Japan's Big Four Drink Makers
An analysis of Suntory's undervaluation compared to its peers in Japan's beverage sector, highlighting its strong fundamentals and potential for long-term growth.
Disclaimer: This is how I view these stocks based on my personal preferences and risk appetite. You might disagree. I'm sharing it for informational and educational purposes. Based on this analysis I bought Suntory shares.
I want to look at Japan’s big drinks companies because it looks like there’s a surprising bargain within – the perfect thirst-quenching treat during this hot summer.
The companies in this group are:
- Sapporo Holdings (2501)
- Asahi Group Holdings (2502)
- Kirin Holdings (2503)
- Suntory Beverage & Food (2587)
Spoiler alert: Suntory seems to be undervalued both historically and compared to its rivals, especially considering the quality of the company.
Dividend Yield & Non-Japan Revenue
Sapporo, with a measly 0.86% dividend, is going to have to work very hard in the remaining categories if it wants to win (hint: it won't!), and only 24% of its revenue is from outside Japan which increases risk in my opinion.
The remaining companies have healthy yields and non-Japan revenue around the 3% range and 50% range respectively, so they're all in the running.
Good Value?
I find value metrics most useful when looking back at each company's historic value. Current value should be as low as possible within the range of the past five years.
Looking at the EV/EBITDA ratio (which I view as a more stable alternative P/E) and price-to-book ratio (PBR) for that all-important margin of safety, both Kirin and Suntory appear to be cheap right now. But are they cheap for a reason, or just happen to be undervalued?
High Quality?
My quality metrics of choice are return on invested capital (ROIC) and return on equity (ROE). This is where Suntory starts to creep ahead. Although some other sectors have higher figures, within this group Suntory is the clear winner with Asahi close behind. Kirin, although historically cheap, seems to be struggling.
Bang for the Buck: Group Comparison
Now we move on to my favourite metrics – finding a way to combine value and quality, similar to approaches such as Joel Greenblatt's Magic Formula. I do this by dividing quality (ROIC or ROE) by value (EV/EBITDA or PBR), effectively revealing quality per unit of value. Within this group of companies Suntory and Asahi again take the top two spots.
Bang for the Buck: Historic Comparison
This is Suntory's final flourish with bang-for-the-buck values currently at their highest for over five years. I've been burnt by focusing purely on good value in the past but my reading is that Suntory's current low value seems to be balanced by management producing good results, and the market has yet to fully price this in. That makes me optimistic for future returns.
Conclusion
Although there are probably even better gems out there, and I'll continue to search, within this micro-sector it looks like there's a clear winner. Ideally I'd like the dividend to be above 3% but despite that, the fundamentals are good enough to add Suntory to my portfolio (¥4,454/share on 2025-07-16).
Notes
I use the Japanese version of Trading View (no affiliation) for my analysis, which for Japanese stocks seems to have more data than the English version for some reason.
I'm not recommending you rush out and buy Suntory (or any) shares. This is not investment advice. Please do your own research.