Investment Highlights

• We maintain SELL on MSM Malaysia with an unchanged fair value of RM0.77/share, based on a FY23F PE of 15x, which is the 10-year mean. We ascribe a 3-star ESG rating to MSM.

• MSM’s net loss of RM178.7mil in FY22 was smaller than our forecast of RM197.9mil but larger than consensus estimates of RM163.8mil. MSM’s results were above our expectations as the group swung into a gross profit of RM32.3mil in 4QFY22 (3QFY22: RM65.8mil loss) on the back of a lower cost of raw sugar.

• Comparing FY22 against FY21, MSM swung into a net loss of RM178.7mil from a net profit of RM36.6mil due to higher costs of raw sugar, gas and logistics. We estimate MSM’s cost of raw sugar (including costs of transportation and insurance) to be US$0.23/pound in FY22 vs. US$0.20/pound in FY21.

• Apart from the increase in the price of raw sugar, the cost of sugar imports rose in FY22 as the MYR depreciated against USD. Average realised exchange rate was US$1.00: RM4.34 in FY22 compared to US$1.00: RM4.13 in FY21.

• Included in MSM’s reported net profit in FY22 were realised gains on Brent crude oil options of RM3.1mil, unrealised gains on Brent crude oil options of RM1.3mil, realised loss on sugar futures of RM1.3mil and unrealised loss on foreign currency forward contracts of RM16.2mil.

• Demand for refined sugar improved by 2.2% in FY22. Sales volume of refined sugar to wholesalers increased by 7.6% to 353,000 tonnes in FY22 while demand from industrial customers rose by 6.8%. On the other hand, exports fell by 11.4% to 209,000 tonnes in FY22.

• Average selling price of refined sugar to wholesalers in the domestic market was 5.6% higher in FY22 while selling price for industrial customers rose by 11.2%. Selling price of refined sugar for overseas customers climbed by 19.5% in FY22.

• MSM is currently trading at a FY23F PE of 16x, which is higher than its 10-year average of 15x.

Source: AmInvest Research - 23 Feb 2023