Ajinomoto Earnings: ABF Rebound and Weak Yen Lift Profits; Yen Reversal May Cap Profit Growth

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.