-  Brahim’s Holdings Bhd announced that its 60%-owned subsidiary, Admuda Sdn Bhd has received approvals from the Ministry of Resource Planning and Environment and Sarawak Government Land and Survey Department (Kuching Division) to build a sugar refinery in Demak Laut Industrial Park, Kuching.

-  The proposed sugar refinery will have a revised production capacity of 180,000 tonnes per year. The sugar refinery is expected to be completed by 2015F.

-  It appears that the production capacity of Admuda’s sugar refinery has increased. Initially, the sugar refinery’s production capacity was supposed to be 100,000 tonnes per year, which could be ramped up to 400,000 tonnes.

-  This is not positive for MSM as the competition from Admuda might result in loss of sales. A silver lining is that Admuda’s sugar refinery is targeted for completion only in 2015F.

-  Presently, East Malaysia accounts for 6% to 7% of MSM’s total sales revenue. Based on MSM’s sales revenue of RM2.3bil in FY12, this means that the contribution from East Malaysia would be about RM138mil.

-  MSM’s market share in East Malaysia is about 40% currently. We believe that Tradewinds Group commands the balance 60% of the market share.

-  We do not discount the possibility of a price war among the sugar refiners in East Malaysia in 2015F. MSM’s competitive edge is its strong balance sheet and experience in the sugar refining business in Malaysia. MSM is also proud of the quality of its sugar products.

-  MSM has been reducing its reliance on the domestic market by exporting overseas. The export market accounted for 22% of total sales volume in 1HFY13 compared with 10% in 1HFY12.

-  Admuda might face problems of distribution and packaging. This is because the roads in East Malaysia are not as extensive and well-connected as West Malaysia.

-  As at end-June 2013, MSM’s net cash stood at RM359.5mil. In contrast, Brahim’s net debt was RM151.3mil. In September 2013, Brahim’s completed the first tranche of its placement at RM1.45/share. The first tranche involved the placement of 10.7mil shares. Maintain HOLD on MSM.

Source: AmeSecurities