Suntory Beverage shares rated Neutral as Japan business expected to drive FY2025 growth

On Monday, JPMorgan began its coverage of Suntory Beverage & Food Ltd (2587:JP) (OTC: STBFY), assigning a Neutral stock rating and setting a price target of ¥5,100. The financial institution outlined its expectations for the beverage company, noting the significant position Suntory holds within the industry across multiple regions. As the second-largest soft drink manufacturer in Japan, the largest in Vietnam, and holding substantial market positions in Thailand and France, Suntory's geographic diversity is a key aspect of its business profile.

The analysis by JPMorgan highlighted potential earnings risks, particularly within the European sector, due to deteriorating economic conditions and increasing competition. Despite these challenges, the firm anticipates that the Japanese segment of Suntory's operations will likely bolster the company's earnings in the fiscal year 2025, thanks to expected benefits from price increases.

JPMorgan's report also delved into Suntory's capital efficiency, projecting a return on equity (ROE) of 8% starting from the fiscal year 2024. This forecast takes into account the company's financial activities and market performance over recent years. Since 2018, Suntory has not engaged in any large-scale mergers and acquisitions, which has led to an accumulation of cash reserves. However, the possibility of a significant share buyback program seems limited due to a free float of only 40%.

The coverage note by JPMorgan also expressed anticipation for future mergers and acquisitions that could capitalize on Suntory's strong financial structure. The firm's analysts are keeping a close watch on how Suntory might leverage its financial health to navigate through the market and enhance shareholder value.

In summary, JPMorgan's initiation of coverage on Suntory Beverage & Food Ltd reflects a balanced view of the company's potential, considering both the opportunities and challenges it faces within the global beverage industry. The price target of ¥5,100 through December 2025 indicates the firm's expectations for the stock's performance over the next couple of years.

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