Malayan Flour Mills charts new course after grind

TheEdge Tue, Jul 08, 2025 04:00pm - 3 weeks View Original


This article first appeared in The Edge Malaysia Weekly on June 30, 2025 - July 6, 2025

SHAKING off a particularly challenging stretch since the Covid-19 pandemic, exacerbated by challenges arising from the Russian-Ukrainian conflict, Malayan Flour Mills Bhd (MFM) (KL:MFLOUR) is actively pursuing new growth opportunities in its flour and grain trading (FGT) and poultry integration (PI) segments.

In an exclusive interview with The Edge, MFM executive deputy chairman and managing director Teh Wee Chye says the group plans to expand its flour mills in Vietnam and Malaysia, as well as explore new offerings in the ready-to-eat segment.

He believes these efforts are well timed, aligning with Southeast Asia’s tremendous growth potential, which is closely tied to China’s continued economic rise. “When you talk to Australian wheat exporters, they’ll tell you that 93% of Australia’s wheat goes to Southeast Asia and China,” Teh says. “Meanwhile, China is improving its own wheat production — now at more than 100 million tonnes a year — but it’s mainly reserved for domestic consumption due to weather uncertainties.”

MFM has struggled in recent years mainly because of a combination of poor demand, surging input costs, volatile commodity prices, currency fluctuations and weak performance in its Indonesian joint venture. Between 2021 and 2024, grain and wheat prices spiked because of the conflict in Ukraine, pressuring margins. Domestically, MFM’s poultry arm saw declining profits as a result of poor demand due to the boycott against Western quick service restaurant (QSR) chains, higher input costs and unfavourable foreign exchange rates, particularly in the first half of 2023.

For the past three financial years, the company also suffered losses at its 30%-owned Indonesian joint venture, PT Bungasari Flour Mills, which dragged the group into the red. It posted an after-tax loss of RM30.01 million in the financial year ended Dec 31, 2024 (FY2024), more than halving its loss from RM66.5 million in FY2023. MFM wrote down RM42.1 million on the value of its investment in the Indonesian venture in FY2024, without which net profit for the year would have come in at RM100.2 million.

The group’s profitability in the last five years reflected these difficulties, with net profit plunging to RM5.4 million in FY2020, from RM43.25 million in FY2019, before improving to RM58.1 million in FY2024 (see chart).

Asked whether the worst was behind PT Bungasari, Teh says: “The business has been turned around. In May, we saw PT Bungasari’s [first-quarter results improve]. If we can continuously be profitable for three to four months, then we have more stability.”

Teh controls MFM with a combined direct and indirect equity stake of 23.11%.

Teh: We see good potential in the Vietnam market, which has a population of 100 million (Photo by Shahrin Yahya/The Edge)

Rising flour consumption in Vietnam, Indonesia, Malaysia

“I see a clear trend in people taking to the coffee culture, with growing demand for cakes and other flour-based products such as artisanal [bread and pastries] to go with coffee. So, we want to capitalise on that,” says Teh.

Comparing Malaysia’s rice consumption of just below 70kg per capita with the nation’s flour consumption of 40kg per capita, he expects the latter to increase because of the rising cost of rice. Furthermore, it makes economic sense for wheat consumption to rise; because from a supply chain perspective, the transport, handling and storage of flour is more cost-effective than that of rice.

Currently, rice is more expensive than wheat because of cost and demand factors. It is worth noting that the production of rice is labour- and water-intensive in certain regions where the grain is cultivated.

Besides being a major flour mill and grain trading player in Malaysia, MFM also has milling operations in Vietnam and Indonesia.

The company has production capacity of about 420,800 metric tons per year in Malaysia and 732,600 metric tons in Vietnam per year.

With the utilisation rate of its flour mills in Malaysia having increased to 70.6% in FY2024, from 66.8% in FY2023, and to 85.8% from 72% in Vietnam in the same period, the group is expanding its existing milling operations in both countries.

Offering insight into daily production capacities, Teh explains that MFM recently obtained approval from the Vietnamese government to expand its mill in Ha Long Bay to produce 2,500 tonnes per day from 2,000 currently, whereas capacity in its Ho Chi Minh mill will be increased to 1,400 tonnes per day. The expansion of the production lines is expected to be completed by end-2026.

“We see good potential in the Vietnam market, which has a population of 100 million. When we [sealed] this 70% joint venture with [Vimaflour Ltd, a Vietnam state-owned enterprise], we found the Ha Long Bay location and were able to grow, thanks to a balanced distribution across our North and South Vietnam [plants]. Demand in the market is growing fast and, in fact, if not for needing to depend on the outcome of the tariff discussion [between the American and Vietnamese authorities], I’d expect to see 8% growth in Vietnam’s [overall economic growth],” says Teh, adding that the said output is intended mainly for the domestic market.

