• MSM FY22 revenue improved by 13.6% YoY thanks to  improvement in blended ASP (+10.8% YoY) and sales volume  (+2% YoY). Its bottom line was hit however by significantly  higher input costs including raw sugar prices (NY11), freight,  natural gas, packaging cost, and unfavourable Ringgit  movement.

• Despite MSM's daunting year, we remain optimistic that the  group will have a better year in 2023. This will be powered by  an expected improvement in MSM Johor utilisation rate, as all  boilers are set to be operational, a normalisation in cost  including raw sugar (NY11), natural gas and shipping rate. This  will also be driven by the expected rebound of Ringgit and  resilient demand for the upcoming festive season, all of which  could materialise in 2H23.

• Maintain a BUY with unchanged TP of RM1.20. Our valuation is  based on FY23F BV/PS of RM2.21 that is pegged to 3-year  average historical P/BV of 0.54x

MSM Johor to set recovery

MSM’s utilisation factor (UF) averaged at 46% (75%: MSM Prai,  16.5%: MSM Johor) in FY22, an increase by 2-ppts from 44% (68%:  MSM Prai, 19%: MSM Johor) in FY21 as MSM Prai was operating at  a regular pace with no severe constraints, as opposed to MSM  Johor, which operated with a single boiler. Management expects MSM Johor Boiler 1 to start commissioning in March and hence, the  UF could rise to 40% for the full year. It also expects to have a new  boiler totaling three boilers by mid-2024, one to be a spare in case  of major bottleneck, which we anticipate will result in high  utilisation and minimize inconvenience, therefore increasing  efficiency.

Low possibility on ceiling price of 1kg pack

Management anticipates that if the government is willing to revise  the 1kg sugar selling price, it may increase between RM0.70  - RM1.20. However, we anticipate the chances as ‘low’ given its  current focus to curb the rise in cost of living. Management  however shared that they already started to revise its sugar selling  prices except for retail 1kg pack.

Mitigate higher input costs with hedging

In order to mitigate the jump in the cost of raw material, specifically  raw sugar (NY11), MSM shared that it has hedged 48% of raw sugar  need at USD0.17-0.18/lbs for 2023 and 18% for 2024 at USD0.16- 0.17/lbs. Considering that 100% of raw sugar are imported, MSM  has also hedged over 33% of MYR/USD need as at February at  RM4.5010 per Dollar (YTD: RM4.4310 per Dollar).

Sales volume to improve on positive outlook onwards

MSM Wholesale, Industries and Export accounted 37%, 41% and 22% of the total sales volume in  FY22, an increase by 2% YoY to 963k MT as compared to 942k MT in FY21 respectively. We  anticipate Wholesale, Industry and Export sales volume to grow at a 2-year CAGR of 16.6%, 8.9%  and 42.9% for FY22-FY24F respectively, on the back of i) improvement in UF of both Prai and Johor  refineries, ii) normalization in costs that could materialize in 2H23, iii) increase in consumption  during festivity, iv) new demand from ASEAN regions, and v) improvement in product margins and  ASPs.

Reiterate BUY with unchanged TP of RM1.20

We reiterate our BUY call with unchanged TP of RM1.20 based on FY23F BV/PS of RM2.21 that is  pegged 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 and utilization rate in addition to an expected  drop in cost.

Source: BIMB Securities Research - 24 Feb 2023