Malindo Feedmill Riding The Poultry Consumption Growth

Company Profile
Malindo Feedmill (MAIN) is a poultry company that mainly produces chicken feed, day-old chicks and chicken meat. The company was established in 1997. The Lau Family, who controls Malaysia’s largest poultry player Leong Hup Group, became MAIN’s major shareholder in 2000. The Leong Hup Group includes Leong Hup Holdings and Emivest (EMIV MK; Not Rated).

Highlights
Bright industry prospects
The Indonesian poultry industry is still in the early stages of increasing chicken consumption, estimated at 7.4kg per capita, according to Gabungan Perusahaan Pembibitan Unggas (GPPU or Indonesian Poultry Breeders Association), though other sources may cite lower estimates. In comparison, consumption of chicken per capita is higher in neighboring Thailand (~13kg), Malaysia (~37kg) and even in the Philippines (8.4kg), where the GDP per capita is lower.

We expect the domestic consumption to keep increasing along with the nation’s rising disposable income though purchasing power growth may weaken in the short term, no thanks to increasing inflation.

Accelerating expansion
MAIN accelerated its expansion and pushed forward the development of its two new plants in Semarang and Makassar, which have capacities of 240k and 180k tonnes per year (tpy) respectively. This will significantly boost its current capacity of 900k tpy by 47%. It also plans to increase its breeder capacity by around 20% this year. In addition, its processed food plant in Cikarang has commenced operations in June.

Given that the Company is part of Malaysia’s largest poultry player, coupled with its relatively low market share base, we expect an above average growth potential.

Capital structure gains strength
In early June, MAIN shareholders approved management’s plans to increase total shares by 10% via a non-preemptive rights issue at a floor price of IDR2,844 per share. The proceeds will be used to repay some of the Company’s debt and partially fund its expansion plans. We like this corporate exercise, as the relatively small dilution will improve MAIN’s capital structure significantly due to its high profitability (higher profitability results in higher book value multiple at the same earnings multiple).

Using the floor price assumption (which is quite unlikely given the latest price range), proceeds from the new shares will immediately reduce Main’s net gearing.