First-half FY2026 results call, November 9, 2026: record sales, business profit and net income, with the earnings mix still tilted heavily toward electronic materials
ABF Drives the Upgrade, and Management Is Openly Guiding Conservatively
Ajinomoto raised its full-year forecast for the second time this year, adding JPY 35 billion to sales, JPY 8 billion to business profit and JPY 11.5 billion to profit attributable to owners of the parent, which now stands at JPY 135 billion. First-half sales rose to 112% of the prior-year level, business profit to 125% and attributable profit to 143%. The attributable figure was helped by a one-off tax effect from the absorption-type merger of Ajinomoto Fine-Techno. The driver was Functional Materials, where first-half sales rose 63% and business profit rose to 181% of last year's level on demand for ABF build-up film used in AI servers, networking and high-performance processors.
The implied second half looks oddly soft. Mizuho's Hiroshi Saji noted that Functional Materials sales are projected to grow only about 7%, or JPY 3.8 billion, in the second half, against a JPY 28 billion increase in the first half and 71% growth in the second quarter alone. CEO Shigeo Nakamura did not frame this as a demand signal. He described the forecast as "almost like a commitment line" and said the company intends to keep raising it quarterly. Finance chief Eiichi Mizutani said the third quarter should run at a similar level to the second, and he again used the language of a commitment forecast for the fourth quarter. The practical reading is that the guidance embeds little visible deceleration and is likely to be exceeded if demand holds.
On demand durability, Nakamura acknowledged possible US regulation of AI and data centers following the midterm elections. He argued that simultaneous global construction means any change would be to the pace of growth, not to overall demand, and that customer signals have not shifted. He cited WSTS projections of 37% logic IC growth in calendar 2026 and 27% in 2027. He expects ABF to outgrow logic ICs because package substrates are becoming larger and more multilayered, which raises the number of ABF layers per device.
Capacity: A New JPY 21.5 Billion Varnish Plant, but Little Disclosure on Scale
The company will build a new varnish factory on the grounds of its Gunma plant, with mass production scheduled for FY2030 and investment of about JPY 21.5 billion. Until then, supply is to be expanded by adding shifts. Varnish is currently produced five days a week on a single shift. Nakamura declined to give capacity figures and cautioned that moving to three shifts would not triple output. Asked whether the CapEx timing implies a muted spending path before 2030, he said only that the amount and phasing are not yet decided. Management says it has secured supply capacity across the chain, including coating partners, to meet current demand, and is in talks on future capacity.
Bernstein's Miguel Marques raised a pointed issue: business profit growth in the segment now runs at roughly 1.2x revenue growth, compared with 1.5x to 1.7x two or three years ago. Nakamura pointed to favorable mix from high-performance AI products and said the unit price should improve with next-generation adoption. He also acknowledged that heavy R&D spending is the main use of growth investment. He did not explain the narrowing operating leverage. The answer is plausible, but it does not fully resolve the question of whether incremental margins are peaking.
Forge Production Losses Hit CDMO, With a Sharp Second-Half Rebound Required
The Bio-Pharma Services and Ingredients segment posted higher revenue but lower profit. The cause was several large batch production losses at Forge, the company's gene therapy CDMO, along with AJIPHASE shipment timing. Nakamura attributed the losses to human error by inexperienced workers during rapid expansion, noting that individual batches are large and so each failure carries a heavy cost. Personnel from Belgium and Japan have been seconded to Forge. Segment head Takaaki Ashida said production losses were eliminated to zero in September and October.
The second-half plan is steep. Saji calculated sales growth of about 30%, profit of JPY 14.2 billion and a margin of 13.4%, against 6.8% a year earlier. Management says AJIPHASE and AJICAP budgets were skewed to the second half, AJIPHASE is running ahead of budget, and small molecules are already above last year. The company still expects to hit its full-year sales and profit plan for the segment. Nakamura also said he expects "dramatic" CDMO growth next fiscal year. The risk is that a back-half-loaded plan leaves little room for another batch failure.
