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.

• Here are the key takeaways from MFM's analyst briefing last Friday:
   
  • Outlook for MFM's flour division is bright, underpinned by strong demand in Malaysia and Vietnam. We understand that consumers in Vietnam are switching to bread from rice due to the high prices of rice. In Malaysia, average utilisation rate of MFM's flour mills was 68.5% in 1HFY24 vs. 65% in 1HFY23. In Vietnam, average utilisation rate was 80.2% in 1HFY24 compared to 63% in 1HFY23.
     
  • The strong demand for flour more than compensated for lower selling prices in 1HFY24. Selling prices of flour dropped in line with the fall in wheat costs. We think that selling prices of MFM's flour products in Malaysia and Vietnam declined by more than 7% in 1HFY24. On the back of the robust demand for flour products, MFM is expanding its milling capacity in Malaysia from 1,200 tonnes/day to 1,800 tonnes/day. In Vietnam, MFM is planning to add new lines and flour silos. The new line in Malaysia will be completed by end-FY24E.
     
  • MFM is hopeful that its flour associate (30% shareholding in PT Bungasari) in Indonesia would swing into the black in 4QFY24. Competition is fierce in Indonesia as flour millers have been expanding capacity over the past few years. The largest flour miller in Indonesia with a market share of 50% is PT Bogasari, owned by the Indofood Group.
     
  • Outlook for the poultry joint venture remains gloomy as the boycott of a few quick service restaurants continues to adversely impact demand. Average utilisation rate of the unit's poultry processing plant was 48.9% in 1HFY24 vs. 50.3% in 1HFY23. To boost sales volume, the poultry unit is selling more whole birds instead of cut-off parts and focussing on local quick service restaurants such as Nando's.
     
• MFM is currently trading at an undemanding FY25F PE of 6.6x, which is below its 2-year average of 8x.

Source: AmInvest Research - 18 Sep 2024