Investment Highlights

• We maintain HOLD on MSM Malaysia with an unchanged fair value of RM0.58/share. Our fair value is based on a P/NTA of 0.4x. MSM’s NTA was RM1.46/share as at endFY19.
• We consider MSM’s 9MFY20 core results to be within our forecast. Hence, we are keeping our FY20E forecast of a core net loss of RM70.6mil (excluding asset impairments) for the group. Consensus has estimated a smaller net loss of RM54.5mil for MSM in FY20E.
• MSM reported net losses of RM127.5mil in 9MFY20 and RM71.2mil in 3QFY20. The group recorded asset impairments and write-offs amounting to RM70.9mil in 3QFY20. Excluding the asset impairments and write-offs, we think that MSM would have recorded a small net loss of RM1.2mil in 3QFY20.
• Comparing 3QFY20 against 2QFY20, MSM’s gross profit rose to RM42.9mil from RM17.1mil. Revenue improved by 32.5% QoQ to RM594.6mil in 3QFY20. Sales volume of refined sugar rebounded by 36.0% QoQ to 287,000 tonnes in 3QFY20 as restrictions on economic activities eased.
• Sales volume of refined sugar to the industrial customers climbed by 27.3% QoQ in 3QFY20 while sales volume to the retail customers increased by 15.9%.
• Comparing 9MFY20 against 9MFY19, MSM’s revenue rose by 4.2% YoY to RM1,554.1mil in 9MFY20. Sales volume of the group’s refined sugar products improved by 4.4% YoY to 734,000 tonnes in 9MFY20 (FY19: 1.3% growth) on the back of a surge in export sales.
• Breaking it down, sales volume of MSM’s refined sugar to the industrial customers increased by 16.4% YoY in 9MFY20 but sales volume of sugar to the retail distributors dropped by 38.4%. Export sales volumes jumped by 206.7% YoY to 184,000 tonnes in 9MFY20.
• Utilisation rate of the sugar refinery in Tanjung Langsat, Johor remained low. Average utilisation rate was 26% in 9MFY20 vs. 20% in FY19. The breakeven utilisation rate of the Johor refinery is about 48% to 50%. MSM Johor plans to break even at the end of FY20E.
• MSM’s net gearing stood at 53.8% as at end-September 2020. Operating cash flows fell to RM150.2mil in 9MFY20 from RM340.3mil in 9MFY19.

Source: AmInvest Research - 17 Nov 2020