Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM1.37/share. Our fair value of RM1.37/share is based on a fully diluted FY22F PE of 18x and a 3% premium for a four-star ESG rating.

• We consider MFM’s annualised 1QFY21 to be within our expectations.

• MFM swung into a net profit of RM17.7mil in 1QFY21 from a net loss of RM16.8mil in 1QFY20 driven by higher flour earnings and smaller poultry losses. The poultry division recorded a smaller loss of RM21.6mil in 1QFY21 vs. a loss of RM29.2mil in 1QFY20.

• We believe that off-take of poultry products from the Lumut plant improved in 1QFY21. We estimate the average utilisation rate of the Lumut plant to be 50% in 1QFY21 vs. 20% to 30% in 1QFY20. EBIT margin of the poultry division was -10.5% in 1QFY21 vs. -15.3% in 1QFY20.

• Poultry prices were higher YoY in 1QFY21. We estimate average wholesale live bird price to be RM5.63/kg to RM5.80/kg in 1QFY21 compared with RM5.22/kgin 1QFY20.

• Comparing 1QFY21 against 4QFY20 however, the poultry division recorded a larger loss of RM21.6mil vs. RM15.1mil. This was due to higher feedmeal costs resulting from surging soybean and corn prices. In terms of selling price, average ex-farm live bird price edged down to RM5.25/kg in 1QFY21 from RM5.36/kg in 4QFY20.

• Flour division continued to perform well in 1QFY21. Flour EBIT was RM48.7mil in 1QFY21, 120.5% higher than the RM22.1mil recorded in 1QFY20.

• Flour EBIT margin was 9.3% in 1QFY21 against 4.4% in 1QFY20. The margin enhancement in 1QFY21 was underpinned by lower wheat costs and higher selling prices. We believe that MFM had purchased wheat when prices fell in 3QFY20. Also, the group may have raised the selling prices of some of its flour products in Vietnam and Malaysia in 1QFY21.

Source: AmInvest Research - 31 May 2021