Thursday, 22 May 2014

Malayan Flour Mills still keen on Myanmar

KUALA LUMPUR: Malayan Flour Mills Bhd (MFM) is still keen to go into Myanmar in a move to improve profit margins despite a year-long delay to its plans thus far, due to uncertainties in the investment scene there.

Its managing director Teh Wee Chye said the group prefers to set up shop in a processing zone which is expected to be set up soon in Myanmar, instead of going in "alone".

"Unfortunately, infrastructure (development) is very challenging in Myanmar, first you have to get the land, then you have to do infrastructure, so we're waiting for the processing zone to set up, then it would be easier, otherwise electricity cost would be very high," he told a press conference after the company's AGM here yesterday.

"We're watching the developments, a few Japanese companies are building up processing zone over there, it will take a bit of time," said Teh, adding that two locations have been identified.

He said expanding into the overseas market is a way to increase its profit margins which are dragged down by the local operations' quota system for subsidised flour.

MFM’s net profit more than doubled to RM23.14 million from RM10.22 million a year ago in the first quarter ended March 31, 2014, underpinned by the improved profit margins in both flour and trading in grains as well as poultry integration segments.

Its revenue also stood higher at RM579.38 million, an increase of 11.15% from RM521.26 million.

"The government should uplift the quota for subsidised flour as demand is higher on the back of lower price. We are not compensated for the extra amount sold," said Teh, but declined to reveal the actual amount.

The government has been implementing two-tier pricing system for flour products since 2007, where only a certain amount of flour will be subsidised.

Teh explained that MFM's existing overseas markets like Indonesia and Vietnam do not impose any price controls on flour products, making the two markets the logical destination for growth.

"We believe the growth in Indonesia should catch up soon as we will see additional 3 million tonne demand in the next five years," Teh added.

Flour and trading in grains and other allied products is still the biggest earnings contributor to the group, accounting for 54% of its revenue. Other business segments are poultry, feeds and raw material trading.

MFM has two flour mills in Malaysia and Vietnam each, while the one in Indonesia is underway and expected to be operational in the third quarter of this year.

Teh said while demand for flour products has always been intact, high volatility in commodity prices has always brought the main risk to operations.

"Wheat prices can fluctuate as high as 40% due to weather conditions and foreign exchange. Besides, there are other world developments and uncertainties," said Teh, adding that only a certain degree of mitigation can be done, not entirely offsetting the fluctuation in prices.

He stressed that the group has always strategised itself to improve the business performance despite facing stiff competition and unfavourable factors.

Commenting on the shareholders' suggestion for MFM to venture into the duck and cattle farming business, he said the group will not consider those suggestions as it lacks economies of scale.

source: The Sun Daily
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