This article first appeared in The Edge Financial Daily on February 13, 2018

Ajinomoto (Malaysia) Bhd
(Feb 12, RM19.96)
Maintain hold with a target price (TP) of RM20.30: Ajinomoto (Malaysia) Bhd (Ajinomoto Malaysia) is a manufacturer of monosodium glutamate (MSG) and other flavoured seasonings. We like it for its brand name and dominant share in Malaysia. While growth in the Malaysian market is supported by urbanisation, we think its focus on exports, especially to the Middle East, provides exciting growth opportunities. 

Ajinomoto a market leader with a trusted brand name. Established in 1961, Ajinomoto Malaysia is a leading MSG producer with an 80% market share in Malaysia. Approximately 73% of its sales are derived from the consumer segment, which include MSG products and flavoured seasonings. The remainder comes from the industrial segment, whereby Ajinomoto Malaysia sells functional savoury seasoning products to processed food producers.

Ajinomoto Malaysia’s sales grew at a compound annual growth rate (CAGR) of 5.3% over financial year 2009 (FY09) to FY17, in tandem with the growth rate of food and beverage (F&B) establishments and processed food sales volume. Despite a dominant market share of over 80% in MSG, we believe there are still growth opportunities, forecasting its sales to grow at a 5% CAGR over FY17 to FY22, on the back of more product offerings as the flavoured seasoning market is still fragmented and enjoys a higher growth rate. Increasing demand for processed food and growing F&B food service should also support its growth.

Overseas sales accounted for 40% of total sales in FY17. Its products are mainly exported to the Middle East and the Asian region. We are positive on the export outlook as MSG consumption in Asia is expected to grow by 4.1% per annum over the next two to three years. The “halal” certified product status will be an added advantage, shortening the export lead time to the Middle East.

We initiate our coverage of Ajinomoto Malaysia with a “hold” rating and a TP of RM20.30, based on 20 times FY19 estimated price-earnings ratio. We think that with an estimated earnings growth of 13% per annum for FY17 to FY22 and dividend yield of 2.3% to 2.8%, its current share price is fairly valued and in line with valuations in Malaysia’s F&B consumer space. Downside risks include price competition, substitution risks and cost risks. — Affin Hwang Capital, Feb 12