Company Results

• Higher profit - Ajinomoto (Malaysia) Bhd (AMB)’s 3QFY18 net profit rose 27% YoY to RM 17.2m due to higher interest income of RM2.2m and tax reversal from overprovision of RM0.3m.

• Steady revenue - Quarterly revenue grew 2% YoY to RM109.4m as decline in Consumer segment (-2% YoY to RM76.9m) was mitigated by increase in sales from the Industrial segment (+13% YoY to RM32.5m).

• Mixed QoQ – Net profit for the quarter rose 4% QoQ due to tax reversal as revenue dropped 5% QoQ due to declines in both Consumer (-6% QoQ) and Industrial (-3% QoQ) segments.

• Lower margin – Compared to the previous quarter, operating margin was lower at 14% (vs 16% in 2QFY18) as Consumer and Industrial segments saw declines of 1 percentage point to 11% and 5 percentage points to 20% respectively.

• Lower QoQ sales to all regions – AMB saw slight decline in sales to all regions (Malaysia, Middle East, other Asian countries) compared to 2QFY18.

• Cash rich – As at Dec 2017, AMB is in a net cash position with cash reserve of RM281m vs RM262m in 2QFY17. The company’s dividend policy is 50% and we expect full year dividend of 48 sen, translating into a yield of 2%.

Comment

• Within expectation – Despite slower sales and lower margin, nine months’ net profit of RM41.6m achieved 78% of our FY18 forecast while cumulative sales of RM321.2m hit 74% of our full year forecast. As such, we are maintaining our forecasts.

• 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.

Valuation & Recommendation

• Following the recent run up in share price, we downgrade the stock to HOLD at an unchanged 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 - 27 Feb 2018