Kikkoman "Upgrading to Buy: The time is now" (Buy) Ihara

Research evidence excerpt

Kikkoman "Upgrading to Buy: The time is now" (Buy) Ihara

are likely seasoning and food

manufacturers struggling to grow in Japan's shrinking market, making expensive acquisitions

unlikely. By acquiring companies that lack the resources to expand overseas and placing them on

Kikkoman's platform, we believe the company can generate synergies. As demonstrated by its

soymilk business acquisition in 2008, we believe Kikkoman has the ability to manage small-scale

M&A deals in adjacent business domains.

EVIDENCE Most recently, the company raised soy sauce prices in North America in November 2021, May 2022

and October 2022. As a result, despite sharp cost increases due to the Ukraine conflict and

subsequent commodity inflation, business profit in the North American food manufacturing business

achieved strong growth, rising 9% yoy on a forex-neutral basis in FY3/22, 15% in FY3/23 and 24% in

FY3/24, when raw material prices declined. Share buybacks have increased every year, reaching

¥10.0bn in FY3/24, ¥15.0bn in FY3/25 and ¥20.0bn in FY3/26, and the already announced share

buyback for FY3/27 totals ¥30.0bn, indicating an accelerating pace on a historical comparison. Sales

at the time of the 2008 acquisition of Kibun Food's soymilk business were about ¥14.0bn (before

rebate deductions). By FY3/26, sales had grown to ¥37.3bn on an IFRS basis after rebate deductions,

roughly tripling in size over 18 years.

WHAT´S PRICED IN? Most investors appear to believe that the company's growth potential and scope for improving

capital efficiency are already reflected in the share price, given that the stock is trading at a 12-month

forward PER of 22X, which already represents a 30% premium to the average for food companies,

and that the company changes little for better or worse.