Japan Food Sector "DuPont analysis identifies conditions for a sector..."

Research evidence excerpt

Japan Food Sector "DuPont analysis identifies conditions for a sector..."

Global Research

2 July 2026ab

Japan Food Sector Equities

JapanDuPont analysis identifies conditions for a sector

re-rating Food & Beverage

Rei Ihara

Analyst

rei.ihara@ubs.com

Food stocks are ultimately not being valued because ROE is not improving +81-3-5208 6227

Looking back over the past ten years, the TOPIX Foods index has outperformed TOPIX by Ryunosuke Watanabe

more than 5% in only one year. In our view, investor sentiment toward the sector Associate Analyst

continues to be held back by persistently weak ROE. Based on the simple average of the ryunosuke.watanabe@ubs.com

24 companies under our coverage, ROE rose from 6.4% in 2014 to 9.4% in 2016 as +81-3-5208 6243

restructuring initiatives boosted profitability. It subsequently peaked at 10.5% in 2017,

supported by large-scale leveraged acquisitions (inc. Asahi acquisitions) and asset sales

(inc. Kirin's portfolio restructuring), before trending lower. In recent years, ROE has

remained in the 8% range (Figure 1). We have conducted a DuPont analysis to

determine what is required for ROE to improve going forward.

Profitability improvement has stalled, while asset turnover has also

deteriorated in structural terms

The simple average net profit margin of the 24 food stocks under our coverage closely

resembles the ROE trend. Although it improved from 2014 to 2017, it was range-bound

from 2018 to 2025 (Figure 2). We believe one reason for this is that over the past five

years, the food sector has faced an ongoing conflict between cost push and price

increases, and has been unable to achieve fundamental profit improvement.

Furthermore, the simple average asset turnover ratio shows that while it deteriorated