• The Edge reported that the Malaysia Competition Commission (MyCC) has imposed penalties amounting to RM415.5mil on 5 feedmillers. They are Leong Hup Feedmill Malaysia, Dindings Poultry Development Centre, FFM Bhd, Gold Coin Feedmills and PK Agro-Industrial Products, which is under Charoen Pokphand Holdings.

• The fines are RM70mil for M Flour's 51%-owned Dindings Poultry Development Centre and RM42.7mil for PPB Group's FFM Bhd.

• We believe that the feedmillers will appeal to the Competition Appeal Tribunal. The appeals and subsequent court cases mean that this would be a long and drawn-out affair. PPB said that it would be consulting its external legal counsel on the appropriate action to take.

• In 2022, the Competition Appeal Tribunal ruled in favour of the insurance companies in respect of the repair works done on motor vehicles. Following the tribunal’s decision, MyCC filed a judicial review at the High Court.

• In November 2023, the Federal Court ruled in favour of Capital A and dismissed MyCC's review of application. The Competition Appeal Tribunal had previously ruled in favour of AirAsia Bhd in MyCC's allegation that AirAsia and MAS had breached the market sharing prohibition by sharing markets in the air transport sector in Malaysia. MyCC's fine on AirAsia was RM10mil.

• The fines of RM35.7mil (51% of RM70mil) would reduce M Flour's FY23E net profit to RM14.7mil from RM50.4mil and shave 3.1% of PPB's FY23E net earnings of RM1.4bil.

• We think that M Flour and PPB would not be recognising the fines in their books as they mull on the next course of action.

• We maintain BUYs on M Flour with a fair value of RM0.80/share and PPB Group with a fair value of RM19.40/share.

Source: AmInvest Research - 26 Dec 2023