Company Results

• Ajinomoto (Malaysia) Bhd (AMB) posted a net profit of RM18.1m in 3QFY19, up 16.3% qoq and 5.3% yoy. Meanwhile, revenue depleted 2.3% qoq but improved 5.3% yoy. The Group’s QoQ performance was underpinned by better topline in Industrial segment and bottomline in both Consumer and Industrial segments. Meanwhile YoY performance was aided by higher revenue and earnings in both Consumer and Industrial segments.

• For 9MFY19, the group reported net profit of RM44.8m which declined 7.1% yoy. Meanwhile, revenue stood at RM239.4m which was down 4.9% yoy.

• Within expectations. 9MFY19’s earnings meet 78.7% and 78.9% of ours and consensus full year net earnings forecast respectively given improved sales in Industrial segment and better margin in Consumer segment.

Comment

• Lower production cost spurred the Group’s QoQ performance. The Group registered higher earnings in 3QFY19 which improved 15.3% qoq, thanks to better margins in consumer and industrial products due to lower production cost. However, revenue was slightly lower by 5% qoq due to high sales in previous quarter during tax holiday period.

• Better YoY earnings. AMB recorded better operating earnings, +35% yoy in 3QFY19 following stellar earnings in both consumer and industrial segments. Better results in both segments were due to lower production costs. Besides, revenue also improved 5.3% yoy, aided by higher sales in both products.

• Cumulatively, 9MFY19 revenue and operating profit increased 2.2% yoy and 21.7% respectively. Stellar results were buoyed by better sales in both industrial and consumer products. Besides, better margin was supported by consumer product despite contraction in industrial segment’s margin.

• Risks – Despite dominating the MSG market, AMB faces stiff 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 adopt the effective 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 RM19.88 (RM21.60 previously) as we rolled over valuation to FY20F. Our valuation is now based on 2.8x FY20F price-to book (from 3x). This implies +1 standard deviation above its 3- year mean P/B of 2.12 times, banking on its dominant position in the market.

Source: JF Apex Securities Research - 27 Feb 2019