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Wednesday, September 06, 2017

AJI: Post-Dividend Payout Blue

"Too much of a good thing can be wonderful!" Mae West

A Handsome Windfall, A Bumper Dividend & A Sharp Drop

In February this year, AJI received the award of compensation of RM166 million from the Government for the compulsory acquisition of its factory land located in Jalan Kuchai Lama for the MRT2 project (here). The compensation gave the company a gain on disposal of RM145 million. To reward its shareholders, AJI announced a final dividend and a special dividend totaling RM1.55 per share in May (here) . These dividend entitlements went ex on August 30.

Driven by higher earning (as a result of forex gain) and news of the big windfall from the compulsory acquisition of the above land, AJI share price rose from RM8.00 in late 2015 to a recent high of RM26.48 (recorded on August 8).


Chart 1: AJI's monthly chart as at September 5, 2017 (Source: ShareInvestor.com)

AJI hanged around the RM26 price level for about 2 weeks, and on August 25, it started to slide down. At the close on August 29 (the last cum date for the bumper dividend), AJI closed at RM24.00 (after it dropped to an intraday low of RM23.02). After the ex date, AJI share price continued to drop below its reference price (or, theoretical ex entitlement price) of RM22.45. Yesterday it closed at RM19.98.


Chart 2: AJI's intraday chart as at September 5, 2017 (Source: ShareInvestor.com)

Technical Outlook

Whether you are looking at the unadjusted price chart or adjusted price chart (adjusted for the bumper dividend payment), you can see that the uptrend line of the stock has been violated. The question is where will the share price find its next support and begin to right itself. Since the share price has dropped about 19% from adjusted high of RM24.50, I think the base for corrective move to the upside should kick in soon. I believe that the first support will be at the psychological RM20.00 mark even though the share price closed just below that level yesterday. Beyond that I would refer to the adjusted price chart (on the right hand side) and I see support at RM19.50 (the base formed in June) and then the horizontal line at RM18.60.


Chart 3: AJI's daily chart as at September 5, 2017 (Source: Kenanga/BTX)

Recent Financial Result

AJI's latest quarterly result is for QE30/6/2017, which was announced on August 24. In that quarter, AJI's net profit dropped 95% q-o-q or 40% y-o-y to RM7.9 million while revenue dropped 16% q-o-q or 2% y-o-y to RM96 million. The q-o-q decline is due to two main reasons: huge gain on disposal of the factory land of RM145 million plus the seasonally weaker quarter. The y-o-y decline was attributed to weaker performance from the Consumer Segment, where operating profit plunged from RM10.2 million to RM2.1 million due to lower revenue, higher production cost as a result of higher material costs and higher advertising and sales promotion expenses incurred to promote its products locally and overseas. I believe the financial performance will recover next quarter.


Table: AJI's last 8 quarterly results


Graph: AJI's last 48 quarterly results

Latest Financial Position

As at 30/6/2017, AJI's current ratio stood at 12x and total liabilities to total equity stood at 0.1x. Not many companies listed on Bursa Malaysia can match AJI in term of financial strength.

Valuation

AJI (closed at RM19.98 yesterday) is trading at a trailing PER of 76x (based on adjusted 4 quarters' EPS of 26 sen). The "normal" profit of the company for the past 2 quarters had gone haywire due to the A&P expenses as well as the huge gain on disposal of the factory land (where all kind of "additional" expenses had sprung up). Once AJI net profit returned to normal (~RM12 million a quarter), its PER will stabilize at 26x. At this level, the stock is deemed fairly valued.

Including the recent bumper dividend, AJI has paid out dividend totaling RM3.56 over the past 12 years since I first started tracking this stock. See my first report.

Conclusion

Based on satisfactory financial performance & strong financial position, solid management and unique & established products, AJI is a good stock for long-term investment. The current selldown could be a good opportunity to get into this stock. However, your buying should be gradual as the share price has just broken its long-term downtrend line. Good luck!

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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