What’s New

• Ajinomoto (Malaysia) Bhd (AMB) is buying a 2.03m sq ft freehold land in Bandar Enstek, Negeri Sembilan from Tabung Haji for RM86m in cash.

• AMB said the land will be used to develop and construct a new manufacturing facility to expand its operations. The deal is expected to conclude by 31 July 2019.

Comment

• We view the deal as positive in the long term as the new plant could cater to its growing export market. AMB has been operating at its sole manufacturing plant in Kuchai Lama for the past five decades.

• In end-2016, AMB sold part of its land in the existing plant to the federal government for the MRT project. This resulted in closure of one production line and smaller space to expand in a large scale.

• Growing exports - Exports contribution to revenue increased to 40% in FY17 from 32% in FY11 led by the Middle East mainly due to the advantage of halal certification from JAKIM. Sales from the Middle East enjoyed a CAGR of 11% from FY11 to FY17, leading overall sales growth as sales from Malaysia and Asia posted CAGR of 2% and 6% respectively over the same period.

• Cash rich – As at Sept 2017, AMB is in a net cash position with cash reserve of RM262m. It has a dividend policy of 50% and we expect dividend payout will not be affected by the land acquisition and new facility development.

• Steady growth - Going forward, we project sales growth to remain steady and increase 3.5%, 3.6% and 2.9% in FY18, FY19 and FY20 respectively. Profit after tax is expected to grow 12% in FY18 due to higher interest income after placing proceeds from land sale to the MRT project into investment securities. Subsequently, net profit is expected to climb 6.1% and 4.6% in FY19 and FY20 respectively.

• Risks - Amid higher cost of living, consumers might opt for lower priced products. Despite dominating the MSG market, AMB faces competition in other food and seasoning products from local brands and overseas producers.

Earnings Outlook/Revision

• No change to our earnings estimates. We did not include any potential earnings contribution from the new facility as AMB said it is still preliminary to ascertain total development costs or the commencement of operations.

Valuation & Recommendation

• We are maintaining our BUY call at a target price of RM22.75 based on 3.1x FY18F price-to-book, implying +1.5 standard deviation to its 3-year mean of 2.12 times.

Source: JF Apex Securities Research - 14 Feb 2018