Investment Highlights

• We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM0.87/share, based on FY25F PE of 8x, which is the 2-year average. We ascribe a neutral 3- star ESG rating to MFM.

• MFM’s 1HFY24 net profit was within our forecast. The group has declared an interim gross DPS of 1.5 sen for 1HFY24, which was the same as 1HFY23. For the full year, we forecast a gross DPS of 3.5 sen (FY23: 3 sen), which implies a yield of 4.7%.

• MFM’s net profit climbed to RM56.7mil in 1HFY24 from RM8.5mil in 1HFY23 as flour earnings rebounded. This mitigated lower earnings from the poultry joint venture.

• Flour EBIT surged to RM84.9mil in 1HFY24 from RM25.6mil in 1HFY23 as the cost of wheat dropped and demand for flour products in Vietnam rebounded. In FY23, MFM was hit by the high cost of wheat, which were purchased at the peak of the Ukraine War in 2022. Flour EBIT margin expanded to 5.7% in 1HFY24 from 1.6% in 1HFY23.

• PT Bungasari (assuming a 100% shareholding), which is MFM’s flour unit in Indonesia, swung into a net profit of RM13.6mil in 1HFY24 from a loss of RM57.4mil in 1HFY23. The improved performance was due to higher sales of feedmeal made from wheat in 1Q.

• However, PT Bungasari recorded a net loss of RM11.7mil in 2QFY24 vs. net profit of RM25.3mil in 1QFY24, dragged by forex losses and lower sales volume.

• The poultry division (assuming a 100% shareholding) registered a smaller net profit of RM6mil in 1HFY24 compared to RM41.1mil in 1HFY23. The unit suffered a fall in demand in 1HFY24 due to the boycott of certain quick service restaurants in Malaysia.

• Comparing 2QFY24 against 1QFY24, however, poultry division swung into a net profit of RM8.4mil from a net loss of RM2.4mil. We believe that sales volume recovered in 2QFY24 as MFM sold more products to the live bird segment instead of quick service restaurants. The poultry unit also benefited from the fall in corn and soybean prices.

• MFM is currently trading at an undemanding FY25F PE of 6.8x, which is below its 5-year average of 20x.

Source: AmInvest Research - 30 Aug 2024