Malindo Feedmill, Rising Above The Pack
We are keeping MAIN as our Top Pick in the poultry sector for the following reasons: i) the company’s above-industry growth prospects, ii) strong profitability, and iii) potential improvement in gearing. Maintain BUY and IDR4,000 TP, pegged to a 15.2x FY14 P/E. The counter is currently trading at a 12.1x FY14 P/E.
Above-industry growth prospects
We expect both of Malindo Feedmill (MAIN)’s feed and day-old-chick (DOC) sales volume to grow 15% each in 2014, which is at the upper range of the industry’s growth forecast. This growth potential comes from the fact that MAIN started from a lower base as a later entrant compared to Charoen Pokphand Indonesia (CPIN IJ, BUY, TP: IDR3,775) and Japfa Comfeed Indonesia (JPFA IJ, NEUTRAL, TP: IDR1,410). Being part of Malaysia’s biggest poultry company Leong Hup Holdings Bhd (LHH MK, NR) gives MAIN an edge in business knowhow.
Strong profitability
MAIN’s focused poultry business model results in strong profitability. In the last year it posted ROAE of 55% and ROAA of 19%, on par with CPIN’s profits (ROAE: 37%; ROAA: 25%) and beating those of JPFA (ROAE: 26%; ROAA: 10%).
Gearing to improve substantially
In 2Q13, MAIN got the go-ahead from its shareholders to sell 10% of new shares in the company via a non-preemptive rights issue exercise. Upon completion, MAIN’s net gearing will improve significantly to near net cash. The window period will be two years.
Food processing business takes off
MAIN started its processed food operation in 2H by venturing into the traditional market via its budget-friendly brand, Ciki Wiki. MAIN has also begun distributing its premium brand, Sunny Gold, in the modern market. The company’s products are now sold in some new 7-Eleven outlets, as well as certain Alfamart, Lion Superindo, and Hypermart stores. The distribution of Sunny Gold products remains concentrated in the Jakarta area for now.
Maintain BUY
We maintain our forecasts and BUY recommendation, with a TP of IDR4,000, based on a 15.2x FY14F P/E. The counter is currently trading at a 12.1x FY14 P/E.
