Company Results

• Ajinomoto (Malaysia) Bhd (AMB) posted a net profit of RM15.3m during 2QFY20 which improved 11.7% qoq but depleted 1.4% yoy. Meanwhile, revenue soared 20.6% qoq and 2.9 % yoy.

• As for 1HFY20, the Group reported a net profit and revenue of RM29m and RM221.9m respectively, which grew 8.8% yoy and 4.1% yoy respectively.

• Within expectations. 1HFY20 earnings meet 52.7% and 50.8% of ours and consensus full year net earnings forecasts respectively given better sales from both the Consumer and Industrial segments coupled with higher margin from Industrial segment.

Comment

• Stronger contributions from both segments lifted QoQ performance. AMB’s operating profit improved 13.6% qoq on the back of higher revenue which grew 20.6% qoq. Better than-expected result during 2QFY20 was underpinned by higher sales from both segments. [Consumer: Revenue: +26.4% qoq, EBIT: +19.2% qoq; Industrial: Revenue:+7.4% qoq, EBIT:+7.1% qoq].

• YoY result lifted by improved margin from Industrial segment. The Group’s revenue inched up 2.9% yoy, thanks to massive contributions from both segments [Consumer:+1.7% yoy; Industrial:+6.4% yoy] following higher selling price of “Aji no-moto” Retail under Consumer segment. Meanwhile, higher revenue from Industrial segment was spurred by higher sales volume and export sales value arising from strengthening USD against MYR. Moreover, AMB’s operating profit grew 1.1% yoy buoyed by higher operating profit from Industrial segment (+24% yoy) which offset subdued operating profit from Consumer segment (-11.6% yoy) given higher sales revenue and lower production cost.

• Stellar 1HFY20. Cumulatively, AMB’s revenue surged 4.1% yoy to RM221.9, thanks to strong revenue growth from Industrial segment (+14.1% yoy) despite flattish revenue growth in Consumer segment (+0.6% yoy). Besides, the Group’s operating profit margin also grew +1.0 ppts due to better margin in Industrial segment (+4.3 ppts). During this period, exports sales to Middle East and Other Asian countries were higher, growing 34% yoy and 14.2% respectively. However, Malaysian revenue abated, down 5.7% yoy.

• Steady outlook. 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. Overall, we reckon that exports business will help to boost the Group’s earnings going forward driven by steady demand as the products have strong advantage on the “halal” certification from JAKIM. Moreover, we believe demand from local market will remain strong, underpinned by massive demand from both segments given its dominance in domestic market share.

Earnings Outlook/Revision

• No change for our earnings forecasts for FY20F and FY21F.

Valuation & Recommendation

• Upgraded to BUY from HOLD with an unchanged target price of RM17.71 due to recent drop in share price in which we see value re-emerges. Our valuation is based on 2.3x FY20F price-to-book, below its 3-year mean P/B of 2.6 times.

Source: JF Apex Securities Research - 28 Nov 2019