Ajinomoto posted a core net profit of RM60.2m (+7% yoy) for FY20, tracking ahead of our expectations. On top of higher sales contributions from both its consumer and industrial segments, lower overall production costs led to the commendable earnings improvement (+7% yoy). We lift FY21-22 earnings estimates by 4-8% and arrive at a higher TP of RM18.10 (18x CY21 EPS). Notwithstanding a challenging 2020, we remain in favour of Ajinomoto given its defensive core business, sturdy export growth prospects and cash-rich position. Maintain BUY.

FY20: Ahead of Expectations

Ajinomoto posted a FY20 revenue of RM461.7m (+3% yoy), attributed to higher contributions from both its consumer (higher ASP for “Aji-no-moto” retail) and industrial (higher export sales and stronger US$) segments. Geographically, softer domestic sales were offset by robust growth momentum from export markets, specifically the Middle East region which saw a robust growth (+20% yoy). Aided by an overall lower production cost, core net profit came in at RM60.2m (+7%). The results tracked ahead of expectations, accounting for 109% of our FY20 estimate. To our surprise, no dividend was proposed as yet. However, as the group typically announces dividend entitlement around end-July - we are maintaining our dividend assumption for now, pending further clarity.

Challenging 2020; But Brighter Prospects Ahead

Sequentially, revenue was up marginally to RM120.8m while core earnings improved 27.6% to RM15.4m on better margins owing to lower production costs. In view of the impact from the Covid-19 pandemic, the remainder of 2020 would inevitably be challenging, particularly as out-of-home channels continued to operate under various preventive measures. Nevertheless, longer term, we foresee a better growth trajectory ahead driven by sturdy export demand for its halal-certified seasoning products.

Maintain BUY

We lift our FY21-22 earnings forecasts by 4-8%, mainly to account for stronger export sales and better cost efficiencies going forward. Post revisions, our TP is raised to RM18.10, based on an unchanged target PER of 18x on CY21 EPS. We remain in favour of Ajinomoto given its defensive core business, sturdy export growth prospects and cash-rich position. Reiterate BUY on the stock, with potential upside of 21%.

Source: Affin Hwang Research - 26 Jun 2020