Unexciting Earnings Surprise

Despite a lower-than-expected top line growth of 4% in FY18, Ajinomoto’s core net profit grew by 34% yoy to RM56.5m mainly due to a low tax rate, and accounted for 108.6% of our full year estimates. We view the results as lacklustre as core PBT was flattish yoy. Its export sales were below expectations due to lower sales quantity and a weaker US$ against the RM. We caution of earnings risks given our in-house view of a strengthening RM, which may affect its export revenue. Maintain Hold with an unchanged TP of RM20.30.

FY18 Core Profit Up 34% Yoy – Above Expectations

FY18 core earnings showed a 34% yoy growth to RM56.5m on the back of 4% sales growth. The Consumer division (72% of total sales) saw 3% yoy growth due to increase in sales quantity & higher selling price from MSG products. However, revenue of the Industrial Business division increased only by 7% yoy vs our forecasts of 14% growth. The weakness was due to lower export sales quantity and weaker USD against MYR in 4Q18. Hence, Ajinomoto’s EBIT margin declined slightly by 1.1ppts to 13.2%. Core net profit increased by 34% yoy to RM56.5m, being 9% higher than our forecast of RM52m. However, we view the results as lackluster as the positive earnings surprise was due only to a lower tax rate while its core PBT was flattish. The company proposed a first and final single-tier DPS of 46.5 sen for FY18, representing 2.1% yield.

Slowdown in Export Sales

Ajinomoto’s domestic sales grew by 4% to RM261.7m in FY18, which was in line with the historical annual growth rate. However, the growth of export sales slowed down to 4% (vs. 11% growth in FY17). Middle East region’s sales were flattish, we suspect this could be due to intense competition and lack of new customers in the Industrial Business division.

Maintain HOLD

We maintain our HOLD rating and TP of RM20.30 (based on an unchanged PER of 20x FY19E EPS). We leave our earnings forecast unchanged while introducing FY21E’s numbers. Risks include price competition, substitution risk, cost risk, and currency risk.

Source: Affin Hwang Research - 25 May 2018