On Tuesday, UBS has downgraded stock of Asahi Intecc Co Ltd (7747:JP) (OTC: AHICF) from Buy to Neutral, significantly lowering the price target to ¥2,220 from the previous ¥3,660.
The revision reflects concerns over the anticipated slow progress in new U.S. market fields and the unlikely improvement in valuation multiples due to substantial quarterly sales volatility in China.
According to UBS, the slower-than-expected ramp-up of Asahi Intecc's new fields in the U.S. is due to the prevalence of bundled marketing strategies by leading companies, which may hinder Asahi's market share growth.
Consequently, the firm has adjusted its forecast for the operating profit before goodwill amortisation for the fiscal year ending June 2026 to ¥26.9 billion, down from ¥30.9 billion. This figure falls below the IFIS consensus of ¥29.5 billion.
In addition to the challenges in the U.S., Asahi Intecc's performance in China is also causing concern. Sales in China have been highly inconsistent, primarily due to the reliance on distributor-based marketing. This erratic sales pattern has led to a lack of earnings visibility, which UBS believes negatively impacts the company's valuation multiple.
To align with these projections, UBS has also revised the price-to-earnings ratio (PER) estimate for Asahi Intecc, reducing it from 46.6X to a more conservative 29.6X.
This adjustment is a direct reflection of the anticipated difficulties in the U.S. and China markets, which are key factors behind the lowered price target for the company's shares.
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