Company Results

• Ajinomoto (Malaysia) Bhd (AMB) registered a net profit of RM16m in 2QFY19, which elevated 39.1% qoq but tumbled 6% yoy amid improved revenue of 23.7% qoq and 2.1% yoy. The Group’s QoQ performance was underpinned by better topline and bottomline in both Consumer and Industrial segments while YoY performance was aided by higher revenue in Consumer segments despite lower earning in industrial segments.

• For 1HFY19, the group reported net profit of RM26.7m which declined 8.6% yoy. Meanwhile, revenue stood at RM213.1m which dropped 0.6% yoy.

• Within expectation. 1HFY19 net profit meets 46.9% and 46.3% of ours and consensus full year net earnings forecast respectively given improved sales in Industrial segment.

Comment

• Active promotional activities lifted the Group’s earnings on qoq basis. AMB’s quarterly revenue soared 23.7% qoq, thanks to higher sales in Consumer products (+23.4% qoq) and Industrial segment (+24.8% qoq). Also, operating profit margin increased 1.1 ppts following massive promotional activities as well as increased sales deliveries from both segments.

• Higher expenses weighed on the Group’s yoy earnings. The Group’s operating earnings declined 4% yoy with margin down -1.0 ppts. Lower earnings were due to higher expenses incurred during this period arising from advertising activities and sales deliveries. However, revenue rose 2.1% yoy, aided by higher retail sales of “Ajinomoto” brand under the Consumer segment during the tax holiday.
• Cumulatively, 1HFY19 revenue and operating profit dropped 0.6% yoy and 12.3% respectively. Discouraging performance in 1HFY19 was bogged down by lower sales in Consumer segment as well as lower margin in Industrial segment.
• Risks – Despite dominating the MSG market, AMB faces competition in other food and seasoning products from local brands and overseas producers. Management is cautious that foreign exchange fluctuations and trade tensions could inflate the cost of imported raw materials. However, the Group will monitor the cost management as well as sales plan to strengthen overall sales and profit.

Earnings Outlook/Revision

• No change for our earnings forecasts for FY19 and FY20.

Valuation & Recommendation

• Maintain HOLD with a revised target price of RM21.60 (previously RM22.75) based on 3x FY18F price-to-book (previously 3.1x). Our valuation implies +1.5 standard deviation above its 3-year mean of 2.12 times banking on its dominant position in the market.

Source: JF Apex Securities Research - 29 Nov 2018