Company Reports

Ajinomoto introduced the umami flavor to the world with its flagship product, Monosodium Glutamate, in 1909 and continues to hold the leading market share—around 20% globally in the business-to-business segment and between 50% and 100% in direct-to-consumer markets, depending on the country. Aided by years of research and development in the manufacture of amino acids, it has diversified into healthcare, providing amino acids to pharmaceutical manufacturers, and into the electronic materials business, creating an epoxy resin, Ajinomoto Build Up Film, which has become the industry-standard insulation film in computer chip packaging.

Ajinomoto reported 13% year-on-year revenue growth in the first quarter, driven by yen weakness and strong demand for Ajinomoto build-up film used in artificial intelligence semiconductors. The company raised its fiscal 2026 (ending March 2027) guidance, reflecting only the first-quarter upside.

Ajinomoto introduced the umami flavor to the world with its flagship product, Monosodium Glutamate, in 1909 and continues to hold the leading market share—around 20% globally in the business-to-business segment and between 50% and 100% in direct-to-consumer markets, depending on the country. Aided by years of research and development in the manufacture of amino acids, it has diversified into healthcare, providing amino acids to pharmaceutical manufacturers, and into the electronic materials business, creating an epoxy resin, Ajinomoto Build Up Film, which has become the industry-standard insulation film in computer chip packaging.

Ajinomoto's revenue for fiscal year 2025 (ending in March 2025) increased 3.5% year over year, and the business profit margin improved from 10.4% to 11.4%. For the new fiscal year, the company guides 8.8% revenue growth and a flat business profit margin.

Following meetings with companies regarding December-quarter results, we revised our earnings forecasts for Advantest and Ajinomoto. We note that the technological hurdles for semiconductor packaging will increase significantly as artificial intelligence architectures evolve.

Ajinomoto introduced the umami flavor to the world with its flagship product, Monosodium Glutamate, in 1909 and continues to hold the leading market share—around 20% globally in the business-to-business segment and between 50% and 100% in direct-to-consumer markets, depending on the country. Aided by years of research and development in the manufacture of amino acids, it has diversified into healthcare, providing amino acids to pharmaceutical manufacturers, and into the electronic materials business, creating an epoxy resin, Ajinomoto Build Up Film, which has become the industry-standard insulation film in computer chip packaging.

Ajinomoto's December-quarter sales rose 4.5% year over year, improving from a 1.0% decline in the September quarter, supported by price hikes in sauces and seasonings, as well as 41.7% growth in functional materials, driven by robust chip demand from investments in artificial intelligence.

Ajinomoto introduced the umami flavor to the world with its flagship product, Monosodium Glutamate, in 1909 and continues to hold the leading market share—around 20% globally in the business-to-business segment and between 50% and 100% in direct-to-consumer markets, depending on the country. Aided by years of research and development in the manufacture of amino acids, it has diversified into healthcare, providing amino acids to pharmaceutical manufacturers, and into the electronic materials business, creating an epoxy resin, Ajinomoto Build Up Film, which has become the industry-standard insulation film in computer chip packaging.

We reinitiate coverage of Ajinomoto, the Japanese company known for introducing monosodium glutamate to the world over 100 years ago. More recently, it developed Ajinomoto Build-up Film, an epoxy resin material used as an insulator in over 95% of cutting-edge chip packaging.

We will discontinue analyst coverage of Ajinomoto on or about Oct. 15, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Narrow-moat Ajinomoto’s first-quarter results were mixed, with sales up 7.7% (2.3% currency-neutral and 1.7% like-for-like, excluding the impacts of currency and the Forge acquisition) year on year and business profits up 5.7% (5% decline currency-neutral, up 1.2% like-for-like). Robust rebound of the functional material (ABF) demand coupled with further yen depreciation offset the loss of the contract development and manufacturing organization. With fading price-hike benefits of the moaty food businesses, the rapid reversal of the yen trend might cap profit growth in the second half, limiting the upward profit revision that the market seems to have factored in. We view shares, trading at a 20% premium to our fair value estimate of JPY 4,500, as overvalued. Our net profit forecast for fiscal 2024 ending March 2025 is 8.5% above guidance.

Demand rebound on biopharma service and functional materials (ABF) will lead to profit growth of narrow-moat Ajinomoto in fiscal-year 2024 ending March 2025. While the guidance of 7% year-on-year growth (9% growth currency neutral) in core business profits looks somewhat cautious given conservative foreign exchange assumptions, we acknowledge that the near-term profit prospect will largely hinge on external factors, including industry cyclicality and rivals’ pricing strategies, in addition to currency movement. We have fine-tuned our assumptions—the impacts of which are offset by increased time value of money. We maintain our fair value estimate of JPY 4,500 and continue to view shares, trading at 34% premium to our intrinsic value, as overvalued. Our net profit estimate for fiscal 2024 is 9% above the guidance.

Umami, the fifth basic taste, lays the foundation of Ajinomoto's business, which centers on the research and development of amino acids and related products. Ajinomoto has diversified its business into fields ranging from food to animal nutrition to healthcare by leveraging its research findings of umami and fermentation technologies used for amino acid production.

Narrow-moat Ajinomoto continued to see weakness in the functional material (ABF) and biopharma services businesses wipe out profit expansion of the moaty food business, a trend starting from the beginning of fiscal 2023 ending March 2024. Yet, the lessened profit decline of ABF and biopharma services indicates that customer destocking may end in the next two quarters. We finetuned our assumptions to reflect slower-than-expected recovery of the semiconductor and biopharma demand during the second half of 2023, lifted our forecasts for 2024 and 2025, and factored in the Forge acquisition impact. The adjustments leave an immaterial impact on our fair value estimate of JPY 4,500, a 25% discount to its current share price. Our expectation of management beating the full-year profit guidance will hinge on the reversal of ABF’s downward sales trend in the fourth quarter.

Narrow-moat Ajinomoto posted mixed second-quarter results, with sales up 5.6% (0.6% decline currency neutral) year on year and nearly flat business profits (5% decline). The advanced price hike benefits of the moaty food businesses, particularly in the overseas markets, offset widened profit decline of the functional material, or ABF, and biopharma services businesses, the two growth engines of the group’s profits during COVID-19. Contrary to management’s confidence in improved healthcare (ABF and biopharma service) demand from the second quarter reiterated just three months ago, the downward revision of healthcare sales and profits points to limited visibility to cyclicality and a business model depending on a few clients, the risks that we have flagged but the market seems to have overlooked. After the recent rally, we view shares, trading at 33% premium to our fair value estimate of JPY 4,500, as overvalued. Our business profit forecast for 2023 is 3% above the guidance.

Umami, the fifth basic taste, lays the foundation of Ajinomoto's business, which centers on the research and development of amino acids and related products. Ajinomoto has diversified its business into fields ranging from food to animal nutrition to healthcare by leveraging its research findings of umami and fermentation technologies used for amino acid production.

Umami, the fifth basic taste, lays the foundation of Ajinomoto's business, which centers on the research and development of amino acids and related products. Ajinomoto has diversified its business into fields ranging from food to animal nutrition to healthcare by leveraging its research findings of umami and fermentation technologies used for amino acid production.

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.

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.

Umami, the fifth basic taste, lays the foundation of Ajinomoto's business, which centers on the research and development of amino acids and related products. Ajinomoto has diversified its business into fields ranging from food to animal nutrition to healthcare by leveraging its research findings of umami and fermentation technologies used for amino acid production.