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Asia skincare demand boosts profit at Kao

Japanese company's Freeplus and Kate lines popular in China

Kao's Kate store in Xian, China

TOKYO -- Kao's operating profit for the six months ended June is expected to have grown 4% to around 91 billion yen ($817 million), helped by brisk skincare and cosmetics sales in China and other markets in Asia.

The figure would mark a record profit for the January-June period, although the fiscal 2016 switch to international accounting standards makes historical comparisons difficult. Sales for the period look to have climbed 2% on the year to about 730 billion yen. Kao has not put out an interim earnings projection.

Skincare products under the Freeplus sensitive skin line fared well in China, as did Kate makeup products. The Curel skincare offerings for dry skin performed well both in Japan and other markets.

Kao's Laurier sanitary products enjoyed strong demand in China. Merries disposable diapers sold well in Indonesia, while losing momentum in the key market of China due to such obstacles as inventory adjustments by a big e-commerce company.

In the home market of Japan, the Rerise hair color products for gray hair sold well, as did a foam toothpaste touted to reduce mouth odor and other new offerings released in the April-June quarter. Meanwhile, mid-range cosmetics continued to struggle.

Kao's Curel products for dry, sensitive skin have sold well in Japan and abroad.

Raw material naphtha's price rising roughly 30% on the year and higher costs for packaging and for products made of nonwoven cloth, like diapers, weighed down earnings. But Kao managed to improve its overall profitability by switching advertisements to online from other media.

Kao's interim results are due out Thursday. The company is likely to keep its full-year projections unchanged, with an operating profit of 215 billion yen, up 5%, on sales of 1.54 trillion yen, a 3% gain. Net profit is expected to grow 3% to 152 billion yen for a ninth straight annual increase and a fifth consecutive annual record. The company plans to raise its annual dividend for a 29th straight year to 120 yen per share, an increase of 10 yen.

The company stock has risen nearly 20% over the past year, but this pales against rival Shiseido, whose stock has roughly doubled over the same period. Kao has a relatively limited lineup of high-end cosmetics, missing out on the opportunity to fully capture demand from the rising ranks of visitors to Japan. The company announced plans in May to narrow down its brands and spending allocations to promote further growth.

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