味之素的新定价模式 - 上调评级至跑赢大盘

APAC Food & Beverages Hao Wang, CFA+852 2123 2627hao.wang@bernsteinsg.com Ajinomoto Co Inc Mufei Gao+81 3 6777 6995mufei.gao@bernsteinsg.com Price Target 6,700.00 JPY(5,100.00OLD) Ajinomoto's new pricing paradigm - Upgrading to Outperform Ajinomoto have been the most enthusiastic price taker across our coverage over recentyears, but their ABF division has been the exception. Management has now crossed the Rubicon by announcingraw material relatedprice increases on their flagship semiconductorinput material, and this opens the door to further expanding margins and maintaining /expanding Ajinomoto’s fair share of the ABF substrate value chain over time. We haveupdated our ABF forecasts to reflect c. 15% like-for-like price increases on AI related films Close Date25 May 20262802.JP Close Price (JPY)5,475.00Price Target (JPY)6,700.00Upside/(Downside)22%52-Week Range5,739.00/3,270.00JPL2,533.09FYEMarDiv Yield0.9%Market Cap (JPY) (B)5,353.10EV (JPY) (B)5,741.22 ABF revenue growth has historically been driven by mix evolution and the introduction ofnew higher priced specifications, but with customers raising downstream substrate pricesby 15-30%, Ajinomoto management now plans to introduce like-for-like price increases.As a result, we now expect ABF revenue to grow by 35% in FY3/27&28, with operational We expect COGS inflation to start hitting in Q2 with Frozen Foods and Seasonings & Foodsfacing c. 700bps / 360bps of margin headwinds, or c.¥53b before mitigations. We expect Ajito take price in both divisions, over-recovering in S&F and expanding margins by 100bps, andunder-recovering in Frozen with 140bps of margin contraction. Investment Implications Weupgrade Ajinomoto to Outperformandraise our Price Target from ¥5,100 to¥6,700after raising our EPS estimates to ¥151/191/226 in FY3/27-29 and set our targetmultiple at 35x to reflect our DCF and SOTP analysis (model)/(ABF industry model). DETAILS Our ¥6,700 Price Target, which represents 26% potential upside to Ajinomoto’s share price over the next 12 months, reflects a35x target P/E which is set with reference to our DCF and SOTP valuations set out in this note. While we continue to consider arange of valuation metrics in setting our target price, we have changed to expressing our valuation in P/E terms (as opposed to We have increased our FY3/28 EPS estimates by 8% to reflect the shift from mix based ABF revenue growth to like-for-likeprice increases, and the downside from Middle East related raw material cost pressure coupled with over recovery in theSeasonings and Foods division and under recovery in Frozen Foods. Underpinned by accelerating revenue growth and 550bps EXHIBIT 3:Our EPS estimates are well above consensus ABF PRICING AND OPERATIONAL LEVERAGE UPSIDE Historically, ABF revenue growth has been driven by mix evolution and the introduction of new specifications at higher pricepoints, however, with customers raising downstream prices in the substrate prices by 15-30% Ajinomoto management nowhave plans for like-for-like price increases. As a result, we expect ABF revenue to grow by 35% in FY3/27&28, with operational leverage returning to 1.6x and BP growing by 56%. Should downstream capacity constraints drive further price increases by EXHIBIT 6:We expect ABF operational leverage to return to 1.6x on the back of pricing and cycling Gunma cost OVER / UNDER RECOVERING RAW MATERIAL INFLATION Ajinomoto’s Seasonings & Foods division faces raw material price headwinds in the region of c. 3.6% of revenue (Exhibit 8), byour estimates, as a result of Middle East conflict related oil price increases (link). This would equate to c. ¥33b of headwind if leftunmitigated, but, given the company’s strong brand and high seasonings market shares in key markets, we expect Ajinomoto to In FY3/25&26, Ajinomoto grew revenue 1.9x and 1.6x faster than the COGS increases in Japan S&F (Exhibit 10), and we nowmodel a 1.6x cost pass through across the S&F division leading to 100bps of margin expansion. We have raised our global S&FBP estimate by 4.6% from ¥156bn to ¥163bn as a result. We expect the company to under recover in Frozen Foods, however, as the industry is fragmented and Ajinomoto has historicallyonly managed modest cost pass through. For example, in FY3/26 Japan FF recovered only 70% of incremental COGS and that By our estimates, Ajinomoto’s global Frozen Foods business faces c. 700bps of margin pressure before mitigations, whichwould equate to c. ¥20b of headwind if left unmitigated, and we only expect the company to be able to pass 50% of this on toconsumers via price increases. On this basis, we have raised our FY3/27 Frozen Foods revenue growth estimate to 6.4%, but Faced with this significant incremental pressure in Frozen Foods, we see an increasing probability that management restartstheir Frozen Foods restructuring program which, in the US, delivered c. 330bps of margin expansion over FY3/23-24 (link). Ajinomoto still has 6 Frozen Food