- Tram Ho
Ajinomoto, a 112-year-old Japanese food manufacturer, is best known for its MSG seasoning. However, now, this company has suddenly emerged as a beneficiary of the Covid-19 pandemic.
The reason is because, although the production of spices and sauces struggled when the blockade orders devastated the restaurant industry. Ajinomoto is surprisingly profitable as a supplier of high-tech film to the booming computer chip industry. Thanks to that, Ajinomoto just reported a record high operating profit last quarter.
According to Nikkei, Ajinomoto exemplifies the resurgence of Japanese businesses, like Fujifilm’s transformation from a film maker into a pharmaceutical empire. Or as Olympus has transformed itself from a struggling camera manufacturer to a leading endoscope manufacturer.
Analysts are now curious to see how far and fast Ajinomoto can go in a completely different field from where it started in the food industry.
Shigeo Nakamura, head of the company’s chemical products division, said: ” ABF is inside most of the desktop and laptop computers people use. ABF is a thin composite used. to attach the processor to a base layer called the substrate, which connects the chip to the motherboard and protects the device from damage .”
ABF substrates are widely used in high-power computing chips found in satellites, 5G base stations, and self-driving cars. The Covid-19 pandemic has increased the need to upgrade IT infrastructure, worsening global chip shortages. Ajinomoto’s sales could be even higher if its customers could scale faster to meet demand.
Investors were also quite optimistic about Ajinomoto’s business, pushing the company’s stock price to a five-year high. The business segments including electronics and healthcare accounted for 23% of the company’s total operating profit for the financial year ending March 2021.
Makoto Morita, analyst at Daiwa Securities said: ” Every company needs to review its business portfolio regularly. This is even more advisable for Japanese food manufacturers. , which is facing a declining population in the domestic market “.
Morita wants Ajinomoto to be more aggressive in revamping his portfolio. According to him, global food and consumer product manufacturers such as Nestle, Danone and Unilever make more acquisitions and sales than their peers in Japan. ” Ajinomoto can do more than that “.
We now have a much broader customer base
People still seem surprised to hear about Ajinomoto’s semiconductor business.
” I’m often asked by customers in Japan and abroad why Ajinomoto got into electronics, ” said Nakamura, a bioengineering graduate student from Tokyo Institute of Technology and an alum. University of California Santa Barbara, one of the original developers of ABF in the 1990s, said.
For more than a century, Ajinomoto has been producing foods including condiments, broths, dry soups and frozen foods. Although today the company uses natural ingredients such as sugarcane and cassava to make seasonings, at one stage the company made products through chemical synthesis to be able to produce major mass production. more precise and more staff were involved in chemical research.
When Ajinomoto stopped making chemical-based products in 1973, ” researchers decided to do something new, ” explains Nakamura, explaining how the company’s chemicals business was born.
Obviously, a food company could manufacture semiconductor material and convince chipmakers to use it. Such a material needs to meet many requirements, such as good adhesion and heat resistance as well as being non-conductive. It should also be cheap and easy to handle. Chemical products that meet these requirements have been found during research on proteins and amino acids – the main seasoning ingredients. However, few expected Ajinomoto to create semiconductors.
When ABF entered the market in 1999 and acquired its first customers, the product began to grow rapidly. Ajinomoto did not disclose the number of its customers, but the ABF substrate is believed to be used in computer microprocessors made by Intel and Advanced Micro Devices.
Sales fell between 2008 and 2016 in part because ABF was not used in chips for smartphones, the dominant device of the time. However, the pandemic has increased demand for PCs as remote learning and working become commonplace around the world. Demand for ABF continues to be driven by the rush to build data centers for cloud computing and base stations for 5G networks.
” Previously our customers were only PC manufacturers. Now we have a much broader customer base, ” said Nakamura. The company’s factory in Gunma, north of Tokyo, has plenty of room to ramp up production.
Unimicron, a Taiwanese printed circuit board manufacturer that is one of Ajinomoto’s major customers, said it is spending up to $2.56 billion to expand its ABF substrate production capacity over the three years to 2023. The supply is expected to be fully booked until 2025.
