Malindo Feedmill Indonesia (MAIN IJ Rp 510; BUY; TP Rp 750) Feed business remains the backbone of earnings

Stock Code	Last Price	Change	Change %
DSSA	50,675	2,425	5.03%
SMMA	15,900	500	3.25%
CTBN	5,175	325	6.70%
SINI	3,400	210	6.58%
ADES	11,000	200	1.85%
BESS	1,455	200	15.94%
NICL	1,065	185	21.02%
CUAN	8,700	175	2.05%

Malindo Feedmill Indonesia (MAIN IJ)

Feed business remains the backbone of earnings

Core net profits recorded 5-fold growth to Rp149bn in FY23, beating our forecast, supported by feed business margin expansion.
We continue to expect a slight improvement in the feed margin in FY24F from normalization of weather post El-Nino in FY23.
Maintain Buy rating with a higher TP of Rp750 (from Rp650 prev.) on its attractive earnings growth prospects and undemanding valuation.

FY23 earnings beat, supported by the feed business

MAIN booked core net profit of Rp48.4bn in 4Q23 (+46% yoy), bringing the FY23 core net profit to Rp149bn (+5-fold yoy), better than our forecast (at 129% of FY23F). Including the fair value of biological assets and FX losses, reported net profit came in at Rp63bn (+142% yoy). The strong earnings growth in FY23 was driven by 9% yoy growth in gross revenues and margin expansion from the feed business to 8.4% in FY23 (vs. 5.3% in FY22), more than offsetting the negative margins in the DOC and broiler segments.

4Q23: Negative DOC and broiler margin, partly offset by higher feed margin

Off a high base in 3Q23, MAIN`s operating profit declined 66% to Rp81bn in 4Q23 due to the reversal in the DOC segment’s margin and bigger losses in the broiler segment, partly offset by a higher feed margin. MAIN`s feed operating margin (OPM) increased slightly (+56bps) to 9.6% in 4Q23 (3Q23/2Q23: 9.1%/6,1%) depicting the company’s ability to pass through its higher costs. Meanwhile, DOC`s OPM saw a sharp decline to -19.3% in 4Q23 from +23.0% in 3Q23 due to lower DOC ASP while the broiler segment reported bigger losses with a -9.6% OPM from -7.2% in the previous quarter due to weak livebird prices.

FY24F EBITDA and core earnings estimates raised by +2%/+22%

We revise our FY24/25F EBITDA and core net profit forecasts by 1.8/-0.4% and 22/3.1% on the back of higher margin assumptions. This reflects a slightly higher feed margin (8.9% in FY24 vs. 8.4% in FY23) while DOC and LB margins are expected to remain negative at -10%/-6% in FY24F.

Maintain Buy rating with a higher TP of Rp750 on attractive earnings growth

We maintain our Buy rating on MAIN on attractive earnings growth prospects and an undemanding valuation of 4.9x EV/ EBITDA (34% discount to 5-year avg). We raise our TP to Rp750 (from Rp650 prev.) to reflect our higher earnings forecast and lower interest-bearing debt. Our TP is based on 7.4x EV/EBITDA (5-yr avg) to our FY24 EBITDA implying 9.1/7.3x FY24/FY25 PE. Risks to our view are higher-than-expected increases in raw material prices.

… Read More 20240404 MAIN