Company Results

• Higher profit - Ajinomoto (Malaysia) Bhd (AMB)’s 1QFY19 net profit rose 56% YoY to RM12.3m due to lower advertising and sales promotion expenses.

• Flat revenue - Quarterly revenue was lower by 1% YoY at RM95.2m as decline in the Industrial product (-10% YoY to RM24.9m) was mitigated by increase in the Consumer products (+2% YoY to RM70.3m). Lower revenue from Industrial products was due to reduced export volume and weaker USD against the RM.

• Lower QoQ – Net profit for the quarter dropped 24% QoQ due to decline in revenue (-17% QoQ) with lower sales from Consumer products (-18% QoQ) and Industrial products (-15% QoQ).

• Stable margin – Compared to the previous quarter, operating margin was steady at 13% (vs 14% in 4QFY18) as Consumer product saw a decrease of 3 percentage points to 11% while Industrial product’s margin increased 1 percentage points to 18%.

• Cash rich – As at June 2018, AMB is in a net cash position with cash reserve of RM302.5m vs RM296.7m in 4QFY18.

Comment

• Within expectation – Three months’ net profit of RM12.3m account for 20% of our FY19 forecast of RM57m while quarterly sales of RM95.2m make up 21% of our full year forecast of RM452m. Earnings in the first quarter are usually lower due to seasonal and cyclical factor and is expected to improve in the coming quarter. As such, we are maintaining our forecasts for FY19 and FY20.

• Risks - Despite dominating the MSG market, AMB faces competition in other food and seasoning products from local brands and overseas producers. The company expects operating costs to increase following the introduction of SST in 3QFY19 (on 1st September). Management is also cautious that foreign exchange fluctuations arising from trade tensions could inflate the cost of imported raw materials. However, we expect the introduction of SST to have minimal impact on sales due to the inelastic nature of its products.

Valuation & Recommendation

• Maintain 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 - 24 Aug 2018