Introduction company

Our history is the story of continuous discoveries the potential of food and seasoning that satisfy the
consumers need. We aim to contribute towards significant advances in food and health on a global
perspective and ultimately to create a better life for all. In order to achieve this aim, we will well develop
our corporate activities and management in the food, bio-fine, pharmaceutical and health products
business.

What the Ajinomoto Group Aims for

With the discovery of umami serving as the cornerstone of its foundation, the Ajinomoto Group assumes
the global leadership in the research and development of amino acids and conducts business rooted in
cultures of various regions round the world. We, the Ajinomoto Group, will continue to brush up our
unique technologies, and through our business activities, we will contribute to the resolution of issues
for human society in the 21st century.

Ajinomoto is a well-known for its umani seasoning since it was first marketed in Japan in 1909.

In Malaysia, Ajinomoto has become a household name since 1961 due to its aggressive television
marketing in the past. Further, the use of umani seasoning is deeply entrenched and synonymous with
Asian-styled cooking. The versatility of umani seasoning meant that it can be incorporated into a variety
of ethnic cooking including Indian and Malay.

Through its leading market share and strong branding in the local scene, Ajinomoto’s products gets an
unparalleled competitive edge over rivals.

Being a staple consumer product means that it has enjoyed steady sales even during economic
downturns and the same will stay true in the future.
Potentials

Ajinomoto plans to introduce a new segment in its business which may entail the manufacturing and
importing of food products as part of its plan to diversify beyond the seasoning products line. It wants to
emulate what its counterpart in Thailand is doing; by selling food products and food seasoning. If indeed
so, there is a likelihood that Ajinomoto may be producing or importing 3-in-1 coffee sachet, canned
coffee and instant noodle. However there is nothing concrete to this regard yet.

The company also intends to boost sales in the Middle East as it sees potential in that market, especially
in Saudi Arabia, Jordan, Oman and Yemen. Ajinomoto’s product which are produced in Malaysia has a
better chance of penetrating the Islamic market.

Financials

DATA 2018 2017 2016 2015 2014

REVENUE (RM’000) 419917 400200 340376 345351 332908

OPERATING PROFIT
211469 53941 40596 37596 28085
(RM’000)

PROFIT (RM’000) 187462 40787 29733 28041 19403

SHAREHOLDERS’
474638 307813 279524 262077 244344
EQUITY (RM’000)

DEBT (RM’000) 57800 59240 53422 45942 50060

RATIO

DEBT TO EQUITY RATIO 0.12 0.19 0.19 0.18 0.21

OCF RATIO 1.20 1.26 0.92 1.27 0.76

OPERATING PROFIT
0.50 0.13 0.12 0.11 0.08
MARGIN

PROFIT MARGIN 0.45 0.10 0.09 0.08 0.06

EPS (CENTS) 308.30 67.10 48.90 46.10 31.90

EPS (ADJUSTED) CENTS 308.30 67.10 48.90 46.10 31.90

DPS CENTS 0.00 33.80 20.00 18.50 20.00

DIVIDEND PAY OUT (%) 0.00 50.40 40.90 40.10 62.50

P/E 5.16 13.40 12.90 11.10 13.90

ROE 39.50 13.25 10.64 10.70 7.94

With the exception of FY2018, there is a steady growth of earnings from FY2014 to FY2016. FY2018 is a
little tricky though as there was a one-off gain, of RM166 million, from the said compensation. Generally
a one-off gain would be discarded when valuing the fair value of a company; Ajinomoto is no different.

Of the RM166 million, only about RM144 million was recognised as profit. This can be seen in
Ajinomoto’s Q4 FY2018 income statement and it’s Annual Report for FY2018.

By discarding the RM144 million from profit, Ajinomoto made only about RM42 million of profit or an
EPS of about RM0.70 for FY2018.

Hence, betweem FY2014 and FY2018, earnings progressed at the a compound annual growth rate of
about 17%. Impressive

Other praiseworthy qualities are its low debts, good cash flow, improving profit margins and improving
business efficiency. Dividend was erratic throughout the years but on the plus side the payout was on the
modest side, with the exception of FY2017.
List of the Advantages

1. It offers a glimpse at revenue information for the company.

One of the primary advantages of the income statement is that the information provided is directly
related to the revenues of the organization. It is a thorough document which takes people through all
the revenues and expenses that are incurred over the evaluation period. It goes beyond operations,
including taxes, expenses, and interest payments. There is no better document to examine the complete
revenue information for the business.

2. It allows for investor analysis.

The income statement makes it easy to see how financially healthy a company has been over a specific
time period. Certain key figures, such as the net income or earnings per share, are directly stated on the
document, which reduces the amount of research required by the investor. When earnings per share or
net revenues are higher, then the company is on a health trend. If not, then you’re able to create some
judgments as to why.

3. It is a way to track the performance of the company.

What the income statement ultimately provides is a look at the overall bottom line. A business that is
showing a profit is usually doing something right. If not, then they may be doing something wrong.
When you review income statements over a long time period, you can begin to track the overall
performance of the company. Multiple statements which are compared will negate some of the
disadvantages of this document because you’re able to spot trends and eliminate one-time charges that
may affect the data.

