Investment Highlights

• We maintain HOLD on MSM Malaysia with an unchanged fair value of RM0.85/share. Our fair value of RM0.85/share implies a multiple of 0.6x on MSM’s NTA of RM1.46/share as at end-FY19.

• Overall, MSM reported a net loss of RM299.8mil in FY19 due to a RM140.5mil impairment on assets, higher interest and depreciation expenses and an 8% drop in average selling price of sugar in the domestic market.

• MSM’s core net loss of RM159.3mil in FY19 (excluding impairment of RM140.5mil) was higher than our expectations of RM132.0mil and consensus estimates of RM135.5mil. The group did not declare dividends for FY19.

• MSM’s sales volume (ex-molasses) inched down by 0.2% to 946,055 tonnes in FY19 from 947,848 tonnes in FY18 while average selling price for the domestic market slid by 7.8%.

• MSM was also affected by higher interest and depreciation expenses in FY19. Interest expense surged by 119.1% to RM82.1mil in FY19 while depreciation expense climbed by 39.0% to RM79.0mil. MSM recognised interest and depreciation expenses for the Johor sugar refinery, which commenced operations in early FY19.

• MSM’s Johor refinery was a drag in FY19. Average utilisation rate of the sugar refinery was only 20% in FY19. MSM hopes to achieve an average utilisation rate of 28% in Johor in FY20F.

• After a weak 3QFY19, which was hit by impairments of RM137.4mil, MSM recorded a smaller net loss of RM40.3mil in 4QFY19. MSM’s net loss was RM47.8mil in 3QFY19, excluding the impairment of RM137.4mil.

• The QoQ earnings improvement in 4QFY19 was driven by marginally higher selling prices of refined sugar.

• Average selling price of MSM’s sugar products in the domestic market rose by 3.2% QoQ in 4QFY19.

• On a negative note, sales volume of MSM’s sugar products (ex-molasses) slid by 4.0% QoQ to 242,000 tonnes in 4QFY19.

• Breaking it down, sales volume of sugar to the industrial segment slipped by 13.1% QoQ to 93,000 tonnes in 4QFY19 while sales volume of sugar to the retail segment was flat at 126,000 tonnes. Export sales climbed by 21.1% QoQ to 23,000 tonnes in 4QFY19.

Source: AmInvest Research - 26 Feb 2020