• Gas Malaysia has revised the gas tariffs for the non-power sector in Peninsular Malaysia for the period of 1 January to 30 June 2018.

• Average effective tariff will increase by 15.9% from RM28.05/mmBtu to RM32.52/mmBtu.

• The tariff of RM32.52/mmBtu includes the surcharge of RM1.62/mmBtu, which accounts for the rise of LNG price against the reference price in the Base Tariff Schedule.

• The average gas tariff for the non-power sector was only RM16.07/mmBtu in the beginning of year 2014. Hence, average gas tariff for the non-power sector has risen by 102.4% since the start of year 2014.

• We believe that MSM Malaysia would only be marginally affected by the hike in gas tariff. The impact is not expected to be significant as energy accounts for a mere 4% of MSM's production costs.

• Raw sugar is the largest cost component in the processing of refined sugar as it accounts for almost 90% of production costs.

• We forecast MSM's gross profit margin to rise from 5.1% in FY17F to 13.4% in FY18F on the back of a decline in the cost of raw sugar. Also as raw sugar is imported in USD, the recent appreciation of the MYR against the USD is expected to benefit MSM.

• According to Bloomberg, average raw sugar price has declined by 4.3% from an average of US$0.17127/pound in 10M2016 to US$0.16388/pound in 10M2017. Since reaching a high of RM4.4975 on 4 January 2017, the USD has lost 8.8% against the MYR.

• Maintain HOLD on MSM with a fair value of RM4.00/share. MSM is currently trading at an FY18F PE of 24.6x.

Source: AmInvest Research - 30 Nov 2017