Frozen Foods: ROIC Below WACC Acknowledged, but No Timeline
The sharpest exchange came when UBS's Rei Ihara said Frozen Foods was loss-making in both Japan and the US in the second quarter and questioned whether the business is worth keeping given its returns. Nakamura conceded: "The ROIC that is under WACC, that is not permissible." He defended the business on cross-selling and technology synergies with seasonings. The company's analysis shows that Ajinomoto frozen food buyers purchase Ajinomoto seasonings at a rate about 20 percentage points higher than the overall sample (about 80%) and spend about 1.5x as much on them annually.
The company forecast a lower full-year profit for the segment, citing higher raw material and logistics costs, mainly overseas, and a North American recall in February whose impact was largely cleared by the end of the first half. Remedies include price increases, rolling out Japanese production know-how to eight North American plants, and real-time production visualization at two plants. A premium US retailer with about 600 stores began selling frozen ramen in June. When pressed to set a deadline for ROIC to exceed WACC, Nakamura said no specific time frame exists and the matter will be addressed through the new growth strategy committee "when the timing is optimal." Food division head Ichiro Sakakura said the company will examine low-margin SKUs and asset intensity. Investors who want a decisive portfolio action will not find one here.
Middle East Costs: Absorption Is a Second-Half Story
Ajinomoto assumes Dubai crude at $110 per barrel and JPY 158 to the dollar, with an annual cost increase of about JPY 25 billion, unchanged, concentrated in Food Products. Management said that in the second quarter it had not yet fully offset the cost increase on a net basis because of pricing lags. It still plans to absorb it fully within the fiscal year. Yet both Morgan Stanley's Tsunoyama and Goldman's Takashi Miyazaki observed that the seasoning outlook implies lower second-half profit despite the pass-through. Sakakura explained that the company will spend more on sales promotion to protect volume. Nakamura also cited price competition from low-priced Chinese MSG in B2B umami ingredients. First-half underlying volume held up: Japan seasonings and foods excluding coffee grew sales 3% with volume up 2%, and overseas sales rose 4% with volume up 2%.
Capital Allocation: No New Buyback, Growth Spending First
The dividend forecast was raised to JPY 52 per share from JPY 50. The existing buyback of up to JPY 80 billion, announced in November 2025, continues, with no new program. Management said growth investment takes priority, citing JPY 24.2 billion for making Ajinomoto Malaysia a wholly owned subsidiary, the Gunma plant, and precision fermentation. Capex is planned at about JPY 130 billion, with operating cash flow of about JPY 240 billion. Miyazaki asked about weaker first-half operating cash flow. Mizutani attributed it to higher one-off inventory to capture Middle East sales opportunities and to cash costs from the recall.
Mizutani said net interest-bearing debt to EBITDA, the company's financial discipline metric, is expected at about 1.4x to 1.5x at year-end, within a 1.5x to 3.0x range, and that headroom is needed to fund growth strategy, including M&A. Nakamura said the company has learned from past M&A failures and now applies financial discipline. Ihara argued that a narrowing spread between borrowing costs and the earnings yield on the shares weakens the case for debt-funded buybacks, and Mizutani confirmed this spread is part of the discussion. Cash deployment will be decided under the 2030 road map and the new committee, so near-term buyback upside appears limited.
Post-2030 Planning and the Concentration Question
Management is using the new company-wide growth strategy committee to set portfolio management and capital strategy, with serious work on a post-2030 plan beginning in 2027. The four questions it frames are which business areas to focus on, which core competencies to emphasize, which business models create advantage and how to execute, including potential withdrawals and restructuring. Priority areas remain ICT, food and green. Nakamura wants next year's targets to be challenging and referred to maintaining profit growth similar to this year's roughly 16%, though he committed to nothing specific.
JPMorgan's Satoshi Fujiwara ended with a blunt critique: outside ABF, second-quarter profits fell again, as in the second quarter last year when the shares dropped sharply, and earnings management remains too reliant on a single product. Nakamura accepted that targets are set aggressively and some businesses miss them, but said overshoots elsewhere offset the shortfalls and the company is investing in areas beyond ABF. The numbers this half support the analyst's point. Ajinomoto's growth is real and the guidance is likely conservative, but its credibility as a diversified food and amino-science company depends on Frozen Foods and Forge delivering the second-half recovery that management has promised.