Analysts positive on Ajinomoto M’sia’s growth prospects, led by a strong demand
KUALA LUMPUR: Ajinomoto (Malaysia) Bhd’s (Ajinomoto Malaysia) prospects have been viewed positively by analysts as its growth is expected to be led by a healthy demand for its halalcertified products.
In a company update report, the research team at Affin Hwang Investment Bank Bhd (Affin Hwang) said: “We remain assured of Ajinomoto Malaysia’s mediumterm growth prospects, led by a healthy increase in exports and steadfast domestic business. In particular, we continue to see robust demand from the Middle East for its Halal-certified products amid a developing consumer base.”
It noted that Ajinomoto posted a robust set of the first quarter of the financial year 2020 (1QFY20) results (core net profit up 29 per cent year-on-year). It added that its revenue growth of six per cent y-o-y was lifted by a surge in exports to the Middle East (55 per cent y-o-y) and other Asian countries (24 per cent y-o-y), aided by a recovery in industrial products sales and a stronger US dollar (five per cent y-o-y).
“We expect a similarly good showing for the rest of FY20 on a healthy domestic private consumption, strong export momentum and stable forex, which should contain raw material procurement costs,” the research team said.
Despite the circa four per cent drag on earnings over the near term due to lower investment income from the group’s high cash pile (14 per cent of FY19 profit before tax) following its new plant’s construction, Affin Hwang said it is nevertheless positive on the benefits to be reaped from its plant relocation, which should better position Ajinomoto to tap into the burgeoning halal food market with improved production capacity and capability to develop new product lines.
“There would be no production constraint issues during the interim, as the company is able to rely on its regional affiliates’ production facilities,” it added.
It also pointed out that despite an eight per cent y-o-y dip in domestic sales during 1QFY20, it is still encouraged by the 33 per cent jump in export sales yoy, driven by a surge in exports to the Middle East (55 per cent y-oy) and Asian region (24 per cent y-o-y) – representing a multi-year high of 27 per cent y-o-y even on a US dollar-adjusted basis, and culminating in total sales growth of 5.6 per cent y-o-y during the quarter.
Over the interim period leading up to the new plant’s FY22 completion, Affin Hwang noted that Ajinomoto Malaysia is able to tap into its neighbouring affiliate companies’ production facilities to meet increasing export demand, such as the Indonesian plant, which is the only other halal-compliant factory within the Ajinomoto Group.
“Sales transactions to the Middle East would still be recognised by Ajinomoto Malaysia – the only other listed entity besides the parent company listed in Japan,” it pointed out.
“Furthermore, the new plant would see reduced carbon emission by switching energy sources towards natural gas and renewable energy such as solar power, thereby strengthening its ESG profile within the rising sustainable investing space.
“We note that Ajinomoto is only one of three F&B producers incepted into the FTSE4Good Bursa Malaysia index – alongside Carlsberg and F&Nm,” it added.
All in, Affin Hwang maintained its ‘buy’ call on the stock.