Ajinomoto (Malaysia) Berhad (“Ajinomoto Malaysia”) (KLSE: AJI) started its business operations in 1961 as a distributor of monosodium glutamate (MSG”) under the brand, AJI-NO-MOTO®, which was imported from its parent company in Japan. 

Since then, the company has established itself as a dynamic food manufacturer distributing a variety of trusted food seasoning brands. Its AJI-NO-MOTO® Umami seasoning has become an indispensable item in almost every household.   

In this article, we will take a closer look at the business, management and financial aspects of Ajinomoto Malaysia, to assess whether the company is a worthwhile investment going forward. 

Product Range

Retail Products

The company commenced operations in 1961 with only a single product, namely AJI-NO-MOTO® Umami seasoning. Today, the retail product range has expanded to include chicken stock, menu seasoning for local dishes, sweetener and so on. For the financial year (FY) 2019, the company’s consumer business contributed 73.4% of total revenue, i.e. RM328.5 million. 

(Source: company’s website)

Industrial Products

The company has a wide range of savoury seasoning products, which the company markets under the name TENCHO. These TENCHO products are widely used by industrial food producers such as the producers of instant noodles, seasoning, snack food, sauces and processed foods. For the FY2019, the company’s industrial business contributed 26.6% of total revenue, i.e. RM119.2 million. 

(Source: company’s website)

Ajinomoto Malaysia’s products are distributed within Malaysia and also exported overseas to other Asian countries, the Middle East, etc. For the financial year (“FY”) ended 31 March 2019, domestic sales contributed approximately 61.5% of total revenue, followed by other Asian countries at 23.5%, the Middle East at 13.7%, and others at 1.3%. 

(Source: 2019 annual report)

A closer look at the revenue by geography reveals that the company is making decent in-roads in growing its overseas customer base. The company has managed to achieve 48.2% and 41.6% growth in revenue in its the Middle East and Other Asian countries markets during the past 5 years. 

Expansion Plans

Ajinomoto Malaysia plans to invest RM355.0 million to build a new plant, including its corporate office, on a plot of land located in Techpark@Enstek, Bandar Baru Enstek, Seremban, in Negeri Sembilan. Construction is expected to be completed by March 2022. 

The new plant will initially be used for the manufacturing of Ajinomoto’s current range of halal consumer and industrial products – such as its Umami seasoning AJI-NO-MOTO®, flavour seasonings, menu specific seasonings and products for industrial food producers – but there will also be capacity and space to make new products that the company may launch. 

Major Shareholders

Ajinomoto Co., Inc. (TYO:2802) is the ultimate holding company of Ajinomoto Malaysia. The following is a list of its top 20 shareholders, which is extracted from the company’s 2019 annual report. We note the presence of various institutional shareholders which in our experience is a possible indication of a consistent dividend payer.  

(Source: 2019 annual report) 

Financials  

Measure 1: Growth in revenue and profits

Ajinomoto Malaysia’s growth in revenue is modest at CAGR of 7.1% from FY2015 to FY2019. However, growth in net profit after tax is considerably faster at CAGR of 17.5% for the same period. 

Note that the net profit after tax of FY2017 is elevated because the company recorded a gain of RM145.1 million on the Malaysian government’s compulsory acquisition of its 7.58-acre land which houses one of its plants for the construction of the Mass Rapid Transit Line 2 (MRT2) project. 

Measure 2: Profitability

FY2017 aside, Ajinomoto Malaysia enjoys decent net profit margins of 8.7% – 12.9% for the past 5 years. Meanwhile, return on equity ratios ranged from 10.6% – 13.3% for the same period indicating proper usage and allocation of shareholders’ funds. Again, note that the net profit margin and return on equity ratios for FY2017 are skewed due to the gain on compulsory acquisition mentioned above.  

Measure 3: Liquidity

Ajinomoto Malaysia’s management is conservative. The company has cash and cash equivalents of approximately RM107.1 million as at 31 December 2019 and zero borrowings. Additionally, the company has RM139.8 million in investment securities. While management may have good reasons for placing the funds with financial institutions, as investors, we generally prefer shareholder monies to be reinvested to grow the business.  

Round 4: Dividends payout

The company has been paying out dividends every year, and the payout ratios are consistently above 40% of profits. Note that the FY2017 distribution includes a special dividend of RM1.13 per share due to the extraordinary gain from the compulsory acquisition.

Conclusion

With a closing share price of RM14.28 as at 30 April 2020, Ajinomoto Malaysia is trading at a price to earnings (PE) ratio of 15.55, with a market capitalisation of RM868.2 million and an indicative yield of 3.29%. Investors looking for a financially strong consumer name with a track record for distributing dividends may consider keeping this company on their watch list.    

(Source: Google Finance)

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