KUCHING: Malayan Flour Mills Bhd (MFlour) will likely see demand for its poultry products to recover in the financial year 2021 (FY21) as Malaysia ends its movement control order (MCO), analysts say.
In a report, the research team at AmInvestment Bank Bhd (AmInvestment) noted that MFlour’s first quarter of FY20 (1QFY20) results were weak but it believed that the group would turn around in FY21F on the back of improved contribution from the new poultry processing plant in Lumut.
“Also, we expect demand for poultry products to rise in FY21F as Malaysia ends the MCO in June 2020.
“The improvement in demand would help normalise selling prices of live birds to the usual RM4 to RM6 per kg level in FY21F,” it opined.
In early May, AmInvestment believe that poultry prices had improved due to the closure of a poultry processing plant in Pedas, Negeri Sembilan.
“However, we reckon that the increase in poultry prices would be short-lived as the supply of poultry would go up when the plant resumes operations,” it noted.
In 1QFY20, AmInvestment said MFlour reported a net loss of RM16.8 million compared with a net profit of RM19.9 million in 1QFY19. The year-on-year (y-o-y) decline in net profit in 1QFY20 was due to weaker poultry earnings.
It explained that the poultry division recorded a loss of RM29.2 million in 1QFY20 compared with an earnings before interest and tax (EBIT) of RM1.9 million in 1QFY19.
“Apart from the fall in live bird prices, the poultry division was affected by higher depreciation expense in respect of the new plant in Lumut. The new plant started operations early this year,” it said.
As for MFlour’s flour division, it said, EBIT was flat y-o-y at RM22.1 million in 1QFY20.
“Flour earnings were resilient in 1QFY20 underpinned by robust demand for bread and noodles during the MCO in March 2020,” it noted.
AmInvestment maintained its ‘buy’ call on the stock. However, it said it reduced MFlour’s net profit forecast by 41.7 per cent for FY20 and 12.4 per cent for FY21 to account for weaker poultry operating profit margins.
“MFlour was hit by a decline in live bird prices in 1QFY20 as demand from the fast food restaurants segment fell during the MCO in March 2020. We believe that live bird prices continued to be depressed in the month of April 2020,” it added.