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Wednesday, May 25, 2016

Aji: Weaker Earnings But Bigger Dividend

Result Update

For QE31/3/20165, Aji's net profit dropped 42% q-o-q on the back of a 9.7%-increase in revenue to RM110 million. Compared to the same quarter last year, net profit rose 16% while revenue rose 36%.

Revenue increased y-o-y due to higher domestic sales in Umami and Food & Seasoning segments. The domestic sales in corresponding quarter last year were exceptionally low due to market concerns on Goods and Services Tax implementation. Operating profit rose from RM7.4 million to RM9.2 million due to better margin from export sales arising from the appreciation of the USD.

The unusual drop in net profit q-o-q on the back of higher revenue was due to a sharp drop in operating profit margin from 14.8% to 8.3%. The notes to the account did not explain why this happened. My guess is that Aji was hit by a double whammy in the form of low selling prices revenue due to stronger MYR but higher input cost as its inventory was purchased higher when USD was stronger.


Table: Aji's last 8 quarterly results


Chart 1: Aji's last 43 quarterly results

Valuation

Aji (closed at RM13.28 yesterday) is now trading at a PE of 19.8 times (based on last 4 quarters' EPS of 67.1 sen). At this PER, Aji is deemed fairly valued. To reward its shareholders, Aji has declared a big dividend of 33.75 sen. This will push up its DY to 2.5%.

Technical Outlook

Aji is in a strong uptrend after my last post in 2015. The  stock is a bit stretched after the 30%-gain since late April. Thus I am not surprised if there is a short-term correction in the share price.


Chart 2: Aji's weekly chart as at May 24, 2016 (Source: ShareInvestor.com)


Chart 3: Aji's monthly chart as at May 24, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance & positive technical outlook, AJI is a good stock for long-term investment. Some profit-taking at this stage may be a good idea.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, AJI.

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