Unicharm shares rally on recovery of Asia business
Rising diaper sales drove Japanese company's Q1 profit growth
TOKYO -- Unicharm's shares soared Friday on strong first-quarter results that showed the Japanese household goods maker's business rebounding in Asia.
Net profit soared 19% to 11.5 billion yen ($101 million) in the January-March period, with operating profit climbing 24% to 18.7 billion yen based on international financial reporting standards, which the company adopted as of the quarter. Unicharm's fiscal year ends in December.
The Japanese company "got off to a good start," said Masashi Mori of Credit Suisse Securities.
Unicharm's stock surged 2% during the day to peak at 2,914.5 yen, reaching a year-to-date high for the fifth day in a row, before closing with a 1.88% gain at 2,898. Trading value doubled from the previous day. The price-earnings ratio stands at 34.7, a lofty figure compared with 23.8 for industry rival Kao.
A rebound in Unicharm's Asia business seems to have given investors confidence. The company's operating profit had slid since fiscal 2004 on sluggish sales of infant diapers in China and Indonesia.
Operating margins for the Asia business rose 4 percentage points to 8.7%, thanks to a solid performance by feminine hygiene products in China and growth in Indian infant diaper sales. Business in Indonesia swung to the black in the quarter, as the company finished booking inventory-related expenses.
But Unicharm's Chinese business remains in the red, due partly to marketing costs for its high-priced Moony brand diapers as the company moves away from low-cost products. And local consumers have been seen buying Japanese products on e-commerce sites. Unicharm "has shown its commitment to earnings by shifting to high-value-added products," a Japanese securities analyst said.
Unicharm is unlikely to benefit in upcoming quarters from the low material prices that lifted operating profit by 1.6 billion yen in the January-March quarter. If the company hopes to sustain high share prices, it should take in Friday's market reactions and press on with improving earnings in Asia.