Investment Highlights

• We maintain BUY on MSM Malaysia with an unchanged fair value of RM2.15/share. Our fair value is based on a FY22F PE of 15x. We ascribe a three-star ESG rating to MSM.

• We consider MSM’s 1QFY21 results to be within our forecast as MCO 3.0 may result in weaker demand for refined sugar in the coming quarters. Also, there may be some expenses incurred in respect of the boiler maintenance in 2QFY21. Hence, we are keeping our FY21F core net profit forecast of RM85.9mil for MSM.

• MSM swung into a reported net profit of RM31.2mil in 1QFY21 from a net loss of RM34.7mil in 1QFY20.

• We believe that the earnings turnaround in 1QFY21 was underpinned mainly by a lower cost of raw sugar. We estimate MSM’s average cost of raw sugar to be US$0.17/pound (including insurance and transportation)in 1QFY21 compared with US$0.186/pound in 1QFY20. MSM has locked in a raw sugar cost of US$0.13 to US$0.14/pound (excluding insurance and transportation) for 92% of FY21F’s domestic retail market requirements.

• On the back of a fall in the cost of raw sugar, MSM’s gross profit margin rose to 13.3% in 1QFY21 from 2.8% in 1QFY20.

• MSM’s sales volume inched down by 3.3% YoY in 1QFY21. Breaking this down, sales volume of refined sugar to the domestic retail market slid by 13.6% YoY to 70,000 tonnes in 1QFY21 while sales volume to the industries declined by 25.6%. On the other hand, export sales volume increased by 172.7% YoY to 60,000 tonnes in 1QFY21.

• Average selling price of MSM’s sugar products in Malaysia rose by 8.5% YoY to about RM2,379/tonne in 1QFY21.

• There was no improvement in the off-take of the Johor sugar refinery. The Johor sugar refinery recorded an average utilisation rate of 22% in 1QFY21 vs. 27% in 4QFY20 and 16% in 1QFY20.

• MSM’s net gearing stood at 42.2% as at end-March 2021 compared with 45.0% as at end-December 2020. Gross borrowings stood at RM894.8mil as at end-March 2021 vs. RM907.1mil as at end-December 2020.

Source: AmInvest Research - 27 May 2021