.