The problems for Japan's beer industry are related primarily to demographics and trends, both of which appear to be irreversible -- at least for the foreseeable future.
Declining overall population Increase in population over age 65, now at 21%, the world's highest level Growing consumer interest in wine and spirits Health concerns/attitudes towards alcohol consumption China is not "to the rescue" --> competition is fierce, competitors' low pricing, political risk Overseas growth will have limited near-term impact Diversification efforts outside of alcoholic/non-alcoholic beverages obscures reality of core business
Among Japan's big-4 beer manufacturers only Kirin and privately-held Suntory reported higher first-half profits. Kirin upward revised its full-year sales forecast and it overtook Asahi (Tokyo: 2502) for the number-one ranked market share for the first time in five years. Asahi reported lower first-half net profit and Sapporo's (Tokyo: 2501) first-half loss widened -- both firms lowered full-year guidance.
As you can see from the chart below, Kirin's ADRs peaked a few months back and continue to trade lower after a strong rebound in June-July. In the meantime and despite more negative factors, rival Asahi has traded higher. I think Japanese investors are focusing on Asahi's lower trailing P/E ratio (20 vs 30), its slightly higher dividend yield (1.0% vs 0.89%), and its lower trading unit of 100 shares versus 1,000 shares per trade.
Last Thursday, Kirin reported its best first-half profit (Jan.-Jun. period) since 2000 but the following day Morgan Stanley lowered its target share price on Kirin's ordinary shares (Tokyo: 2503) to 1,950 yen ($16.85) from 2,020 yen ($17.45). Kirin closed at 1,633 yen ($14.11) overnight in Tokyo. Its now pink sheet traded ADRs closed yesterday at $13.85.
Click here to link to Kirin's first-half '06 earnings release (pdf format).
Kirin Brewery (OTCPK:KNBWY) 1-year chart: