Malindo Feedmill Indonesia (MAIN.IJ Rp 880; BUY TP Rp 1,700) Delivering solid 3Q24 earnings amid margin compression; cheaper options in the poultry space

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Malindo Feedmill Indonesia (MAIN IJ)

Delivering solid 3Q24 earnings amid margin compression; cheaper options in the poultry space

MAIN reported net profit of Rp67bn in 3Q24 (-62% yoy, -67% qoq), in-line with our 3Q24 preview, which expected margin compression.
Overall margin was dragged by DOC and LB segments, while feed and processed food margin improved on qoq basis.
On the back of margin recovery expectation in 4Q24, we maintain Buy rating with a higher TP of Rp1,700, implying 8.8-8.6x FY24-25F PE.

In line with our upper estimate in 3Q24 preview

MAIN reported a net profit of Rp67bn in 3Q24 (-62% yoy, -67% qoq), which falls within the upper limit of our estimate of Rp64bn. Core net profit was higher at Rp89bn in 3Q24 (-45% yoy, -53% qoq). The 3Q24 quarterly net profit declined due to the high base in 2Q24 and 3Q23, as OPM dropped to 3.4% in 3Q24 (3Q23/2Q24: 7.3%/7.3%), mainly due to a significant drop in the margin of DOC and livebird segments, partly offset by higher feed and processed food margins.

Lower DOC and LB margin offsetting the higher feed and CBP margin

Feed OPM increased 133bps qoq to 8.4% in 3Q24. Coupled with lower chicken prices in 3Q24, the resilient feed margin drove DOC and livebird segments’ margins down qoq. DOC margin declined from 21.6% to 8.4%, while livebird margin dropped from -0.2% to -8.2% from 2Q24 to 3Q24, respectively. Processed food showed better growth in 3Q24, with revenue up by 10% qoq and 66% yoy, marking its highest quarterly revenue, with improved OPM to -8.5% (3Q23/2Q24: -17.0%/-18.1%) as the business scaled up. Overall, 3Q24 gross revenues declined to Rp3.7tr (-10% yoy, -7% qoq), led by feed revenues.

We revised FY25-25F NP by 235-107%

MAIN reported 9M24 NP of Rp359bn (7-fold yoy), surpassing our FY24 estimates (no consensus). As we expect a margin recovery in 4Q24, we raised our FY24-25F EBITDA by 74-65% to reflect a higher margin stemming from lower-than-expected raw material costs. Note that MAIN has the highest portion of feed business compared to its peers.

Maintain Buy rating with a higher TP of Rp1,700

As we revised our FY24-25F numbers, we also raised our TP to Rp1,700 (from Rp850 previously), derived from 4.7x FY25F EV/EBITDA (-1SD of 5-year average), implying 8.8-8.6x FY24-25F PE. We maintain our Buy rating on MAIN for its cheap valuation at 4.5x FY25F PE currently and margin recovery in 4Q24. Risks to our view include rising raw material costs and weak livebird prices.

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