12 things I learned from the 2019 Ajinomoto AGM

Incorporated in 1961, Ajinomoto (Malaysia) Berhad manufactures and distributes monosodium glutamate (MSG) under the brand, AJI-NO-MOTO® and other seasoning products.

Ajinomoto is involved in two business segments: consumer and industrial. In the consumer segment, it offers MSG products and flavoured seasoning such as AJI-NO-MOTO® Umami seasoning and chicken stock. In the industrial segment, processed food producers of instant noodles and sauces purchase seasoning products from Ajinomoto in bulk. Ajinomoto also plans to launch food products in the future.

Ajinomoto has strong brand equity in Malaysia. Sometimes, Ajinomoto is referred to as and is synonymous with MSG. At the same time, MSG may also give Ajinomoto some negative publicity and associated with ‘Chinese Restaurant Syndrome’. However, the addition of MSG to food is ‘generally recognised as safe’ by the U.S. Federal Drug Administration.

However undeserved, MSG still carries an unhealthy reputation among certain individuals.  So does the seasoning still have in place in a society where people are getting more health conscious? I attended Ajinomoto’s recent AGM to find out.

Here are 12 things I learned from the 2019 Ajinomoto AGM:

1. Revenue improved 2.6% y-o-y from RM436.3 million to RM447.7 million in 2019. The increase in revenue is mainly due to increase in sales volume and selling prices of products. The consumer and industrial segments contributed 73.4% and 26.6% of Ajinomoto’s 2019 revenue respectively.

2. Revenue in the consumer segment rose 4.8% y-o-y to RM328.5 million in 2019.Segmental profit increased from RM31.6 million to RM39.1 million over the same period, mainly due to a fall in production costs as raw material prices decreased. Managing director Naoko Yamamoto shared that Ajinomoto has a 90% market share in its consumer business segment in Malaysia.

3. Revenue in the industrial segment decreased 3.0% y-o-y to RM119.2 million in 2019. The decline was due to lower export sales volume along with a weakening of the U.S. dollar against the Malaysian ringgit in the first half of 2019.

4. In 2019, Ajinomoto derived 61.5% of its revenue locally in Malaysia and 38.5% from the export market. The Middle East alone contributes 13.7% of total revenue. The halal production certifications Ajinomoto obtained in Malaysia and Indonesia is a competitive advantage that allows the company to export products to the Middle East on a shorter timeframe.

Source: Ajinomoto 2019 annual report

5. In 2019, net profit excluding extraordinary items decreased 12.4% y-o-y from RM51.0 million to RM44.7 million in 2019. The decline is partly due to the presence of tax incentives related to factory facilities which were received in 2018 but not in 2019. Active sales activities also led to higher advertising and sales promotion expenses in 2019.

6. Ajinomoto will invest RM355 million to build a new plant and office in Techpark@Enstek in Seremban, Negeri Sembilan via a combination of internal funds and external borrowings. In August 2019, the company acquired a plot of freehold land measuring approximately 2.0 million square feet at RM86.1 million. The remaining RM268.9 million will be spent to build the plant and purchase new machinery. New machinery costing about RM30 million will be purchased to replace most of the existing equipment to increase efficiency and capacity the long term. Construction is expected to start in October 2o19 and complete by March 2022. In general, the board is tight-lipped about the capacity of the new plant. No quantitative figures were shared although a number of shareholders brought up the question. The board reassured shareholders that an internal audit was conducted, and the investment was verified as ‘appropriate’ by the regional head office in Japan. A target of 20% increase in capacity has been set to meet the growth in export revenue to the Middle East.

7. No decision has been made on the Kuchai Lama plot of land and revaluation of the remaining land has not been conducted. It is worth noting that approximately 7.6 acres of the land was acquired by the Malaysian government for the construction of the Klang Valley Mass Rapid Transit Line 2 project for about RM166.0 million. The current land in Kuchai Lama takes up about 30 acres; about one-fifth of which is a pond for cooling purposes. In 2019, the RM0.4 million gain on disposal of property, plant, and equipment was the remaining amount received from the government regarding the land acquisition.

8. Dividend per share stood at RM0.47 in 2019 which translates to a dividend payout ratio of 50.5%. The board confirmed that they would not change the dividend payout policy when a shareholder asked if more cash would be kept aside for the new factory expansion. The dividend payout policy was previously revised from 40% to 50% in 2016.

9. Depreciation of property, plant, and equipment increased by 23.0% y-o-y from RM13.1 million to RM16.1 million in 2019. The auditor explained that the rise in depreciation is due to machinery that will not be brought to the new plant in 2022. This machinery has to be depreciated at an accelerated rate given their less than expected useful life. Additionally, RM1.0 million worth of inventories was written off due to a labelling error of finished products that were disposed.

10. A shareholder pointed out that current liabilities surged by 49.6% to RM56.1 million in 2019. The auditor explained that the increase is due to a hike in trade and other payables where about RM8 million was placed as deposit for the plot of land in Seremban as the transaction had not completed at that point in time.

11. According to the managing director, Ajinomoto Malaysia collaborates with affiliated companies in Indonesia to manufacture some of its products to be exported to the Middle East. For instance, the affiliated companies ferment starch in Indonesia because of higher costs and stricter environmental discharge regulations in Malaysia.

12. A shareholder raised his concern about related party transactions amounting to RM99.5 million in sales and RM165.9 million in purchases with Ajinomoto’s affiliated companies. The managing director said that they will continue to manage the transactions by conducting the transactions at arm’s length in the best interests of the Ajinomoto Malaysia. On a side note, the managing director explained the recent resignation of the chief financial officer was due to an internal transfer.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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