Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM1.00/share. Our fair value of RM1.00 implies an undemanding FY23F fully diluted PE of 10x.

• MFM’s 1QFY22 net profit was within our forecast. MFM recorded a smaller gross profit of RM63.5mil in 1QFY22 vs. RM71mil in 1QFY21 dragged by lower earnings from the flour division.

• Flour EBIT slid by 17% to RM40.4mil in 1QFY22 from RM48.7mil in 1QFY21 due to a squeeze in EBIT margin. EBIT margin shrank to 6.5% in 1QFY22 from 9.3% in 1QFY21 dragged by a higher cost of wheat.

• On a positive note, flour revenue rose by 19.2% YoY to RM626.4mil in 1QFY22. We believe that MFM increased selling prices of its flour products in 1QFY22 to partly offset the surge in wheat costs.

• We reckon that more than half of MFM’s flour earnings comes from Vietnam. In Vietnam, there are no ceiling prices on flour products.

• The poultry division (assuming 100% shareholding) recorded a smaller net loss of RM9.8mil in 1QFY22 vs. RM23.8mil in 1QFY21. We attribute this to higher selling prices of poultry products and smaller fair value losses on biological assets.

• The poultry division recorded a fair value loss of RM5.9mil on biological assets in 1QFY22 vs. RM6.8mil in 1QFY21.

• Also, we believe that poultry demand picked up in 1QFY22 as HORECA activities recovered. Revenue of the poultry division expanded by 12.8% YoY to RM231.2mil in 1QFY22.

• Comparing 1QFY22 against 4QFY21, MFM’s core net profit fell by 59.5% to RM20.3mil as flour earnings plunged. Flour EBIT dived by 38% QoQ to RM40.4mil in 1QFY22. Flour EBIT margin slipped to 6.5% in 1QFY22 from 9.5% in 4QFY21.

Source: AmInvest Research - 30 May 2022