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Sunday, August 7, 2011

PT Malindo Feedmill Tbk - Positive Outlook

by OSK Nusadana

Declare a 5-for-1 stock split and rights issue plan may continue. The company may continue its non preemptive issue plan of up to 10%, although it was dropped from the discussion in the last EGM on 28 April. However, the new details of rights issue plan have yet to available. Malindo initially plans to raise around IDR151bn to finance next year’s capex on new feed mills and farms construction and for working capital. We view the plan as positive as it will help reduce debt level and have minimum dilution effect on existing shareholders. Meanwhile, Malindo’s EGM recently approved a 5-for-1 stock split to improve its share trading liquidity. The AGM also announced an IDR185 dividend per share, IDR70 of which was paid in Dec-10, or 35% of FY10 earnings.

Outlook remains positive. Indonesia’s population of some 240m people and the low consumption of poultry per capita of 5.0 kg in 2010 (considerably lower compared with the Philippines’ 8.1kg, or Malaysia’s 37.3kg) provides for favorable growth prospects for the industry. We believe the oligopolistic nature of the industry gives the players pricing power, especially during a material (corn and soybean meal) costs price hike, which enable these companies to pass on at least the biggest portion of cost increase to customers. Their selling prices also tend to be relatively inelastic and do not go down significantly when commodity prices decline.

Maintain our Buy call with TP of IDR 1,490. We maintain our Buy rating on Malindo with unchanged GGM-based target price of IDR 1,490 share, as we continue to like its growths story and attractive valuation and dividend yield. MAIN is trading at 8.7x its 2011 earnings as compared to CPIN’s and JPFA of 16.1x and 9.1x, respectively, based on Bloomberg consensus. Moreover, we are expecting Malindo to generate a superior 54% in ROE this year.

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