We initiate on Ajinomoto Malaysia with a HOLD and TP of RM20.30 based on 20x FY19E PE. Ajinomoto is a manufacturer of monosodium Glutamate (MSG) and other flavored seasonings. We like it for its brand name and its dominant share in Malaysia. While Malaysia market’s growth is supported by urbanization, we think its focus on exports, especially to the Middle East provides exciting growth opportunities.

Ajinomoto- a Market Leader With Trusted Brand Name

Established in 1961, Ajinomoto Malaysia is a leading Monosodium Glutamate (MSG) producer with 80% market share in Malaysia. Approximately 73% of sales are derived from the consumer segment, which include MSG products and flavoured seasonings. The remainder comes from the industrial segment whereby Ajinomoto sells functional savoury seasoning products to processed food producers.

Commendable Track Record in Malaysia

Ajinomoto Malaysia’s sales in Malaysia has grown at a CAGR of 5.3% over FY09-17, which is in tandem with the growth rate of F&B establishments and processed food sales volume. Despite dominant market share of over 80% in MSG, we believe there is growth opportunities for Ajinomoto, forecasting its sales to grow at 5% CAGR over FY17-22E. This is on the back of more product offerings as the flavoured seasonings’ market is still fragmented and enjoys higher growth rate. Growing demand for processed food and growing F&B food service should also support its growth.

Promising Outlook in Export Sales

Overseas sales accounted for 40% of total sales in FY17 and its products are mainly exported to Middle East and the Asia region. We are positive on the export outlook as MSG consumption in Asia is expected to grow by 4.1% p.a. over the next 2-3 years. Ajinomoto’s “halal” certified product status will be an added advantage, shortening the export lead time to the Middle East.

Initiate Coverage With a HOLD Rating and TP of RM20.30

We initiate coverage with a HOLD rating and TP of RM20.30 based on 20x FY19E PE. We think that with estimated earnings growth of 13% per annum for FY17-22E and dividend yield of 2.3-2.8%, the current share price is fairly valued and it is in line with valuations of Malaysia’s F&B consumer space. Downside risks include price competition, substitution risk, and cost risks.

Source: Affin Hwang Research - 9 Feb 2018