Unimicron President Michael Shen told investors last month: ” Due to the current situation with ABF substrates, we continue to increase our investment every year. Now customers want ABF “.
Thanks to customers like Unimicron, Ajinomoto expects ABF shipments to more than double in the five years to 2024.
Non-food segment will be the driving force to generate profits for the whole company
Ajinomoto’s stock has surged 80% in two and a half years, and analysts who once turned against the company, decrying the slow-growing company have turned and praised them.
SMBC Nikko Securities analyst Naomi Takagi increased his rating on Ajinomoto stock.
Investors have focused on prospects for the non-food segment, or other segments primarily in the healthcare sector including liquids used in intravenous drips, materials for cell culture and contract drug manufacturing, as well as ABF.
” We expect the non-food segment to account for 60% of profit growth over the next three years ,” said Hiroshi Saji, equity analyst at Mizuho Securities. ” This segment will be the driving force behind the company’s profits .”
This enthusiasm reflects the transformation of Takaaki Nishii, the company’s CEO since 2015. In his first four years at the helm, Nishii has seen a drop in share price and investor dissatisfaction. private. This is partly a consequence of the overseas expansion plans carried out by his predecessor Masatoshi Ito.
Ajinomoto has long harbored ambitions to rival global food giants like Nestle. Under Ito, the company embarked on a monumental transaction aimed at boosting overseas sales.
The company made a series of acquisitions in Turkey between 2013 and 2017. In the US, Ajinomoto bought frozen food maker Windsor Quality Holdings for about $800 million in 2014. In South Africa , which acquired food manufacturer Promasidor for $532 million in 2016. In Japan, it took full ownership of the foreign beverage joint venture Ajinomoto General Foods for about $245 million in 2016. 2015.
But many overseas acquisitions failed, forcing the company to write off most of these companies in 2019. As a result, investor confidence plummeted.
In November 2018, Nishii abruptly announced a shift to a “less asset management” strategy, signaling that the company would restructure unprofitable operations and focus on promising areas such as ABF. .
Investors were skeptical of that decision. “Is the current leadership team capable of implementing the new strategy? How can the management carry out the reorganization of the company? ” were some of the calls made during a call. meeting in January 2019.
Some action is needed to deal with the strong opponents Ajinomoto faces both in Japan and abroad.
In the beverage market, their ground coffee faces a challenge from Nestle. In the frozen food sector, Ajinomoto has yet to catch up with the domestic leader, Nichirei. Meanwhile in the dry food segment, investors are looking for new products besides Knorr brand soup.
The Philippines, Thailand, Vietnam and Brazil have become important overseas markets for Ajinomoto. But even there, the company faces competition from local food producers and has seen profit margins fall over the past decade.
” Ajinomoto needs to come up with a growth model for its food business, especially in overseas markets. The campaign must first succeed in Japan, ” said Daiwa analyst Morita . .
Ajinomoto aims to reinvent its food business in the form of healthy eating.
Taro Fujie, the company’s general manager in charge of food, said Ajinomoto wanted its brand to be synonymous with “less salt”. This campaign must first be successful in Japan. If successful, it could be applied to other countries.
Another campaign encourages people to consume more protein. Insufficient protein intake is a common problem among the elderly, says Fujie. Ajinomoto has launched Prottie, a high-protein powdered soft drink, in the Philippines and Thailand.
Also in Thailand, Ajinomoto’s famous canned coffee, Birdy, was originally intended for truckers who needed caffeine to stay awake on the road. It is very sweet. Today, Ajinomoto sells low-sugar or sugar-free versions to attract more health-conscious customers, including women.
” The richer you are, the more you pay attention to the food you eat and your health, ” says Fujie.
Nakamura, director of the chemical division, said that Ajinomoto is comfortable with a wide range of businesses that include everything from coffee powder to contract drug manufacturing to chip materials.
” We have a wide variety of businesses. That’s our strength ,” he said.
For Daiwa analyst Morita, it’s even simpler. Ajinomoto is a company based on amino acid technology.
” In some ways, Ajinomoto may be more of a chemical company than a food company,” he said. “I wouldn’t be surprised if the non-food segment accounts for half of the company’s future profits. ” .
Source : Genk