Company Results

• Ajinomoto (Malaysia) Bhd (AMB) recorded a net profit of RM18.1m during 3QFY20 which tumbled 2.3% qoq and 17.1% yoy. Meanwhile, revenue depleted 1.9% qoq but improved 3.3 % yoy.

• As for 9MFY20, the Group registered a net profit of RM44m which was marginally down 1.7% yoy but revenue improved 3.8% yoy.

• Within expectations. 9MFY20 net profit meets 80% and 77.1% of ours and consensus’ full year net earnings forecasts respectively following robust sales from both Consumer and Industrial segments as well as better margin from Industrial segment.

Comment

• Disappointing QoQ. AMB’s revenue slid 1.9% qoq given its slumbering sales from Consumer and Industrial segments as revenue down 1.4% qoq and 3.2% qoq respectively. Moreover, operating profit also slightly down by 0.3% qoq due to lower margin in Industrial segment (-3.3ppts) following lower advertising cost which offset steady margin from Consumer segment (+1.6ppts).

• Higher cost dented YoY performance despite improved revenue. The Group recorded a higher revenue which rose 3.3% yoy, thanks to stellar sales and higher selling price from Consumer segment (revenue increased 5.5% yoy) despite disappointing Industrial segment due to lower selling price (revenue decreased 2.2% yoy). However, operating profit slumped 12.6% yoy due lower margin from both segments (Consumer: -2.5ppts; Industrial: -2.9ppts) arising from higher advertising and sales promotional cost incurred.

• Middle East led overall sales during 9MFY20. Cumulatively, AMB’s revenue soared 3.8% yoy, thanks to higher revenue contribution from both segments (Consumer: +2.3% yoy; Industrial: +8.1% yoy). However, the Group’s operating profit margin slightly dropped -0.3ppts due to lower margin in Consumer segment (-1.2ppts) which offset higher margin in Industrial segment (+1.8ppts). Addition, exports sales to Middle East and Other Asian countries remained high, growing 23.8% yoy and 8.3% yoy respectively. However, Malaysian revenue diminished 2.1% 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 strengthenoverall 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

• Maintained BUY call with an unchanged target price of RM17.71 based on 18.18x FY21F EPS of 97.4sen. Our valuation is below its historical 3-year +1 standard deviation above its mean of 20.9x. We have changed our methodology from PB ratio to PE ratio to better reflect its earnings growth and visibility

Source: JF Apex Securities Research - 27 Feb 2020