Leveraging Technology Like The Coke ON App Will Improve Operational Efficiency And Customer Engagement

Key Takeaways

• Shareholder value is set to increase through dividend hikes and buybacks, boosting EPS and enhancing financial performance.
  
• Strategic transformations, including cost savings and digital enhancements, are expected to drive revenue growth and improve net and gross margins.
  
• Rising costs and uncertain market execution threaten profitability, while short-term investments may not yield expected returns amidst macroeconomic challenges.

Catalysts

Engages in the purchase, bottling, packaging, distribution, marketing, and sale of carbonated, coffee, tea-based, mineral water, alcohol, and other soft drinks in Japan.

• Coca-Cola Bottlers Japan Holdings is executing a significant shareholder return program, including a dividend increase plan and a share buyback up to ¥30 billion, which is expected to enhance shareholder value and positively impact earnings per share (EPS).
  
• The company plans to continue its business transformation efforts to achieve cost savings across various areas, such as commercial, supply chain, back office, and IT, targeting ¥5.2 billion in total profit contributions, which should help improve net margins.
  
• Implementation of further price revisions within 2025 is expected, with a focus on improving wholesale revenue per case, which is anticipated to drive revenue growth and enhance gross profit margins.
  
• Coca-Cola Bottlers Japan Holdings is leveraging technology and digital transformation, such as optimizing its vending machine business and enhancing customer engagement through digital channels like the Coke ON app, which should contribute to both revenue growth and operating efficiency improvements.
  
• The company is making strategic marketing investments focused on ROI to drive mid
• to long-term growth, prioritizing core brand growth, which should positively impact revenue and strengthen its market position.

Coca-Cola Bottlers Japan Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola Bottlers Japan Holdings's revenue will decrease by 0.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 2.0% in 3 years time.
• Analysts expect earnings to reach ¥17.8 billion (and earnings per share of ¥102.53) by about March 2028, up from ¥7.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥22.7 billion in earnings, and the most bearish expecting ¥14.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.3x on those 2028 earnings, down from 59.3x today. This future PE is greater than the current PE for the JP Beverage industry at 24.9x.
• Analysts expect the number of shares outstanding to decline by 1.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.59%, as per the Simply Wall St company report.

Coca-Cola Bottlers Japan Holdings Future Earnings Per Share Growth

Risks

• Continued price revisions, while aimed at increasing profitability, might lead to a decrease in sales volume if consumers become resistant to price increases, which could impact revenue.
  
• Rising logistics, commodity, and utility costs may weigh significantly on net margins despite efforts to control costs, impacting profitability.
  
• The reliance on market share growth through new brand initiatives like Ayataka and others presents execution risk; if consumer adoption does not meet expectations, revenue growth could falter.
  
• While focusing on long-term goals, significant short-term marketing and technology investments might not generate expected returns, potentially affecting short-to-mid-term earnings and cash flow.
  
• The company's ability to manage macroeconomic challenges such as yen depreciation and energy price volatility remains uncertain, posing risks to profitability and overall financial stability.

Valuation

• The analysts have a consensus price target of ¥2575.714 for Coca-Cola Bottlers Japan Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3350.0, and the most bearish reporting a price target of just ¥2000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥909.2 billion, earnings will come to ¥17.8 billion, and it would be trading on a PE ratio of 28.3x, assuming you use a discount rate of 4.6%.
• Given the current share price of ¥2455.5, the analyst price target of ¥2575.71 is 4.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.