Ajinomoto Earnings: Functional Material and Biopharma Weakness Offsets Price-Hike Benefits of Food

Narrow-moat Ajinomoto’s first-quarter results, with sales up 5.6% (2.1% currency-neutral) year on year and business profits up 5.7% (2.1%), were mixed but seem largely in line with the company’s internal targets. The growing price-hike benefits of the moaty food businesses, particularly in the overseas markets, were largely offset by the soft demand of the functional material, or ABF, and biopharma services businesses, the two growth drivers during the pandemic. We expect the price-hike benefits of food will peak in the second quarter. The profit outlook for fiscal 2023 will largely hinge on the timing of demand recovery of ABF in the second half. After the rally in May, we view shares, trading at an 18% premium to our fair value estimate of JPY 4,500, as overvalued. Our business profit forecast for 2023 is 3% above the guidance.