MFLOUR’s 4Q19 results were solid on the back of flour and grain segment (due to higher ASP and better production efficiency) offsetting losses in its poultry segments. We believe the selling pressure is overdone from Covid-19 as demand for flour and grains should remain intact. Meanwhile, the proposed share-buy-back by MFLOUR will be able to stabilise the supply and demand of its shares on the open market and thereby support its fundamental value. Technically, it is poised for a flag formation breakout, targeting RM0.605-0.65- 0.725. Support is set around RM0.53-0.54, with a cut loss set around RM0.525.

4Q19 results were driven by flour and grains segment. Flour and grains segment recorded EBIT of RM45.1m in 4Q19 vs. RM30.8m in 4Q18 due to favourable margins arising from higher ASP and better production efficiency in 4Q19 offsetting operating loss in poultry segment.

Proposed share-buy-back (SBB). MFLOUR proposed to repurchase up to 10% of its total issued shares or a maximum of 100.74m. We view this as a positive move to stabilise the recent fall of the share price following the Covid-19 outbreak. The SBB will be funded internally throughout the company’s retained profit (c.RM481.3m in FY19). SBB could benefit when they are being sold higher and make exceptional gains for the company or being distributed as share dividends to shareholders.

Anticipating a flag formation breakout. MFLOUR has taken a pause forming a flag formation over the past 4 trading days within a range between RM0.54-0.58. With the indicator turning positive at this juncture, we anticipate trading interest to emerge once the RM0.57 resistance is taken out. Next resistance will be at RM0.605-0.65, followed by a LT target of RM0.725. Support is at RM0.53-0.54, with a cut loss set below RM0.525.

Source: Hong Leong Investment Bank Research - 28 Apr 2020