Maintain Overweight on Ajinomoto; Target Price Raised to ¥6,800

Overview

Following strong first-quarter results, JPMorgan raised its FY2026 and subsequent earnings forecasts for Ajinomoto and maintained its Overweight rating. The report believes that steady growth in the seasonings and foods business, together with the healthcare and other businesses centered on ABF and CDMO, will jointly support profit expansion and improved capital efficiency over the coming years.

Core views

The investment thesis focuses on growth quality and capital efficiency: the food business has high market share and brand-driven pricing power, enabling it to respond to cost shocks through price increases; ABF is benefiting from demand for high-performance substrates, with improvements in volume, pricing, and product mix; CDMO is supported by the development of the nucleic acid drug and gene therapy markets and the company's technological advantages, with revenue and profitability expected to continue improving. This asset-light business mix is also conducive to free cash flow generation and shareholder returns.

Analysis framework

The report raises earnings forecasts based on first-quarter performance and values the company by combining segment growth assumptions, cost and price-increase sensitivities, expected capital returns, and historical valuation ranges. The target price is derived by applying a 37x P/E multiple to FY2027 EPS.

Methodology notes

• Relative ValuationP/E Valuation

  The target price is determined by applying a 37x P/E multiple to FY2027 EPS

  The 37x P/E multiple is near the upper end of the 25x to 40x range over the past year. The report believes that improved visibility of growth in the healthcare and other businesses, where ABF and CDMO are positioned, supports a higher valuation level.

• Earnings ForecastingSegment-Driven Forecasting

  Growth and profitability drivers across food, ABF, and CDMO

  Mid- to long-term improvements in business profit and capital returns are derived from food-business price increases offsetting costs, high ABF growth, and improving CDMO profitability.

Asset mapping & comparison

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

• Ajinomoto (2802.T)

  Covered Company

  Strengths

  Strong seasoning brand power and pricing power; high-growth potential in ABF and CDMO; asset-light healthcare and other businesses support free cash flow; expected shareholder returns drive ROE improvement.

  Weaknesses

  The food business remains exposed to input-cost volatility, while CDMO profitability may fluctuate quarterly.

  Comparison

  The report considers its growth potential and capital efficiency to be among the leaders within large-cap food stocks; growth in healthcare and other businesses increases the justification for a relative valuation at the upper end of the historical range.

  Risks

  Yen appreciation, intensifying overseas food competition, inventory adjustments in healthcare and other businesses, and raw-material prices exceeding expectations.

Key data

• Target Price¥6,800The target date is December 2027; the previous target was ¥6,500 (December 2026).
• FY2026 Business Profit Forecast¥220.0 billionUp 21% year on year; the previous forecast was ¥212.0 billion, while company guidance is ¥202.0 billion.
• FY2027 Business Profit Forecast¥265.0 billionUp 20% year on year; the previous forecast was ¥252.6 billion.
• FY2028 Business Profit Forecast¥315.0 billionUp 19% year on year; the previous forecast was ¥294.7 billion.
• Expected ABF Sales Growth40%/30%/25% in FY2026/FY2027/FY2028, respectivelyFirst-quarter ABF sales grew 60% year on year.
• FY2026 Middle East-Related Cost ImpactUp to ¥25 billionThe report believes that, based on current crude oil prices, actual incremental costs may be below ¥20 billion.
• ROE OutlookClose to 19% in FY2026, approximately 30% in FY2028, and approximately 40% in FY2030Growth and proactive shareholder returns are the primary drivers.

Impact & implications

If the food business successfully implements price increases, the impact of rising raw-material and energy costs on profit is expected to remain manageable. Meanwhile, continued volume growth and margin improvement in ABF and CDMO will enhance the company's overall growth profile. The report's core view is that the company can evolve from a traditional large-cap food stock into a business mix combining food stability with healthcare growth, thereby supporting a higher valuation and capital returns.

Risks

• Yen appreciation could reduce EPS and book value per share.
• Overseas seasonings and foods businesses may see weak sales due to intensifying competition.
• Healthcare and other businesses may undergo inventory adjustments.
• Increases in raw-material and energy costs may exceed expectations.
• CDMO revenue and earnings performance may fluctuate between quarters.
• If price increases are implemented less effectively than expected, the food business may have a weaker-than-expected ability to absorb Middle East-related cost increases.

What to watch

• Execution of price increases in the food business from the second quarter onward, volume resilience, and the effectiveness of cost offsets.
• The Middle East situation, crude oil prices, and their actual impact on FY2026 costs.
• Demand for high-performance ABF substrates, as well as changes in volume, pricing, and product mix.
• CDMO orders, progress in the nucleic acid drug and gene therapy markets, and profitability improvement.
• Whether FY2026 to FY2028 business profit reaches the forecasts of ¥220.0 billion, ¥265.0 billion, and ¥315.0 billion.
• Shareholder return policy and progress toward raising ROE to approximately 40% in FY2030.