Ajinomoto reported core net profit of RM45m (+1.5% yoy) for 9M FY20, which came in within our expectations. The improvement comes on the back of stronger sales volume from both its consumer and industrial segments, partly on higher ASPs for its “Aji-no-moto” retail brand and better export value. We trim our FY20-22E earnings by 3-5%, accounting for the impact of softer consumer sentiment amidst the Covid-19 virus. Post revision, we trim our TP to RM19.00. Nevertheless, we continue to favour the stock for its defensive core business, while its export growth prospects remain resilient. We maintain our BUY call.

Within Expectations

Ajinomoto reported 9M FY20 revenue of RM340.9m (+3.8% yoy), driven by higher sales from both its consumer (better ASP of “Aji-no-moto” retail brand) and industrial segments (higher export sales). In terms of geographic segment contribution, stronger growth momentum was seen from the export markets (+13.4% yoy) which partially offset weaker domestic sales (-2.1% yoy). Overall, group net profit was RM45m (+1.5% yoy), broadly within our expectations. This note marks a transfer of analyst coverage.

Core Earnings Better Sequentially

3Q FY20 revenue stood at RM119m (-1.9% qoq), attributed to lower sales volume across both consumer and industrial segments. Core net profit came in at RM15.7m (+0.7%) on better margins due to lower A&P costs. Going forward, we foresee the business environment being challenging given the backdrop of a weaker macro outlook, exacerbated by Covid-19. Elsewhere, heightened volatility in RM/USD should also impact raw material prices.

Reiterating Our BUY Call

We trim our FY20-22E EPS by 3-5% to account for the potential impact of the weaker macro outlook amidst the Covid-19 outbreak. Post revision, we trim our 12-month TP to RM19.00 (from RM19.8), based on an unchanged target PER of 20x on our CY20E EPS. Overall, we continue to favour Ajinomoto for its defensive core business while its export-growth prospects remain resilient. We reiterate our BUY call on the stock, with potential upside of 23% to our TP. Downside risks: (i) fall in export sales; (ii) higherthan-expected production costs; and (iii) weaker global macro conditions.

Source: Affin Hwang Research - 27 Feb 2020