Investment Highlights

• We maintain BUY on MSM Malaysia with a higher fair value of RM2.15/share (vs. RM1.20/share previously). Our fair value is now based on a FY22F PE of 15x instead of a FY21F PE of 10x.

• We have increased our PE assumption for MSM as we believe that the worst is over for MSM. We expect MSM’s FY21F net profit to rebound on the back of lower raw sugar costs. We ascribe a three-star ESG rating to MSM.

• We are keeping MSM’s FY21F net profit for now. We understand that the earnings impact of the temporary shutdown of the sugar refinery in Johor will not be significant.

• MSM Malaysia will shutting down its sugar refinery in Tanjung Langsat, Johor for two months from April to May 2021. The shutdown is due to rectification works for the boiler, which broke down.

• MSM said that it will sell its sugar inventory in Johor and move its sugar production from Johor to the Prai plant in Penang.

• We believe that earnings impact of the plant shutdown would not be significant as the off-take in the sugar refinery in Tanjung Langsat is low. Average utilisation rate of the refinery was only 27% in 4QFY20. Average utilisation rate was 23% in FY20.

• Hence, MSM Prai can easily take over some of the sugar orders from MSM Johor. We believe that MSM Prai’s utilisation rate is about 80%.

• We also gather that the boiler is under warranty. Hence, MSM may not have to bear all of the boiler’s repair expenses.

Source: AmInvest Research - 9 Apr 2021