Founded in 1917 and headquartered in Noda, Japan, Kikkoman manufactures and sells food products- including oriental food items, distributes food products wholesale, and produces clinical diagnostic reagents and chemical products. The company operates through four main segments: Overseas Foods-Wholesale, which contributed 54% to 1HFY25 sales; Overseas Foods-Manufacturing and Sales, 23%; Domestic Foods- Manufacturing and Sales, 21%; and Domestic Others, 2%.

Listed on the Tokyo Stock Exchange since 1949, the company has become a leading player in the packaged foods industry, with operations spanning Japan, North America, Europe, Asia, and Oceania. Kikkoman employs 7,521 people globally and continues to innovate and expand its market presence.

Growth amplified by strategic investments

Over the past five years, Kikkoman has achieved a revenue CAGR of 8%, reaching JPY661bn in FY24, mainly driven by the Overseas Foods-Wholesale segment, which expanded at a CAGR of 14% from FY19 to FY24 and contributed JPY375bn to FY24 net sales. EBIT grew at a 5-year CAGR of 13%, reaching JPY70bn in FY24, with a margin expansion of 227bps to 10.6%, supported by effective cost control measures. However, FCF has remained volatile due to varying capex investments, which ranged between JPY15bn-JPY30bn annually over the past five years. The company’s cash and cash equivalents increased significantly to JPY119bn as of FY24 end from JPY30.2bn as of FY19, aided by shoring up of debt from JPY17bn in FY19 to JPY60bn in FY24. Consequently, Kikkoman’s debt-to-equity ratio nearly doubled, increasing from 0.06x in FY19 to 0.12x in FY24.

Kikkoman has demonstrated superior performance in both revenue and EBIT growth over the last five years when compared to its peer, House Foods Group Inc. Kikkoman’s 5-year revenue CAGR of 8% and EBIT CAGR of 13% significantly outpaced House Foods’ revenue CAGR of 0.2% and EBIT CAGR of 2% over the same period due to its strong global presence, product diversification, economies of scale and ability to capitalize on international demand for Asian flavours.

In 1HFY25, Kikkoman reported a strong 10% YoY increase in sales to JPY356bn. The Group exceeded consensus revenue forecasts for the fourth consecutive quarter. The Overseas Foods-Wholesale segment was the primary driver, delivering 13% YoY growth and contributing 54% of total sales in 1HFY25. Additionally, the Overseas Foods Manufacturing and Sales segment achieved robust 10% YoY growth, generating JPY85bn. This was attributed to the successful leveraging of the Kikkoman brand, a focus on expanding soy sauce-based seasoning offerings, and increased sales of canned fruits, corn, tomato ketchup, and other products across the Asia and Oceania regions. Furthermore, operating profit rose by 24% YoY to JPY42bn, with overseas profits accounting for JPY37bn of the total.

Robust results prompt earnings upgrade

Kikkoman has revised its consolidated earnings guidance for FY25 upward, reflecting its strong performance and favourable market conditions. The updated projections estimate consolidated sales of JPY696bn, operating profit of JPY75bn, and profit before income taxes of JPY84bn. These adjustments were largely driven by robust 1HFY25 results, supported by foreign exchange gains. Furthermore, Kikkoman anticipates 6% YoY growth in both the Foods-Manufacturing and Sales segment and the Foods-Wholesale segment, projecting these segments to reach JPY319bn and JPY396bn respectively.

The company’s medium-term management plan for FY23–FY25 emphasizes sustainable growth and profitability, with plans to achieve a revenue CAGR of 5% or higher, maintain a business profit margin of 10% or more, and achieve an ROE of 11% or higher by FY25. To achieve these goals, Kikkoman has prioritized global expansion and strengthened R&D efforts along with sustainable and innovative practices. Consequently, the Group progressed forward with strong revenue growth fueled by increasing demand for soy sauce and wholesale products, as well as through strategic investments in technology and product development.

Superior margins boost valuation

Kikkoman is currently trading at a P/E ratio of 25x, which is significantly lower than its 10-year historical average of 36.3x but trades at a premium compared to its peer, House Foods, at 19x. Similarly, Kikkoman’s EV/EBITDA stands at 14x, below its 10-year average of 18.2x and higher than House Foods at 5.3x. This premium valuation is justified by Kikkoman’s superior EBIT margin and a robust ROE of 12%, which are significantly higher than industry peers. The stock has declined over 15% in the past one year.

Out of the 11 analysts covering the stock, three have issued a “Buy” rating and two have rated it “Outperform” for an average target price of JPY1,936, indicating a potential upside of 20% from the current levels. Additionally, the stock upside is supported by an estimated growth in net sales, reflecting a CAGR of 4.3% over the period FY25-27 to reach JPY764.4bn.

Overall, Kikkoman presents a strong case for investment evaluation on the backdrop of correction in prices, further supported by solid fundamentals and a positive outlook, particularly for revenue growth in its Overseas Foods-Wholesale segment. The company has consistently outperformed consensus estimates over the past four quarters, achieving record numbers in 1HFY25. As a key player in the packaged foods industry, Kikkoman is also looking to expand its presence in new markets. However, potential risks include increasing competition, raw material price fluctuations, supply chain disruptions, evolving consumer trends, and compliance-related challenges.