Hot Stock Malayan Flour Mill rallies on lower grain prices

by **Cals** Wed 06 Aug 2014, 01:10

Hot Stock Malayan Flour Mill rallies on lower grain prices

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Tuesday, 05 August 2014 16:51

KUALA LUMPUR (Aug 05): Malayan Flour Mill Bhd has staged a rally since last month, as the current low grain prices will augur well for the company.

Today, the stock has gained 6.3% or 13 sen to multi-year high of RM2.17 as at 4pm, with 3.3 million shares changing hands. The hardly-traded counter has put up 60 sen or 37% since July.

Analyst Lee Yen Ling of Maybank IB Research said the company would be a beneficiary of the falling grain prices.

“Grain prices have been on a free fall since May 2014 and the supply outlook is pointing toward sustainably low prices. With wheat making up 80-90% of its flour production cost and corn/soybean making up the bulk of its poultry cost, we expect margin expansion to boost its earnings,” said Lee.

Lee projects a compounded annual growth rate (CAGR) of 20% on the company’s net profit.

“We project a 2-year net profit CAGR of 20% on a 2-year revenue CAGR of 5% and margin improvement of 1.8-ppt in FY14-15 (from FY13).

“Trading at 11.4 times FY15 basic earnings per share and 13.6 times on a fully-diluted basis; we think the valuation is undemanding, compared to its bigger cap peers,” Lee said.

She placed a target price of RM2.70 per share on the company, based on 15 times FY15 price earnings ratio (PER)

“The stock also offers high net dividend yields of 4.3-4.8% at sustained FY13 54% dividend payout ratio. We fairly value the stock at RM2.70, based on 15 times FY15 PER.”

A dealer familiar with the stock told theedgemalaysia.com that the stock probably received positive sentiment after Maybank has initiated coverage on the flour miller.