“Malaysia’s flour consumption of 40kg per capita can be used as a yardstick. Vietnam’s 18kg per capita has great potential to increase to 30kg per capita amid greater foreign investment going into the country. This also comes as the Vietnamese government is understood to be considering halving the rice export from eight million tonnes a year to four million. It is likely that land will be allocated to other industries or crops,” says Teh. He explains that Vietnam is the eighth-largest importer of wheat, corn and soybean for animal feed consumption protein, which is estimated at 28 million tonnes annually.

“It will be the same with Indonesia, with per capita consumption of flour foreseen to reach 40kg from 26kg currently, amid urbanisation, income growth and the price increase of rice,” Teh says.

For FY2025, RM55 million of MFM’s planned capital expenditure of RM215 million has been allocated for the capacity expansion and enhancement of operational efficiency — including automation and the use of robotics — of the FGT segment in Malaysia and Vietnam; the remaining RM160 million will be channelled to the PI segment, the bulk of which will go towards expanding farming infrastructure, including the development of new parent farms and hatcheries. The rest will be used to fund enhancement works at existing farms to improve productivity and supply chain efficiency.

Leveraging Tyson’s modern farming technologies

Asked about the impact of the boycott of Western-based QSR chains, which affected MFM’s business because the group’s PI unit Dindings Tyson Sdn Bhd (DTSB) supplies to KFC via QSR Brands M Holdings Bhd and marinated poultry directly to McDonald’s Malaysia  as well as breast meat products to Mac Food Services (M) Sdn Bhd as part of the supply chain, Teh assures that the “situation has improved and that DTSB also supplies to other fried chicken chains that have not been affected by the boycott”, as well as to supermarkets, food services and other distribution channels.

“Malaysia is among the top five globally in terms of per capita consumption of chicken. We are strong in pricing our commodity but, when it comes to managing the cost efficiencies of poultry production, we would do well to convert our ‘open house’ poultry farming [traditional poultry farming system, where chicken coops have open sides] to ‘closed house’ for better temperature control, and to ultimately foster an optimal production environment,” says Teh.

To this end, MFM is leveraging the modern farming technologies of its strategic partner, Tyson International Holding Co, which acquired a 49% stake in MFM’s PI unit DTSB in May 2021.

According to Teh, Tyson’s methodology can more than double MFM’s poultry farming capacity to 52,000 chickens from 25,000 in a single coop by converting the same dimensions of an open house to a closed one.

“We have built a few [closed] houses internally and proven their viability. We see this as a game changer that will help the government improve self-sufficiency [in poultry production]. Therefore, we are asking for tax incentives for the farmers to upgrade,” says Teh.

The strategic partnership had generated considerable excitement, as it was expected to open up greater opportunities for MFM through Tyson’s global reach. Still, there were several milestones that MFM needed to achieve to receive the full proceeds of the initially agreed upon selling price of RM420 million cash in exchange for giving up the 49% interest.

As the JV did not achieve the targeted cash balance and earnings before interest, taxes, depreciation and amortisation (Ebitda) for FY2023, the consideration was reduced to about RM290 million. In FY2023, DTSB was hit by the ongoing boycott on its QSR restaurant clients in the light of the Middle East conflict, and the inflow of frozen poultry products from a neighbouring country.

Speaking about the JV, Teh notes that DTSB has completed the design for grandparent (GP), parent stock (PS) and commercial broiler farms according to the latest climate control and precision farming technology.  

“The country’s Self Sufficiency Ratio (SSR) as at 2023 was 90%, according to Department of Veterinary Services (DVS) data, and the target SSR for 2030 is 140%. DTSB is also working with the Perak state government to secure land to invest in GP, PS and commercial broiler farms to align with Malaysia’s SSR target and leverage Ministry of Agriculture and Food Security encouragement to export chickens to Singapore and other regional countries,” he says.

Meanwhile, MFM is also studying ready-to-eat products featuring local dishes such as satay curry chicken, with its marketing team currently leading product development and design for both local and potential export markets.

While MFM does not have a formal dividend policy,  the group has consistently paid annual dividends since its listing in 1968. Since FY2019, MFM has paid annual dividends of three sen per share, with the exception of FY2020 and FY2021, when it paid one sen and two sen per share respectively. In FY2024, the dividend payout of three sen per share, or RM37.2 million, was equivalent to a payout of 64% of the group’s profit after tax and minority interests.

In the last 12 months, shares in MFM have fallen 37% year on year to 52 sen last Wednesday, from the 83 sen mark, valuing the company at RM644.42 million. 

 

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