• MSM Malaysia has proposed to sell 4,454ha of land in Chuping, Perlis to F&N Holdings for RM156mil cash. The selling price is about RM35,025/ha.

• Currently, the land is planted with rubber, mango and oil palm. It used to be planted with sugar cane. However, as weather and soil conditions were not conducive, MSM switched to oil palm, rubber and mango.

• The Chuping land division recorded a loss before tax of RM4.5mil in 1HFY19. The unit’s financials were already classified under loss from discontinuing operations in MSM’s profit and loss statement in 1HFY19.

• We are marginally positive on this. With the disposal, MSM would not have to recognise losses from the Chuping land in its books anymore.

• On a negative note, as the land will be sold below its net book value of RM157.8mil, MSM would be recognising a one-off loss on disposal of RM1.8mil. The proposed disposal is expected to be completed in 2QFY20.

• According to Raine and Horne International, the market value of the land is RM190mil or RM42,658/ha. However, in an announcement to Bursa Malaysia, MSM said that it has not been able to find a buyer since 2017 until F&N Holdings came with its offer.

• MSM would be using the disposal proceeds to repay borrowings and as working capital. MSM’s gross borrowings stood at RM1.2bil as at end-June 2019.

• We are keeping our FY19E earnings forecast for MSM. Currently, we have a SELL recommendation on MSM with a fair value of RM1.20/share.

Source: AmInvest Research - 9 Oct 2019