Utilisation Factor to remain stable

Management guided that the group is aiming to achieve a higher UF in the upcoming quarters, ranging between 50% to 60%. This is thanks to the successful completion of rectification works at Johor refinery, aligning with our expectations. We are pleased with the group plan to build another boiler (Boiler 3), which is expected to complete in 3QFY24, one to be a spare in case of major bottleneck. This will underpin a stable UF and minimize inconvenience, therefore increasing efficiency.

New Gula Premium increase variability

The new sugar product (Gula premium) is anticipate to offer the consumer variability, not only for local but export markets. Note that, the group is targeting to sell the new Gula premium to several countries including Sumatra (RM4.20-RM4.50/kg), Southern Philippines (RM8.50-RM9.50/kg), Kalimantan (RM4.5/kg) and Singapore (RM6.11- RM6.79/kg). Both refineries Prai and Johor will produce Gula premium with an expected production capacity ranging between 90k-100k MT/yr. This aligns with our expectations, on the back of revenue contribution that is projected to account for approximately 2% in FY23F, and 2.8% for FY24F and FY25F, respectively.

The capped sugar products to remain in discussion

The current retail market price for coarse sugar is capped at RM2.69/kg for middlemen and RM2.85/kg for end customers. If a revision is successfully implemented, it is anticipated that the minimum price will increase by at least RM1/kg, resulting in MSM selling it to middlemen at RM3.69/kg. The government's rapid subsidy rationalization drive is expected to have a positive impact on the company - considering the anticipated increase in sugar prices. It remains conjecture at this point however.

Bottomline impacted with higher raw sugar prices FY23.

We anticipate new bottom line projection post analyst briefing after factoring higher raw sugar price contracted for FY23 at USD0.18/, as guided by the management. MSM shared that it has hedged 100% of raw sugar need at USD0.18/lb -0.19/lb for 2023 and 75% for 2024, respectively. No changes on the revenue forecast for FY23F, FY24F and FY25F.

Maintain BUY call with TP of RM1.49

Maintain a BUY Call on MSM with a TP of RM1.49 based on FY23F BV/PS of RM2.29 that is pegged at 1-SD above mean P/BV of 0.65x. Its prospects will be powered by i) an expected improvement in UF, ii) new premium products to offer variability and increase ASP, iii) normalization in costs.

Source: BIMB Securities Research - 30 May 2023