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Japan-Update

Unicharm seen beating profit forecast on Asian sales

Diaper maker's shift to pricier products has improved profitability

Sales of Unicharm's high-priced Moony diapers are growing in China.

TOKYO -- Japanese sanitary goods maker Unicharm is expected to report a 3% gain in group operating profit to 37.5 billion yen ($328 million) for the six months ended in June, topping its 34 billion yen estimate on better-than-expected sales of high-priced products in other parts of Asia.

Unicharm switched to International Financial Reporting Standards starting this fiscal year ending in December. The standards require that impairment losses, often unrelated to a company's core operations, be reflected in operating profit. Unicharm therefore also releases core operating profit -- gross profit minus selling and administrative expenses -- as another earnings indicator for its main businesses. 

Sales for the first half likely rose about 3% to 305 billion yen. The company in May expected a slight increase to 299 billion yen.

Overseas sales, accounting for 60% of the total, were brisk. Feminine care products sold well in China, and sales of baby diapers grew in India and Vietnam.

Diaper sales in China and Indonesia were weak last fiscal year, weighing down operating profit. To shore up earnings, the company has switched to more expensive, value-added products. Profitability has been improving as a result.

The Tokyo-based company's operating profit margins have recovered in Asia after bottoming out at 4.7% in January-March 2016, and that trend likely continued through April-June 2017.

In Japan, a graying population has increased demand for diapers and incontinence pads for adults. Chinese online buying of Unicharm's pricey Moony diaper brand has improved the utilization rate of the company's Japanese factories, also boosting profit.

Cheap oil provided a tailwind in the first half but Unicharm is not expecting such low prices in the second half. Furthermore, sales promotion expenses will increase as the company tries to expand sales of Moony diapers and other products in China.

Unicharm will likely maintain its full-year guidance when announcing January-June results on Aug. 10. The company expects sales to climb 4% to 630 billion yen and core operating profit to rise 6% to 84 billion yen.

(Nikkei)

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