JF Apex Research Highlights

Author: kltrader   |   Latest post: Mon, 8 Oct 2018, 09:48 AM


Ajinomoto (Malaysia) Bhd - Household Brand With Over 50 Years of History

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Investment Highlights

  • Ajinomoto (Malaysia) Bhd (AMB) was established in 1961 as a subsidiary of its Japanese parent company. The company produces Monosodium glutamate (MSG), stock seasoning, sweetener, ready mix seasoning and industrial seasoning.
  • With a proven track record of over 5 decades, AMB’s AJINO-MOTO® umami seasoning has become a household brand among Malaysian consumers. Over the years, it has gained market leadership with 88% share in the MSG market.
  • Steady growth - Over the years, AMB’s strong brand and steady consumer demand translated into steady earnings growth. From FY11 to FY17, AMB enjoyed healthy profit growth with revenue CAGR of 4.1% while normalized net profit CAGR stood at 7.3% over the same period.
  • Exports boost earnings - Exports contribution to revenue increased to 40% in FY17 from 32% in FY11 led by the Middle East mainly due to the advantage of halal certification from JAKIM. Sales from the Middle East enjoyed a CAGR of 11% from FY11 to FY17, leading overall sales growth as sales from Malaysia and Asia posted CAGR of 2% and 6% respectively over the same period.
  • Improving margins - Operating profit margin has been rising steadily from 8% in FY13 to 14% in FY17 due to ongoing cost efficiency.
  • Cash rich – AMB is in a net cash position with cash reserve of RM111m in 2QFY18. It has a dividend policy of 50% but yield is unattractive at 2%.
  • Risks - Amid higher cost of living, consumers might opt for lower priced products. Despite dominating the MSG market, AMB faces competition in other food and seasoning products from local brands and overseas producers.
  • Continuous growth - Going forward, we project sales growth to remain steady and increase 3.5%, 3.6% and 2.9% in FY18, FY19 and FY20 respectively. Profit after tax is expected to grow 12% in FY18 due to higher interest income after placing proceeds from land sale to the MRT project into investment securities. Subsequently, net profit is expected to climb 6.1% and 4.6% in FY19 and FY20 respectively.

Valuation & Recommendation

  • We are initiating coverage on Ajinomoto with a BUY call at a target price of RM22.75 based on 3.1x FY18F price-tobook, implying +1.5 standard deviation to its 3-year mean of 2.12 times.

Source: JF Apex Securities Research - 13 Feb 2018

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