Saturday, August 21, 2010

Ajinomoto - Eat Well, Live Well

The first thing that you need to note is the 3A effects that generated some spillover effects on food operators. 3A is currently undergoing some kind of corrections so it may not be one of those best timing to rush into buying yet despite of I think Ajinomoto is a company that we can buy and keep it forever.

Ajinomoto needs very little introduction. The core of their business is making food enhancer Ajinomoto. It has almost 80% market share in Malaysia. If you read their annual report, year after year they will mention that they raised price and some volume growth driving higher revenue.

This chart shows you the growth drivers. Sales have been growing at about 9% annual compounding rate. The main growth drivers are coming from Other Asian countries and Middle East. I believe it can continue to grow moderately in line with the regional prosperity growth. Secondly, Malaysia will have some advantages to produce halal foods.

Here is a snapshot of their key financial results.

Balance sheet has been very clean and strong. It has almost RM$ 56 million cash(0.92/share) and debt free. ROE around 10-12%. It's an indication they can actually return a lot more money to shareholders.

If I assume the company is going to grow roughly about 10%, applying cost of capital of 10%, based on discounted cash flow, this company worth between $ 5 - 5.50.

Let me pull out some critical stock market information that I extracted from Stock Performance Guide published by Dynaquest Sdn Bhd(This book is a must for every investor). Looking at the earning and dividend payout growth consistency , this stock has a good chance of giving total return of around 10-15% CAGR.

Disclosure: No position yet.

1 comment:

Raymond said...

Supposed to be a long term investment. But what bothered me most is the volatile quarterly earnings, which can swing from > 20cent to just 2 cent from one quarter to another. That makes predicting the yearly EPS extremely difficult. Reasons given for lower earning is higher packaging cost and more A&P. That puts further doubt on its pricing power.

Hope the qaurterly result is less volatile. That would make it really a long term hold.