Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with a higher fair value of RM0.87/share vs. RM0.80/share previously. We have raised MFM’s FY25F net profit by 5% to account for stronger flour earnings. Our revised fair value implies FY25F PE of 8x, which is the 2-year average. We also ascribe a neutral 3-star ESG rating to MFM.

• We consider MFM’s results to be within our forecast. Although flour earnings were positive, there is risk that poultry earnings may deteriorate due to poor demand from quick service restaurants. Recall that recently, KFC closed 100 outlets in Malaysia.

• MFM’s core net profit surged to RM37.9mil in 1QFY24 from RM10.4mil in 1QFY23, underpinned by a strong recovery in the flour division. This compensated for a small loss in the poultry joint venture.

• Flour EBIT soared to RM51.4mil in 1QFY24 from RM18.4mil in 1QFY23 as the cost of wheat fell. In 1QFY23, MFM was affected by the high cost of wheat that was purchased at the peak of the Ukraine War in early-2022. Flour EBIT margin expanded to 7% in 1QFY24 from 2.3% in 1QFY23.

• PT Bungasari (assuming a 100% shareholding) swung into a net profit of RM25.3mil in 1QFY24 compared to a net loss of RM28.5mil in 1QFY23. As a result, MFM’s share of net profit in 30%-owned PT Bungasari swung to RM7.6mil in 1QFY24 from a loss of RM8.6mil in 1QFY23. We believe that competitive pressures in the flour industry in Indonesia are easing.

• The poultry division (assuming a 100% shareholding) swung into a net loss of RM2.4mil in 1QFY24 from a net profit of RM30.1mil in 1QFY23. The poultry division experienced a fall in demand due to consumers’ boycott of quick service restaurants in Malaysia.

• Comparing 1QFY24 against 4QFY23, MFM’s core net profit rose by 19.5% to RM37.9mil as PT Bungasari swung into the black. Net losses in the poultry division (assuming 100% shareholding) narrowed to RM2.4mil in 1QFY24 from RM4.4mil in 4QFY23.

• MFM is currently trading at an undemanding FY25F PE of 7x, which is below its 5-year average of 20x.

Source: AmInvest Research - 20 May 2024