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Friday, November 16, 2007

Aji- a cheap consumer stock

Background

Ajinomoto (M) Bhd ('Aji') is involved in the manufacture & sale of natural flavour food enhancers. Its main production facilities are located at Jalan Kuchai Lama, Kuala Lumpur.

Past 5-year Financial Performance

The group's turnover has been increasing steadily over the past 5 years. Its net profit prior to FY2006 is fairly stable at around RM10-12 million. In FY2006, its net profit took a sharp fall of 52% to RM6.01 million due to fierce competition as well as higher raw material cost & fuel cost (resulting in a drop in profit margin). In that year, Aji introduced a new product, i.e. Vono (a thick & creamy instant soup) as well as integrating its manufacturing process & other effort to improve production efficiency. The results of these initiatives can be seen in the performance of FY2007 and the current FY2008. Turnover has grown by 11% in FY2007 & FY2008. Net profit for FY2007 jumped by 211% to RM18.67 million from RM6.01 million. For FY2008, the net profit is projected to grow by 21% to RM22.62 million.



Recent Financial Results

Aji's net profit for QE30/9/2007 increased by 18.8% q-o-q or 49.1% y-o-y to RM6.14 million, while turnover at RM52.7 million show a slight drop of 1.4% from the preceding quarter but a grow of 8.4% from the previous year's corresponding quarter.



Current Financial Position

As at 30/9/2007, Aji's financial position is deemed satisfactory. Its current & quick ratio is more than adequate at 5.6 & 4.5 times, respectively. Aji has no borrowings, but instead it has a cash balance of RM61.4 million.

In term of working capital management, we will note that the inventory's turnover period has improved from 52 days as at 30/9/2006 to 46 days as at 30/9/2007 while debtors' turnover has increased from 40 days to 46 days during the same periods.

Valuation

Based on the projected FY2008 EPS of 37.2 sen & yesterday's closing price of RM2.20, Aji is now trading at a PE of 5.9 times. At this multiples, I would consider Aji to be fairly attractive.

Technical Outlook

On the longer term basis, the share price of Aji appears to be moving sideway, with a slight upward bias (see the monthly chart, Chart 1). While the share price is slowly moving up by the upside is blocked by a strong resistance at RM2.30 (see the daily chart, Chart 2).


Chart 1: Aji's monthly chart as at November 15 (courtesy of Quickcharts)



Chart 2: Aji's daily chart as at November 15 (courtesy of Quickcharts)

Conclusion

Based on strong improvement in financial performance & possible technical breakout, Aji is a good BUY for the medium-term.

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