Ajinomoto Earnings: Raising Fair Value on CDMO Growth Potential; Guidance Appears Achievable

We are raising our fair value estimate for narrow-moat Ajinomoto to JPY 4,500 per share from JPY 3,500 to reflect the growing strength of the biopharma service business led by CDMO—contract development and manufacturing organization—expansion. We anticipate the increasing number of long-term contacts will shore up growth. Management's guidance of 11% business profit growth for fiscal 2023 (ending March 2024) looks feasible if customers’ inventory adjustment for servers ends soon. Restoring profitability of the domestic moaty food business through volume growth and price hikes will be a priority. Although the target seems challenging, we think Ajinomoto’s moat, underpinned by its brand equity and product development capability, will help regain share and lift margins; this was recently evidenced in the profit surge of the struggling U.S. frozen food business. Nevertheless, we view the shares as modestly overvalued, indicating 7% downside to our new intrinsic value.