Investment Highlights

• We downgrade MSM Malaysia to SELL from HOLD with a fair value of RM0.58/share. Our fair value of RM0.58/share implies a multiple of 0.4x on MSM’s NTA of RM1.46/share as at end-FY19.

• We have raised MSM’s FY20F net loss to RM70.6mil from RM46.6mil as it would take time for the sugar refinery in Johor to swing into the black.

• We believe that the offtake of refined sugar from the Tanjung Langsat refinery was still low in 1QFY20. The average utilisation rate of the refinery was about 34% in 1QFY20 vs. 30% in FY19.

• MSM’s net loss widened to RM34.7mil in 1QFY20 from RM7.1mil in 1QFY19 due to a provision of RM5.0mil in respect of the closure of its Perlis operations and recognition of interest and depreciation expenses for the sugar refinery in Johor. MSM started recognising interest and depreciation for the Johor refinery only from 2QFY19 onwards.

• The planned cessation of the Perlis refining operations will be on 30 June 2020 where the mobilisation of manpower and equipment from Perlis to the refineries in Johor and Penang will be conducted in stages and completed by 4QFY20.

• On a positive note, MSM’s revenue improved by 5.2% YoY to RM511.0mil in 1QFY20 as sales volume rose by 5.3%. Average selling price of MSM’s refined sugar was flat YoY in Malaysia in 1QFY20 as competition from imported sugar dissipated.

• Average selling price in the industrial customer segment edged down by 0.4% YoY to RM2,015/tonne in 1QFY20. Average selling price of sugar in the retail customers segment climbed by 7.2% YoY in 1QFY20.

• Sales volume (ex-molasses) of MSM’s sugar products improved by 5.3% YoY to 235,928 tonnes in 1QFY20. Breaking it down, sales volume to the domestic retail market plunged by 33.1% YoY in 1QFY20 while sugar demand from the industries shot up by 52.9%. Sales volume of exports increased by 37.5% YoY in 1QFY20.

Source: AmInvest Research - 28 May 2020