Investment Highlights

• We maintain HOLD on Malayan Flour Mills (MFM) with an unchanged fair value of RM0.70/share, based on a FY24F fully diluted PE of 10x, which is the 2-year average. We ascribe a 3-star ESG rating to MFM.

• We visited MFM’s flour mill and poultry processing plant at Lumut, Perak a few days ago. Here are the key takeaways from the site visit: -
  • Unlike other manufacturing plants, flour mills are tall and vertical instead of long and horizontal. This is because grain flows by gravity in tall and narrow bins. As most of the production processes are automated, there are minimal workers. Workers are only needed for packaging of the flour products.
  • MFM has a flour processing capacity of 30,000 tonnes per month in Malaysia and 45,000 tonnes per month in Vietnam. The group’s flour mills are currently operating at average utilisation rates of 70% in Lumut and 55% in Pasir Gudang.
  • MFM’s flour customers include Mondelez, Gardenia and AEON. MFM is among the top 3 flour producers in Malaysia, Vietnam and Indonesia (via its 30% shareholding in PT Bungasari).
  • MFM’s poultry unit plans to implement Tyson’s model farming house in the future. Unlike normal poultry houses, Tyson’s farmhouse (600 feet by 50 feet) is larger. The model farmhouse allows for better management of costs and livestock. Due to better monitoring, MFM will be able to improve the feed formulation ratio and, hence, reduce the usage of corn.
  • The poultry processing plant is currently operating at an average utilisation rate of 50% based on its full capacity of 280,000 birds per day. Going forward, we believe that demand for poultry would improve ahead of the Christmas and Chinese New Year festivities.
• MFM is currently trading at a FY24F fully diluted PE of 9x, which is lower than its 5-year average of 20x. We believe that the discount is justified due to MFM’s inconsistent earnings.

Source: AmInvest Research - 26 Oct 2023