Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM0.80/share. Our fair value of RM0.80/share for MFM is based on a FY24F fully diluted PE of 10x, which is the 2-year average. We ascribe a 3-star ESG rating to the group.

• Here are the key takeaways from MFM’s analyst briefing last Friday: -
  
  - The recovery in MFM’s flour earnings is expected to continue into 4QFY23 on the back of a lower cost of wheat. Demand for flour products has also improved in Vietnam.
  
  - Sales volume of MFM’s flour products grew by 10.4% YoY in Malaysia and 2.4% YoY in Vietnam in 9MFY23. In Vietnam, sales volume rebounded by 11.9% YoY in 3QFY23. Recall that MFM’s flour earnings plunged in 1HFY23 due to the high cost of wheat that was purchased in FY22.
  
  - MFM plans to expand the production capacity of its flour mill in Lumut, Perak by 600 tonnes per day. The expansion, which is expected to cost RM30mil, will be commissioned at the end of FY24F. Currently, MFM has a flour production capacity of 420,000 tonnes per year in Malaysia.
  
  - On a negative note, we understand that the sales volume of poultry products has declined. Malaysian consumers are boycotting MFM’s customers in the quick service restaurant (QSR) industry such as McDonald’s and KFC. MFM’s sales to the QSR fell by 6.3% YoY in 3QFY23.
  
  - Silver lining is improving demand. Presently, poultry demand is lower by 30% to 40% from the normal levels compared to a 60% drop at the peak of the boycott.

• MFM is currently trading at an undemanding FY24F fully diluted PE of 8x, which is below its 5-year average of 20x.

Source: AmInvest Research - 11 Dec 2023