4. It can be used as a tool for forecasting.

The income statement becomes the foundation for a forecast of future accounting periods. These
forecasts are used to generate budgets for the company that may stretch out to 12 months, 5 years, or
even 10 years, depending on what is being evaluated. These statements are used to anticipate problems
that may creep up in the future, allowing the company to develop a response plan to the situations that
the income statement indicates are possible. That makes it easier to deal with a problem before it
becomes too serious.
List of the Disadvantages

1. It can misrepresent the value of the company.

Income statements also include money that is due from accounts receivable. Those are funds which have
not yet been received. It will also include liabilities as an expense, even if they haven’t been paid. When
there is a large one-time expense or a one-time revenue surge, the income levels are driven upward or
downward sharply over where they normally would be. That makes it easier to mispresent how
successful, or how poor, a company is performing over the review period.

2. It does not evaluate non-revenue factors for success.

The income statement only looks at the revenue outcomes of activities. It does not look at how the
company earns sales from its customers. It doesn’t review how the wages being paid compare to similar
businesses in the region. There are many practices which can improve or degrade the reputation of a
business which are not reflected in the data that is presented on the income statement.

3. It is a report that is generated very frequently.

Although some companies produce an income statement just once per year, a quarterly income
statement is very common. Some companies produce an income statement every month. Thanks to the
numerous software options and computerized accounting systems that are available to businesses of all
sizes today, an income statement can report information in real-time. If small blocks of time are being
analyzed, the information can be misleading because there isn’t a data sample large enough to look at.
Introduction

The lion group was established in the 1930s and today, has operations in malaysia, china, singapore,
indonesia, vietnam, hong kong, cambodia and usa . it is involved in the retail, property development,
mining, steel, agriculture and computer sectors. since 1992, the group has ventured into china with
operations in the retail and property businesses.

the group has three companies listed on bursa malaysia with two in singapore and one in hong kong. it
has an annual group turnover of approximately rm 15.62 billion (us$ 3.86 billion) and provides
employment for more than 16,700 people.

lion industries has three major business operation:-

(a) amsteel mill in klang manufactures long products such as bars, rods, etc;

(b) antara steel mill in johor manufactures light sections such as angle bars, flat bars and u-channels; and

(c) hot briquetted iron plant in labuan which converts iron ore into hbi, a substitute for iron scrap.
Finacial ratio

Lion Industries has a 23% stake in Parkson Holdings Bhd. In the December 2016 quarter, Parksons
reported net profit of RM73 mil due to gain on disposal. This has resulted in RM18 mil positive
contribution to Lion Industries' P&L. To be prudent, we should exclude this item.

After making the necessary adjustments, Lion Industries' core earnings for the December 2018 quarter
should be RM46 mil, which translates into EPS of 6.7 sen.

Surprisingly Strong Balance Sheets

I always have this impression that the Lion group of companies are mired in debt. I rubbed my eyes in
disbelief when I went through Lion Industries' balance sheets. The group has net cash of RM91 mil
Compared to other industry players, Lion Industries' balance sheet is considered very strong.
With such balance sheet strength, the group is in position to pay out high dividend now that it has
returned to profitability. Will it do so ? We will soon find out in coming quarters.

If you take a careful look at the iron ore chart in Section 2 above, you will notice that iron ore price has
declined substantially in April 2018.

Lion Industries' turnaround started in September 2018 quarter. Its EBITDA turned positive. However, due
to huge impairment losses, the group reported huge loss of RM681 mil.

The impairment of receivables was mostly due to amount owing by Mega steel, which has since ceased
operation. The group is not expected to register similar huge impairment going forward.

(b) The group's performance continued to stabilize in September 2018 quarter. With the absence of
exceptional items, it broke even in that quarter.

(c) The group's performance improved substantially in the December 2018 quarter. Revenue grew while
EBITDA margin widened substantially to 13.4%.

The company did not provide detailed explanation for the dramatic improvement. My guess is that it has
benefited from higher iron ore price.
Revenue Informati on

The primary advantage of the income statement is the information it gives on revenues. The income
statement is very thorough: It accounts not only for normal costs such as the cost of goods sold and
expenses associated with managing operations, but also for additional costs including taxes, applied to
the gross income earned. Likewise, it accounts for not only standard revenues earned from sales and
similar operations but also revenues gained from interest accrued by business investments. This makes
the income statement an ideal source for complete revenue information.

Investor Analysis

The income statement is one of the most important documents for investors looking to buy stock in a
particular company. It makes it very easy for investors to see earnings per share, or the net income of the
business divided out across all the outstanding shares that the business has. The higher the earnings per
share, the more valuable the business is typically considered, especially if it is higher than competitors.
This makes the income statement a go-to document for judging the condition of a company.
Conclusion

Even if Ajinomoto could sustain its current high growth rate in the foreseeable future, its average price of
RM19 per share is, unfortunately, well above its fair value. My calculation of Ajinomoto’s fair value is
about RM11.

Before I am accused of ruffling feathers, I would like to fortify my opinion that Ajinomoto is a company
with solid fundamentals. Further it has a commendable economic moat in that its core MSG products are
resilient from competition and economic downturns.

However, my only concern is that, at the price of RM19, Ajinomoto there is a higher risk of a downside
than an upside. Hence, a potential investor, contemplating purchasing at RM19 per share, is left with no
margin of safety should things take a turn for the worse.

While I am not suggesting that lion group share price will likely to decrease to a level near to RM18 over
time (in fact it, at the time of writing on 13.09.2017lion group shares are massively oversold, and may
even rebound), I suggest putting list and only contemplating purchasing its shares are priced favorably in
the future.

Therefore, the main purpose of financial statement analysis is to utilize information about the past
performance of the company in order to predict how it will fare in the future. Another important
purpose of the analysis of financial statements is to identify potential problem areas and troubleshoot
those.