Ajinomoto (M) Bhd
MULTINATIONAL consumer companies such as Nestle (M) Bhd, Fraser and Neave Holdings Bhd and Dutch Lady Milk Industries Bhd are valued for their strong brand names, steady earnings and dividends.

As such, they command premium valuations, with the three stocks trading a trailing 12-month P/E of between 21 and 29 times and at a hefty price-to-book ratio of between 3.6 to 22.2 times.

There is one consumer stock that is overlooked by investors and trades at under half these valuations – Ajinomoto (M) Bhd. Ajinomoto is currently trading at just 1.3 times book with trailing 12-month P/E of 12.5 times, even below the broader market’s average.

Originated from Japan, Ajinomoto is renowned for its flavour enhancer, Monosodium Glutamate (MSG) that also bears the “Ajinomoto” brand name. In 1961, Ajinomoto (M) Bhd started as one of the very first Japanese joint-venture companies in Malaysia. Apart from MSG, the company also manufactures other retail and industrial food products such as salt, pepper, sweetener and instant soup.  Ajinomoto’s revenue and profits has grown steadily — although not spectacularly — over the years.

Between FY March 2010 and FY2014, revenue increased from RM284.6 million to RM345.5 million, while net profit rose from RM23.9 million to RMRM28 million. In 1QFY15, revenue decreased slightly by 1.8% to RM86.2 million while net profit fell 1.0% to RM8.2 million due to higher advertising expenses.  Potential earnings growth drivers include lower key raw material costs and its new Tumix range of flavour seasoning.

Ajinomoto has a strong balance sheet with net cash holding of RM106.7 million as at 30 June 2014 or RM1.75 per share – some 30% of the current share price. Since 2010, the company’s dividend payout ratio has been consistently above 40%. In FY2014, dividends totaled 18.5 sen per share which translates into a yield of 3.2%.

This article first appeared in The Edge Financial Daily, on November 4, 2014.