• Overview. MSM Malaysia Holdings Berhad (MSM) 4Q22 revenue increased by 5.6% YoY and 1.4% QoQ thanks to the improvement in wholesale (26.9% YoY) and industries (15.8% YoY) segments as well as higher blended ASP (11.7% YoY; 1.8%: QoQ) - Table 2. MSM net loss narrowed to RM44mn (+173% QoQ) though remained hampered by higher cost of sales, which including raw material (NY11), freight, natural gas, and Ringgit weakness. The group’s bottom line was further dragged by higher cost of packing materials, salaries, and inland logistics during the period.

• Against estimates: Inline. 12M22 net loss of RM179mn was slightly above our projection or at 108.2% though in line with street estimates or at 103.4%.
  
  Outlook. We expect the post-ratification work for Boiler 1 in MSM Johor will increase its utilisation rate and volume, which will be more- -than-enough to meet surging demand particularly with upcoming festivity (Eid’ Fitri). This could offset higher input and refining costs, and consequently profitability. Downside risk to earnings may however come from higher-than-expected input cost including raw material prices, refining costs, unfavourable USDMYR movements, and longer-than-expected rectification works for Boiler 1.
   
• Our call. Maintain a BUY call with unchanged TP of RM1.20 pegged at RM2.21 FY23F BV/PS to 3-year average historical P/BV of 0.54x. The valuation is justified given the expected turnaround in 2023 on the back of improving demand, higher utilization rate and an expected drop in cost.
   
• Upside risk to our call. (i) stronger-than-expected demand, (ii) improvement in utilization rate, and (iii) normalization in costs.

Source: BIMB Securities Research - 23 Feb 2023