This article first appeared in The Edge Financial Daily on March 28, 2019 - April 3, 2019
Ajinomoto (Malaysia) Bhd
(March 27, RM17.88)
Maintain hold with a lower target price (TP) of RM19.17 (previously 19.88). The Department of Statistic Malaysia recently released the Consumer Price Index (CPI) data for February 2019. Headline inflation remains deflated for two consecutive months but narrowed its decline to -0.4% year-on-year (y-o-y) from -0.7% y-o-y in January 2019. Meanwhile, on a monthly basis, headline inflation rebounded to +0.2% month-on-month (m-o-m) from -0.5% m-o-m in January.
Based on the latest CPI data, we reckon that Ajinomoto (Malaysia) Bhd’s product pricing and demand are not affected by inflation and or deflation trend as evidenced by the difference in movement of its sales and CPI.
As such, we are sanguine about Ajinomoto’s future prospects following its strong brand and steady consumer demand over the years with wide range of product offerings to both retail and industrial customers. Besides, the group also has strong export positions in many countries.
For the nine months of financial year 2019 (9MFY19), Ajinomoto registered a net profit of RM4.8 million which grew 7.7% y-o-y, while revenue improved 2.2% y-o-y to RM382.2 million. The encouraging results were due to steady revenue and earnings in the consumer segment.
Over the past five decades, Ajinomoto’s umami seasoning has become a household brand among Malaysian consumers. The group’s brand has grown into a market leader with dominant market share of over 80%. Under its consumer business, “Ajino-Moto” MSG is the largest revenue contributor to this segment following its matured position in the Malaysian market. Going forward, other products are also expected to register positive growth rate such as “Tumix” flavour seasoning, “Seri Aji” menu seasoning, and other seasonings such as “Aji-Shio”, “Aji-Mix” and sweetener PalSweet in tandem with growing demand.
Despite dominating the MSG market, Ajinomoto faces stiff competition in other food and seasoning products from local brands and overseas producers. Based on its latest financial results, management is cautious that foreign exchange fluctuations and trade tensions could inflate the cost of imported raw materials. However, the group will adopt the effective cost management as well as sales plan to strengthen overall sales and profit
We maintain our earnings forecast for FY19 but tweak down FY20 earnings by 5% due to higher cost of imported raw materials following foreign exchange fluctuations.
The lower TP of RM19.17 (previously RM19.88) is based on revised 2.7 times FY20F price-to-book (previously 2.8 times). — JF Apex Securities, March 27