• MSM has turned into black since the previous 2 quarters, propelled by the government incentive and a higher utilisation factor (UF) rate.

• Sales are anticipated to increase supported by the ramp-up in MSM’s Johor plant output and higher export sales target.

• We maintain a ‘BUY’ call on MSM with a TP of RM3.18, based on FY24 EPS of 30sen that is pegged to a global average PER of 10.6x.

Excellent Turn Around Supported by Higher UF and Government Incentive

MSM returned into black in 4QFY23 and sustained its position in 1QFY24 with a net profit of RM42.9mn and RM41.7mn respectively, thanks to the ramp-up in its Johor plant with the rectification of second boiler while facilitated by the government incentive (i.e., RM1,000/MT for 24,000MT/month for Coarse Grain Sugar (CGS) of 1kg/2kg and Fine Grain Sugar (FGS) of 1kg for wholesale segment). Management guided that this incentive will continue despite the moderation in global raw sugar price (NY11) as the unit production cost stands at RM3.30-3.40 which is still higher than the wholesale selling price at the gate of RM2.69 along with other input cost factors such as gas cost and freight cost being considered. They also indicated that the incentive will remain until a new price mechanism has been formalized by the government, expected to be in 2H24. Additionally, in terms of production, MSM Johor managed to ramp up its UF to 29% in 1QFY24 with a target to break even at 40% in 2HFY24.

Higher UF and Higher Export Sales to Boost Sales

Better sales are anticipated in the coming quarters boosted by higher UF in MSM Johor, and improved export sales. With 2 boilers available and the ability to reach 50% UF with one boiler, MSM Johor is more than capable of increasing its UF to hit its target of more than 40% by the end of FY24. However, management informed that they are taking a safe approach in increasing its UF, and as of April 2024, MSM Johor has achieved a 30% UF. MSM has set a target of 300kMT export sales spread across 25 different countries in FY24, up from 240kMT exported in 2023. At present, the company has committed to export up to 200kMT with the remainder to be exported to Vietnam as it predicts that the current anti-dumping tax policy to be loosened up. Domestically, the diesel subsidy rationalisation initiative (SRI) is expected to have a minimal impact on MSM given sugar is a staple food. MSM has also received a diesel subsidy allocation from the government for their logistics.

Maintain a BUY Call with TP of RM3.18

We maintain a ‘BUY’ call on MSM with a TP of RM3.18 based on FY24 EPS of 30sen that is pegged to a global average PER of 10.6x. We continue to like MSM due to its i) continued government incentive, ii) efforts to ramp up its UF, and iii) high export sales from various countries.

Downside Risks to Our Call

i) Government incentive revoked if raw sugar price declines significantly,

ii) inventory loss due to lower value from the declining raw sugar price (NY11).

Source: BIMB Securities Research - 17 Jul 2024