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Ajinomoto Co Inc 2802

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Ajinomoto Guiding Optimistic Outlook but Margins Boosted by Stay-at-Home Demand Unlikely To Sustain

Jeanie Chen Senior Equity Analyst

Analyst Note

| Jeanie Chen |

Narrow-moat Ajinomoto beat its full-year profit guidance as expected but the core business profits (gross profits--SG&A) slightly fell short of our forecasts due to weakness in the moaty food business. Sales decreased marginally by 0.4% year on year while business profits fell nearly 17% during the fourth quarter. Contrary to our projection of a drop in profits stemming from a tough comp and margin normalization, management guided for a slight increase in core business profits for 2021 as it expects a recovery in food service demand and price hikes will sustain profits. Despite our forecast of a 7% profit decline in 2021, we have lifted our fair value estimate to JPY 2,400, from JPY 2,200 as we rolled our forecasts and raised sales and net earnings estimates (due to a cut in the estimates of restructuring costs) mainly for 2021 and 2022. It appears the scale and impact of divestures and business restructuring on sales are less than our expectations. We continue to view shares as fairly valued with 3% upside to our fair value estimate.    

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Company Profile

Business Description

Ajinomoto is Japan’s leading food company specializing in amino acids and seasonings derived from amino-acid fermentation technologies. It also produces processed foods including dry soup mixes, frozen foods, and beverage products. Apart from the consumer business, it is a key supplier of MSG and nucleotides to global food manufacturers including Nestle. The food business represents more than three quarters of group sales and 80-plus% of profits with roughly half generated overseas. Animal nutrition, healthcare, and specialty chemicals make up the balance of its business portfolio.

15-1, Kyobashi 1-chome, Chuo-ku
Tokyo, 104-8315, Japan
T +81 352508111
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Dec 31, 2020
Fiscal Year End Mar 31, 2020
Stock Type
Employees 41,528

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