• Ajinomoto’s 1QFY21 core net profit of RM15.3m (+10.9% yoy) surprised us on the upside, accounting for 27% of our full-year forecast.
• Notwithstanding a challenging quarter where revenue declined 5.5% yoy to RM95.1m, higher margin from lower marketing spend sent profits higher.
• We lift our earnings estimates by 1.2-6.9% for FY21-23E, mainly to factor in a lower opex. Reiterate BUY on Ajinomoto, with a higher TP of RM18.60.

Unfazed by lockdowns; core net profit rose 10.9% yoy to RM15.3m

Ajinomoto’s 1QFY21 revenue came in at RM95.1m, down 5.5% yoy, underpinned by a decline in the consumer segment (lower sales of seasoning products during MCO) but slightly cushioned by the industrial segment (higher export sales on a stronger US$). Geographically, domestic sales were softer (-13%) compared to the export market which grew 5% yoy. In tandem with a higher EBIT margin (+4.4ppt), driven by a lower marketing spend, core earnings came in at RM15.3m (+10.9% yoy). This surprised us on the upside, accounting for 27% of our forecast, partly on the lower-than-expected opex. Ajinomoto announced a full-year DPS of 49.3sen for FY2020. (FY19: 47sen).

Weaker sequentially

Sequentially, revenue and core net profit were down 21.3% and 0.8% respectively, owing to softer sales in a seasonally weaker quarter. Over the subsequent quarters, we expect earnings delivery to remain favourable in view of demand recovery coming from the reopening of out-of-home channels. Also, export demand for its halal-certified seasoning products should further lend support to a sturdy growth trajectory.

Reiterate BUY with a higher TP of RM18.60

In view of the solid results, we lift our earnings estimates by 1.2-6.9% for FY21-23E, broadly to account for a lower opex. Post revision, our TP is revised higher to RM18.60, based on an unchanged target PER of 18x to CY21 EPS. We reiterate our BUY call on Ajinomoto as we continue to like the resilient nature of its business, export growth potential and cash-rich position. Moreover, the dividend yield stands at a decent 3.4% at current levels. Downside risks: (i) decline in export sales (ii) higher-than-expected production costs; and (iii) weakening of global macro conditions.

Source: Affin Hwang Research - 18 Aug 2020