We remain upbeat on the group’s export growth prospects underpinned by sturdy demand for its Halal-certified seasoning products. The PER premium that Ajinomoto Co (listed parent co) has over Ajinomoto Malaysia has widened from 70% on average to >2x currently; we expect this striking valuation gap to narrow going forward. We have lowered our FY20-22E EPS by 2-6%, in view of the extended Covid-19 disruptions. We maintain our BUY rating with a lower 12-month TP of RM13.00.
For 9MFY20, Ajinomoto’s revenue rose 3.8% yoy to RM340.9m, underpinned by an uptick in sales for both its consumer and industrial seasoning products. In terms of the group’s geographical mix, the Middle East region (16% of revenue) has proved to be an increasingly important market with sales soaring 23% yoy to RM53m in 9MFY20. Moving forward, we expect demand from the export market, especially the Middle East, to remain robust while the group’s upcoming Halal-centric seasoning production plant should further support higher sales volumes upon commencement from FY23.
Based on a 10-year PER band, Ajinomoto’s listed parent co Ajinomoto Co (“Aji Co”) had traded at a c.70% PER premium to Ajinomoto Malaysia, which is unsurprising given in part Aji Co’s market cap of US$8.5bn vs. Ajinomoto’s US$150m. Nevertheless, we note that at this juncture, the valuation gap between the two has noticeably widened to >2x from the past-10-year’s 70%, with Aji Co trading at a PER of >30x over Ajinomoto Malaysia’s 13x forward PER. We think Ajinomoto is comparatively undervalued and expect the huge valuation gap between the two companies to eventually narrow.
We lower our FY20-22 EPS forecasts by 2-6%, to account for lower sales across both domestic and export markets as a result of extended Covid-19 disruptions and the lowering of our 2020 GDP growth forecast to 3.3% (from 4.0%) on 16 March. Our TP is lowered to RM13.00, now based on a 14.3x PER (previously 20x) on the CY20E EPS in view of the heightened market volatility. Nonetheless, Ajinomoto’s valuation looks undemanding for a defensive consumer staple stock. We maintain our BUY rating as we continue to favour its defensive business with steady earnings delivery as well as longer-term export market potential.
Source: Affin Hwang Research - 25 Mar 2020
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2020-07-01 11:19