Investment Highlights

• We maintain SELL on MSM Malaysia with a lower fair value of RM0.68/share vs. RM0.77/share previously due to lower earnings forecasts. Our fair value of RM0.68/share is based on a FY24F PE of 15x, which is the 10-year mean for MSM. We ascribe a neutral 3-star ESG rating to MSM.

• MSM recorded a larger net loss of RM35.9mil in 1QFY23 vs. RM27.7mil in 1QFY22. In contrast, we had forecasted a net profit of RM36.1mil for the full year while consensus estimated a net profit of RM17.5mil. We believe that it would be challenging for MSM to break-even in the coming quarters as raw sugar prices have surged.

• MSM’s performance was poor in 1QFY23 due to a drop in sales volume and higher costs of raw sugar and gas. To reflect on all, we are now expecting MSM to record a FY23E net loss of RM48.4mil vs. a net profit of RM36.1mil previously.

• Assuming an exchange rate of US$1.00: RM4.40, we estimate MSM’s cost of raw sugar (including costs of transportation and insurance) to be US$0.23/pound in 1QFY23 vs. US$0.22/pound in 1QFY22.

• The higher cost of raw sugar was compounded by the depreciation of the MYR as raw sugar is imported in USD. According to Bloomberg, the average exchange rate was US$1.00: RM4.40 in 1QFY23 compared with US$1.00: RM4.19 in 1QFY22.

• We think that demand for refined sugar may have fallen by 5%-8% YoY in 1QFY23. There is a possibility that industrial customers may have switched to imported sugar in 1QFY23 as MSM has raised selling prices.

• In FY22, industrial customers accounted for 41% of MSM’s sales volume, retail market 37% and exports the balance 22%.

• MSM is currently trading at a pricey FY24F PE of 21x, which is higher than its 10-year average of 15x.

Source: AmInvest Research - 29 May 2023