Company Results

• Ajinomoto (Malaysia) Bhd (AMB) registered a net profit of RM13.7m during 1QFY20 which soared 16% qoq and 22.8% yoy. Meanwhile, revenue tumbled 15.8% qoq but improved 5.6 % yoy.

• Within expectations. 3MFY20’s earnings meet 24.9% and 23.6% of ours and consensus full year net earnings forecast respectively given better-than-expected margins from both Consumer and Industrial segments amid stellar sales from the Industrial segment.

Comment

• Lower operational cost lifted QoQ’s operating profit margin despite lower revenue. AMB’s operating margin increased +4.6 ppts, thanks to better operating profits from both Consumer (+5.3% qoq) and Industrial (+43.5% qoq) segments pursuant to lower advertising and promotional activities during this period. However, the Group’s revenue was down by 15.8% qoq due to lower sales from the Consumer segment (-21.7% qoq) despite improved sales from the Industrial segment (+1.6% qoq).

• Strong USD against RM strengthened YoY performance. The Group recorded higher revenue, +5.6% yoy during 1QFY20. Higher revenue was aided by higher sales under the Industrial products (+23.6% yoy) despite slower revenue from the Consumer products (-0.7% yoy). Moreover, higher revenue also attributed by strong exports sales value following stronger USD against RM. In conjunction with that, exports to Middle East and Other Asian countries regained its growths, up 55.4% yoy and 24% yoy respectively during 1QFY20. Besides, AMB also posted better operating earnings, +26.2% yoy following stellar earnings in both Consumer (+5.8% yoy) and Industrial (+62.9% yoy) segments. Better results in both segments were lifted by lower production costs.
• 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 FY20F and FY21F.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM17.71 based on 2.3x FY20F price-to-book. Our valuation is below its 3-year mean P/B of 2.58 times. We are neutral on AMB due to its unattractive dividend yield coupled with uninspiring near-term business and earnings prospects.

Source: JF Apex Securities Research - 23 Aug 2019