Ajinomoto Earnings: Easing Cost Pressure and Lessened ABF and Biopharma Decline Bolster Profits

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.