• The Edge Financial Daily reported that the price of sugar will be lower by 10 sen per kg with effect from 1 September 2018 in line with the fall in global raw sugar prices.

• The new retail price of coarse sugar will be RM2.85/kg and that of fine sugar will be RM2.95/kg, said Domestic Trade and Consumer Affairs Minister Datuk Saifuddin Nasution Ismail.

• This is not a surprise as there were expectations that the selling price of refined sugar would drop as the cost of raw sugar had declined. Raw sugar accounts for more than 80% of the cost of production. Raw sugar is imported in USD.

• The price of raw sugar has slid by 44.7% from a high of US$0.19/pound on 24 October 2016 to US$0.1051/pound yesterday. The MYR has appreciated by 9.7% from a low of US$1.00: RM4.4975 on 4 January 2017 to US$1.00: RM4.1003 yesterday.

• In contrast, the selling price of refined sugar has not been revised downwards. The Malaysian government raised the price of refined sugar from RM2.84/kg to RM2.95/kg in March 2017 as raw sugar prices were high at that time.

• This development is negative for MSM. We estimate that MSM’s FY19F net profit would fall by more than 15% due to the decline in the selling price of refined sugar to the retail market. The retail market accounted for 48.3% of MSM’s sales volume (ex-molasses) in 1HFY18.

• On a positive note, we understand that the government will not be issuing any more approved permits for the importation of refined sugar. In addition, the existing approved permits would be cancelled. It is estimated that there are three to four approved permit holders currently.

• The cancellation of the approved permits would help improve the demand for MSM’s refined sugar products in 2HFY18. Recall that MSM’s sales volume shrank by 6.9% YoY in 1HFY18 partly due to competition from smuggled and imported sugar products.

• Maintain SELL on MSM Malaysia with a fair value of RM3.27/share.

Source: AmInvest Research - 28 Aug 2018