AJINOMOTO (MALAYSIA) BERHAD [S] Evaluation

Being in the gigantic flavouring manufacturer, Ajinomoto has long established its branding throughout the market. Product such as salt, seasoning, industry use flavouring is well diversified in the company. The only challenging competition for Ajinomoto in Malaysia is Maggie which is a subsidiary of Nestle. As flavouring requires a little R&D which is not survival purpose, Ajinomoto find its way up without much capital expenditure. Establishing a number of subsidiary under the name of Ajinomoto takes a lot of time, hence it is not easy for other firm to enter and dominate the market which is favourable for the existing firm. Despite the stability of food  industry, Ajinomoto faces fallout on 2009 due to 31.69% of its revenue is generated from overseas such as middle east and other Asia countries. Considering its ability to generate increasing earnings in the future is high as the need of preservative is widely recognized especially in the food industry regardless of household or business owners especially with its well established brands together with well diversified of product lines to satisfy customers.

However, there is underlying risks where there is global trend of recognizing healthy consumption practices where flavouring such as MSG( MonoSodium Glutamate) is being boycotted by some parties. Also, it is affected by international financial crises as shown in 2009 where the earnings are dropped to RM0.08 per share as over 30 percent of the revenue is generated internationally.

Based on the Cash Flow from operating activities for the past ten years, it fluctuated wildly during financial crises as some of its holdings may consist of high risk securities. Return on asset and equity is not showing satisfactory rate  as of 7 and 8 percent respectively(standard for both is 15 and 10%)as it reflects low efficiency. Cash flow under 2009 appears to be doubtful as there was positive cash inflow of 10 million resulted from disposal of shares although the company only possess RM4million worth of shares. The company is not consistent with its earnings and efficiency ratios. Price earning is retrieved by using the lowest market price in the past one year divided by operating cash flow per share. The price earning of 8.4 is rather low where it indicates the share is still within the range of affordability. Also, the book value is worth RM4 per share which is lower than the current market price of RM4.88 where it shows the value of net assets is not up to the price of share. Overall, quantitative factor is not showing desirable results where it is up to further timing to consider the investment of this share.

Stock: AJI Code: 2658 Company: AJINOMOTO (MALAYSIA) BERHAD