Initiating Coverage of Kao with JPY 6,100 FVE and Wide Moat Rating
We initiate coverage of Kao with a fair value estimate of JPY 6,100, which implies a forward P/E of 27 times, enterprise value/EBITDA of 13 times, and a free cash flow yield of 2.7% to estimated fiscal 2017 results. We assume top-line growth averages around 1.7% in Japan and 5.0% overseas on a local currency basis over our explicit forecast from 2016 to 2020. Further, while we expect the operating margin to improve from 11.2% in 2015 to 12.1%, this is mainly a reflection of an accounting change-...Kao is engaged in the manufacture and sale of consumer products, cosmetics and industrial chemical products. Co.'s principal products include cosmetics, soaps, facial cleansers, body cleansers, shampoos, conditioners, hair styling products, hair coloring agents, beverages, sanitary napkins, baby diapers, bath additives, oral care products, laundry detergents, fabric treatments, cleaning products, and commercial-use products. Co. also provides fatty alcohols, fatty amines, fatty acids, glycerin, commercial-use edible fats and oils, surfactant, plastics additives, toner and toner binder for copiers and printers, ink and colorants for ink-jet printers, fragrances and aroma chemicals.
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