Strong ABF Demand Supports Ajinomoto's Medium-Term Growth

Overview

This report focuses on Ajinomoto's functional materials business, particularly the demand, competitive advantages, and supply system for ABF (Ajinomoto Build-up Film) in advanced semiconductor packaging. Citigroup believes that as improvements in semiconductor performance drive larger package substrates and more layers, increased ABF usage per substrate, together with semiconductor shipment growth, will create a dual growth driver.

Core views

The core view is that ABF will remain a key material for advanced packaging. Leveraging early-stage joint development with package substrate manufacturers, in-house evaluation capabilities that replicate customers' processes, and proactive capacity expansion, Ajinomoto has a foundation for sustained growth and earnings improvement. The report also believes that the company has the potential to succeed in adjacent areas such as optoelectronic integration, bonding materials, sealing materials, and magnetic materials.

Analysis framework

The report evaluates Ajinomoto's medium-term growth and target price by combining information from management business briefings, semiconductor market growth forecasts, the company's customer co-development model, capacity footprint, and segment valuation. Valuation uses a sum-of-the-parts approach, with different P/E multiples assigned to different business segments.

Methodology notes

• Valuation methodsSum-of-the-parts valuation

  sum-of-the-parts valuation

  Based on FY3/28 forecasts, Citigroup applies different P/E multiples to the seasonings and foods, frozen foods, functional materials, and bio-pharma and ingredients segments to derive the target price.

• Industry demandAdvanced packaging demand driver analysis

  semiconductor packaging evolution

  The report identifies improvements in semiconductor performance, larger package substrates, and increased layering as key drivers of higher ABF usage, and assesses ABF demand potential based on WSTS's forecast of strong growth in the logic IC market.

• Competitive advantagesCustomer co-development and process replication capabilities

  customer co-creation and process replication

  Ajinomoto co-designs ABF with customers from the early development stage and replicates customers' manufacturing and evaluation processes internally, shortening development cycles and improving its ability to solve fine-line process issues.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ajinomoto (2802.T)

  Covered company and equity

  Strengths

  Strong ABF demand; deep customer co-development relationships; ability to replicate customer processes; clear capacity expansion plans; relatively stable growth in the food business.

  Weaknesses

  The functional materials business is sensitive to the semiconductor cycle and customers' technology roadmaps; achievement of the target price depends on high-multiple valuation and growth assumptions.

  Comparison

  The report states that the share price has outperformed the TOPIX Food Index by approximately 25% over the past three months and is expected to continue outperforming.

  Risks

  Significant foreign-exchange fluctuations could affect the profitability of overseas seasonings and food businesses; changes in the semiconductor market could affect the functional materials business.

• ABF / functional materials business

  Core growth driver business

  Strengths

  Advanced packaging is driving larger and more layered substrates, increasing ABF usage per substrate; the company has high barriers to entry and rapid development capabilities.

  Weaknesses

  Demand is highly dependent on semiconductor shipments, logic IC growth, and advanced packaging roadmaps.

  Comparison

  Compared with general materials manufacturers, Ajinomoto provides deeper solutions and stronger customer process adaptation capabilities.

  Risks

  Evolution of new package substrate technologies, a slowdown in the semiconductor market, or changes in customer demand could weaken growth.

Key data

• RatingBuyThe table shows that Citigroup maintains a Buy rating on Ajinomoto.
• Target price￥6,400.0The target price corresponds to the 12-month investment rating framework.
• Current price￥5,873.0The price timestamp is 30 Jun 26 15:30.
• Expected share price return9.0%Expected share price return disclosed in the table.
• Expected dividend yield0.9%Expected dividend yield disclosed in the table.
• Expected total return9.8%Comprises share price return and dividend yield.
• Functional materials FY3/27 sales growth plan+11% YoYManagement stated that current shipment progress is ahead of this plan.
• Logic IC market growth forecastApproximately 37% in 2026 and 27% in 2027WSTS forecast used to support the assessment of ABF demand growth.
• Implied P/B at target price8.0xThe report's estimate of the implied P/B ratio at the target price.
• Market capitalization￥5,613,056M / US$34,739MMarket Cap disclosed in the table.

Impact & implications

If ABF demand continues to be driven by advanced packaging and logic IC growth, Ajinomoto's non-food businesses could become a more important source of growth and, together with its stable food businesses, support continued share price outperformance versus the TOPIX Food Index. Expansion from functional materials into optoelectronic integration and adjacent materials could also create new revenue pillars.

Risks

• The profitability of overseas seasonings and food businesses may be affected by significant fluctuations in the USD, THB, EUR, BRL, and other currencies.
• Changes in the semiconductor market could affect demand for the functional materials business.
• If actual operations deviate materially from the report's assumptions, the share price may fail to reach the target price.
• Changes in advanced packaging or alternative substrate technology roadmaps could affect long-term ABF demand.

What to watch

• Whether shipments in the functional materials business continue to exceed the FY3/27 sales growth plan.
• Whether actual logic IC market growth in 2026 and 2027 approaches WSTS forecasts.
• Capacity ramp-up and utilization at the new Gunma plant after its start of operations.
• Investment progress ahead of the planned 2032 start of operations for the third production base in Gifu.
• Whether ABF-adjacent materials and optoelectronic integration materials develop into new revenue pillars.
• The sensitivity of overseas food business margins to fluctuations in major currencies.