AFFIN Hwang Capital Research has maintained its buy call on Ajinomoto (Malaysia) Bhd with a lower target price (TP) of RM13 from RM19 previously as it continues to favour its defensive business with steady earnings delivery as well as longer-term export market potential.
“Our TP is lowered to RM13, now based on a 14.3x price-earnings ratio (PER) (previously 20x) on the CY20E earnings per share (EPS) in view of the heightened market volatility.
“Nonetheless, Ajinomoto’s valuation looks undemanding for a defensive consumer staple stock,” the research house said in a note on March 25.
Affin Hwang has also lowered its 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 gross domestic product (GDP) growth forecast to 3.3% (from 4%) on March 16”.
“Nevertheless, at current levels (13x PER), its valuation seems undemanding for a defensive consumer staple stock, in our view. We maintain our buy rating as an upside to our 12-month TP is decent at 10% while dividend yields hover at circa 4%,” it said.
The research house said the downside risks to its call include weaker export sales, higher-than-expected raw material costs and a further deterioration in global macro conditions.
“Given the marginal 1.5% yoy growth in earnings for 9MFY20, we expect 4QFY20 to be affected by Covid-19 disruptions and hence project full-year FY20 earnings to contract c.2% yoy.
“Assuming Covid-19 outbreak does not stretch past 1HFY21, we expect FY21 to see a modest earnings growth of 0.6% followed by 4.2% for FY22, partly aided by a likely stronger export growth momentum,” said the research house.
Ajinomoto’s share price opened 4.24% at RM12.30 before the midday break on March 25, giving it a market capitalisation of RM746.61 mil. – March 25, 2020
