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Ajinomoto – 2021 4th Quarter Review

Last updated on 25 July 2021

Ajinomoto’s Business Overview:

The company is widely known for its AJI-NO-MOTO Umami seasoning. However, the company has gradually expanded its products to encompass a wide range of seasonings and food products. Its products include chicken stock, all-in-one seasonings, menu seasonings, sweeteners and more recently, sports drinks. Ajinomoto’s products are sold directly to consumers and to industrial customers.

Revenue breakdown by geographical markets (data from 2021 Quarterly Report):

Malaysia = RM 258 million (58%)
Middle East = RM 59 million (13%)
Other Asian countries = RM 118 million (27%)
Others = RM 8 million (2%)

Revenue / Profit breakdown by segment (data from 2021 Quarterly Report)

Consumer Segment = RM 310 million / RM 30 million (Profit Margin: 10%)
Industrial Segment = RM 133 million / RM 28 million (Profit Margin: 21%)

The company’s primary market is Malaysia where it dominates an 80% market share. However, its Middle East and Asian markets have been steadily growing to the tune of 11.1% and 5.6% over the past 10 years. The pleasing development suggest that the company’s marketing efforts have paid off. This is likely Ajinomoto’s next growth phase.

Figure 1: Ajinomoto’s consumer products (photo from Ajinomoto’s website)

Discounted Net Asset Value

Figure 2: Ajinomoto 2021 4th Quarter results (Assets)

The property, plant and equipment has been discounted by 30% to factor in the risk of overvalued assets while all receivables and inventories were discounted by 15% to account for the risk of customers defaulting on payments and expiring inventory.

Investments, cash and cash equivalents are highly liquid assets and can be assumed at 100% value.

By discounting the assets, we come to a more conservative figure of RM 570 million.

Total Liabilities

Figure 3: Ajinomoto 2021 4th Quarter results (Liabilities)

Total liabilities are equal to RM 217 million.

Net Liquidation Value (NLV)

Assuming Ajinomoto is liquidated immediately, the company’s assets would be worth its discounted net asset value minus its total liabilities. The figure would come to RM 570 million – RM 217 million = RM 353 million or RM 5.80 per share.

Financial Highlights

10 Year Summary

Figure 4: 10 year financial highlights from Ajinomoto

Major changes in 2021 financials:

  • Increased debt from 0 million previously to RM 100 million.
    – debt will be used to purchase land and purchase manufacturing equipment
    – Company’s 3 year free cash flow is RM 49 million, therefore the RM 100 million debt can be easily paid off within 2 years
  • Slight drop in revenue and profit due to lower sales and higher marketing expenses.
  • Slight drop in profit margins due to higher marketing expenses.
  • 3 Year Average Free Cash Flow remained at RM 49 million.
  • Slight increase in dividend payout from RM 29 million to RM 30 million.

Discounted Cash Flow (DCF) Valuation

To determine the business’s value, I typically take the 3 year average free cash flow value to calculate its DCF (Average FCF = RM 49 million). Since the business is growing its export market, we can assumed the growth to be around 5%. A higher growth rate could be assumed but to be on the safer side, I’ll stick to 5%. I normally use 8% as my discounted rate (but this rate is subjective to every individual investor). The total business period is assumed to be 10 years.

Using these values, I calculated Ajinomoto’s DCF valuation to be RM 421 million or RM 6.93 per share.

Ajinomoto’s Fair Value

NLV = RM 353 million
DCF = RM 421 million
Fair Value = NLV + DCF = RM 774 million or RM 12.73 per share.

Currently, Ajinomoto is trading at RM 15.50 per share which is a 22% premium to my valuation.

Conclusion

The company is trading at a 22% premium to its fair value. However, due to the company’s strong branding, dominant position in Malaysia and steady growth in export markets suggest that the company has a strong moat.

I hope this was helpful. I just wished to share some of my findings and hope that it could assist in your decision making.

If you liked the article, come check out my other post!

Disclaimer: The article is written purely for the purpose of education and entertainment only. The content of this article is an expression of my opinion and should not be taken as professional advise. If you are seeking for professional advise, please consult your financial advisors. You should do your own research and/or seek expert’s advice when doing your investments. Any decision that you made is your own and the author should not be held accountable

3 Comments

  1. JC
    JC 5 July 2021

    Thanks for sharing, its really great~

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