Investment Highlights

• We maintain SELL on MSM Malaysia with an unchanged fair value of RM0.77/share. Our fair value of RM0.77/share is based on a FY23F PE of 15x. We ascribe a 3-star ESG rating to MSM.

• MSM reported a net loss of RM135mil in 9MFY22. The group’s net loss widened to RM73mil in 3QFY22 from RM34mil in 2QFY22 as costs of raw sugar, packaging and logistics rose.

• MSM’s net loss of RM135mil in 3QFY22 was larger than our forecast of a net loss of RM108mil and consensus estimates of RM86mil for the full year. We are now expecting a net loss of RM198mil for MSM in FY22E vs. RM108mil previously due to higher costs of production.

• We believe that MSM recorded an average cost of raw sugar of 23 US cents/pound (including costs of insurance and freight) in 9MFY22 compared with 19.2 US cents/pound in 9MFY21.

• Included in MSM’s net loss of RM135mil in 9MFY22 were realised gains on Brent crude oil options of RM3mil, unrealised gains on Brent crude oil options of RM2mil, realised gains on sugar futures of RM2mil and unrealised gains on foreign currency forward contracts of RM16mil.

• The depreciation of the MYR against the USD raised the cost of importing raw sugar. Average exchange rate realised was US$1.00: RM4.34 in 9MFY22 vs. US$1.00: RM4.11 in 9MFY21.

• Demand for refined sugar improved by 4.7% YoY in 9MFY22. Sales volume of refined sugar to domestic retail customers rose by 4.1% YoY to 255,000 tonnes in 9MFY22 while demand from industrial customers grew by 6.5%. Export sales improved by 2.5% YoY to 162,000 tonnes in 9MFY22.

• Average selling price of refined sugar to wholesalers in the domestic retail market rose by 4.7% YoY to RM2,663/tonne in 9MFY22 while selling price for industrial customers increased by 12.7%. Average selling price for overseas customers climbed by 24% YoY to RM2,426/tonne in 9MFY22.

• Given the upcoming 4QFY22 loss expectation, MSM is currently trading at a justified FY23F PE of 16x.

Source: AmInvest Research - 22 Nov 2022