Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM1.33/share. Our fair value of RM1.33/share is based on a fully diluted FY22F PE of 18x. MFM has declared a gross DPS of 1.0 sen for FY20 (FY19: 3.0 sen).

• We believe that MFM would benefit from Tyson Foods’ partnership in the long term. MFM would be able to leverage Tyson Foods’ global marketing network to penetrate new export markets. In the short term, we reckon that Tyson Foods would help to boost the sales volume and the utilisation rate at its integrated poultry plant in Lumut by being an off-taker.

• MFM’s FY20 net profit of RM5.4mil was below our forecast of RM10.1mil. MFM was affected by losses in the poultry division in 4QFY20. The poultry unit swung into a loss before interest and tax of RM15.1mil in 4QFY20 after an EBIT of RM2.2mil in 3QFY20. The poultry division was affected by low prices of processed poultry products in 4QFY20.

• MFM recorded a smaller net profit of RM5.4mil in FY20 compared with RM43.3mil in FY19. The slide in the group’s net profit in FY20 was mainly due to larger losses in the poultry division. Also, MFM’s depreciation expense rose by 4.4% to RM68.5mil in FY20 as the new poultry plant in Lumut was commissioned in late FY19.

• The poultry unit recorded a loss before interest and tax of RM70.0mil in FY20 vs. RM31.9mil in FY19. The division was hit by a plunge in poultry demand and selling prices during the movement restriction period in 2QFY20.

• The flour division performed well in FY20. Flour EBIT grew to RM123.2mil in FY20 from RM114.7mil in FY19. Flour EBIT margin improved to 5.9% in FY20 from 5.7% in FY19. The improvement in flour earnings in FY20 was driven by the robust demand in Vietnam and margin enhancements from the low cost of wheat in 1HFY20.

• Comparing 4QFY20 against 3QFY20, MFM’s net earnings improved. MFM recorded a net profit of RM17.3mil in 4QFY20 vs. RM9.4mil (including an RM8.5mil gain on disposal of land) in 3QFY20. The QoQ jump in net profit in 4QFY20 was driven by the flour division. Flour EBIT surged to RM46.4mil in 4QFY20 from RM21.6mil in 3QFY20 on the back of higher sales volume and lower wheat costs.

Source: AmInvest Research - 1 Mar 2021