Investment Highlights

• We maintain HOLD on MSM Malaysia with a lower fair value of RM0.51/share (vs. RM0.85/share previously). We have reduced our P/NTA assumption for MSM to 0.4x from 0.6x to account for increased risk of asset impairments.

• Apart from sales volume, we believe that Malaysia’s movement control order (MCO) from mid-March till April 2020 would affect the ability of MSM to collect cash from its debtors or receivables.

• We have reduced MSM’s sales volume growth from 2.5% to 1.5% for FY20F to account for weaker demand for refined sugar. As a result, MSM’s net loss is forecast to widen to RM47.0mil in FY20F from our original estimate of RM36mil.

• We believe that the demand for refined sugar from the domestic retail and industries segments would be weak in FY20F as the MCO affects the consumption of sugar in beverages and products such as cakes and biscuits.

• We also think that there would not be any significant increase in the selling price of refined sugar for the industries and export markets. This is due to weak demand and the falling price of raw sugar.

• In contrast in FY19, average selling price of MSM’s refined sugar dropped by 7.8% in the domestic retail and industries markets in Malaysia due to competition from imported sugar.

• The retail segment accounted for 47.0% of MSM’s sales volume in FY19 while industries accounted for another 44.2%. The export markets made up the balance 8.8% of MSM’s FY19 sales volume.

• On a positive note, raw sugar price has declined by 29.4% since reaching a high of US$0.1492/pound on 21 February 2020. Raw sugar is currently trading between US$0.10/pound and US$0.11/pound. Raw sugar accounts for 80% to 90% of MSM’s production costs.

• However, MSM would not be enjoying the full benefit of weaker raw sugar prices in 2HFY20 as the MYR has depreciated against the USD. From a high of USD1.00: RM4.0547 on 17 January 2020, the MYR has fallen by 7.2% against the USD. The MYR is currently hovering at US$1.00: RM4.3698. Raw sugar is imported in USD.

Source: AmInvest Research - 20 Apr 2020