• MSM Malaysia has proposed to sell 100% of MSM Perlis to FGV Holdings for an initial consideration of RM175.0mil. MSM Perlis’ assets include eight parcels of land in Chuping and one piece of industrial land with a sugar refinery factory.

• The final selling price could come up to RM206.1mil instead of RM175.0mil. This is to account for MSM Perlis’ net working capital of RM23.2mil and net debt of RM7.8mil.

• The consideration of RM175.0mil was arrived at based on a report by Raine & Horne International Zaki & Partners Sdn Bhd, where the revaluation surplus of the assets was included in a revalued net asset value calculation method.

• We view the proposed disposal positively as MSM would be able to reduce its net gearing. Out of the disposal proceeds of RM206.1mil, MSM plans to use RM100.0mil to repay borrowings, RM50.0mil for capex and RM55.2mil for working capital.

• MSM recorded impairments of more than RM70mil in respect of MSM Perlis in FY20 as the latter ceased operations.

• Recall that MSM was supposed to sell 4,454ha of land in Chuping, Perlis to F&N Holdings for RM156mil cash. Unfortunately, the proposed disposal fell through as F&N did not receive approval from the Ministry of Economic Affairs within the deadline of six months.

• MSM would record a one-off gain on disposal of RM91.6mil. We estimate that the group’s net gearing would drop to 38.6% from 45.0%. The proposed disposal of MSM Perlis is expected to be completed by September 2021.

• We are neutral on FGV’s proposed acquisition of MSM Perlis. FGV said that the proposed acquisition will enable the group to develop integrated farming activities in high-value cash crops such as pineapples.

• We maintain BUY on MSM with a fair value of RM2.15/share. We have a three-star ESG rating for MSM.

Source: AmInvest Research - 3 May 2021