Ajinomoto Malaysia a promising consumer stock

Written by Yong Yen Nie
Monday, 29 March 2010 00:00

From households to restaurant kitchens, Ajinomoto’s monosodium glutamate (MSG) and flavour enhancing products can be found on almost every shelf. Although it is recognised as a Japanese brand, its operations in Malaysia are carved out through listed Ajinomoto Malaysia Bhd.

Ajinomoto Malaysia exports food seasonings and MSG products to various Asian markets and more recently the Middle East. This puts the company alongside several other consumer goods, food and beverage manufacturers listed on Bursa Malaysia that have global reach.

While companies like Nestle Malaysia Bhd and Guinness Anchor Bhd are trading with a PER of over 15 times, analysts says Ajinomoto Malaysia is trading at a significantly lower PER.

An analyst says based on annualised earnings of 54.3 sen per share for FY2010 and its current trading price of RM4.08 on March 24, Ajinomoto’s estimated PER would be 7.5 times. “The market has not recognised Ajinomoto Malaysia as a growth consumer stock, hence it is undervalued currently,” she says.

The analyst explains that due to Ajinomoto Malaysia’s smaller market capitalisation and lack of product diversification, a 30% discount should be given on its PER based on Nestle’s forward PER of 21 times. That will give Ajinomoto Malaysia a PER of 14.7 times. Even at that level, Ajinomoto Malaysia ought to be trading at RM8 levels, she says.

Being a low-profile company, coverage of the stock is low so there is no consensus PER. Bloomberg data shows that the counter traded at a historical PER of 10 times.

One of the reasons Ajinomoto Malaysia is undervalued is because of its illiquid shareholding structure, an industry observer says. Ajinomoto of Japan, its parent company, owns a 50.05% stake while the second largest shareholder Amanahraya Trustees Bhd owns 11.95%. Nevertheless, investor interest in Ajinomoto Malaysia has picked up significantly recently on market talk that it could be taken private. The counter was on the rise in recent weeks and closed at its 52-week high of RM4.20 on March 22 compared with RM3.20 in December 2009.

Indeed, Ajinomoto Malaysia has the ingredients of a privatisation target, as it is already 50.05% held by its Japanese parent Ajinomoto of Japan.

However, an analyst says Ajinomoto Malaysia’s parent is not likely to take it private, as the listing here gives the Japanese company expansion opportunities in Southeast Asia.

A check of its books shows that the company’s profit, mainly derived from domestic sales, has grown steadily even during the global financial crisis.

In the first three quarters of FY2010, Ajinomoto Malaysia posted 30% growth in net profit to RM22.4 million from RM17.3 million a year earlier. Revenue was also higher at RM212.7 million from RM183 million.

Of the total revenue in FY2009, RM166 million, or 68.3%, is attributed to domestic sales. Revenue from the domestic market grew 12.4% y-o-y compared with RM147.6 million a year earlier.

An analyst says Ajinomoto Malaysia dominates the MSG market in Malaysia with a market share of 85% to 90%. “Being the dominant player in this consumer product segment, the MSG producer can easily adjust the selling price of their products to protect its margins,” she says.

According to its FY2009 annual report, Ajinomoto Malaysia also exports its products to other Asian and Middle Eastern markets. Its latest venture is in Dubai, where it has set up an office to facilitate its export businesses in the Middle East.
Revenue from other Asian markets and the Middle East is also gaining momentum. Revenue from other Asian countries grew 29% y-o-y in FY2009 to RM56.5 million compared with RM43.8 million previously. The company’s Middle Eastern market revenue grew 6.6% to RM19.1 million from RM17.9 million a year earlier.

In its 3QFY2010 financial results, the company has said that given the improved regional and domestic economic environment, Ajinomoto Malaysia expects its performance for the current FY to be better than that of previous years.

Hence, an analyst opines that Ajinomoto Malaysia may be able to pay higher dividends for FY2010, especially with the anticipated record earnings and its huge cash pile of RM50.5 million as at Dec 31, 2009.

“Management has guided that it will declare a higher dividend this year, or at least maintain the same quantum of dividend,” the analyst says.

Another analyst says dividends have grown consistently with its earnings, and with a special dividend of nine sen declared last year, she foresees that this will be the trend set by the company for future FYs.

The company paid a total of 17 sen in dividend in FY2009, comprising eight sen less tax and nine sen tax exempt. This represents almost 50% dividend payout ratio in FY2009.

Further, analysts opine that shareholders who hold Ajinomoto Malaysia shares for the long term may benefit from higher dividends under the single-tier tax system, given that it has to use its S108 tax credit by 2013.

The company’s annual report shows that it has S108 tax credit of RM43.9 million to be declared as dividend by 2013. This works out to about 96.4 sen gross dividend per share, based on its 60.8 million share base.

With growth prospects and possible higher dividend payout, Ajinomoto Malaysia may emerge as a promising consumer stock, especially in a more positive economic environment.