• The Edge reported that there are firms looking to invest in MSM Johor by acquiring a portion of its stake.

• Wilmar International Ltd is considered as a strategic fit to MSM than Threadstone Capital Sdn Bhd due to the former's expertise in sugar refining, large global market share and strong brand equity.

• MSM could leverage this synergy to ramp up its export sales, utilising the available production capacity at MSM Johor.

• In view of continuing incentives received from government, we think no polemic should arise from the disposal of stake in MSMJ to a foreign company as its production is largely focused on export sales.

• 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.

Rumours on Potential Buyers of MSM Johor

The Edge reported that there is a two-horse race between Wilmar International Ltd and Threadstone Capital Sdn Bhd to secure a portion of stake in MSM Johor (MSMJ).

Our View

We uphold a view that Wilmar is better suited as MSM strategic partner cconsidering the former's brand reputation and expertise in sugar refining. Wilmar has a strong presence in sugar refinery mills in India, Australia, Morocco, New Zealand and Indonesia. Wilmar’s involvement would benefit MSM, as MSM could tap on Wilmar’s existing large customer base to boost export sales. We also think that there is no polemic should arise from the disposal of stake in MSMJ to a foreign company. This is because the incentives that it receives from government aims to secure domestic supply which is mainly centered at MSM Prai whereas MSMJ's production is largely focused on export sales. Besides that, we applauded the company for seeking the buyer for MSMJ through an open tender process as this will allow it to maximise the valuation for the asset. Note that it could utilise the proceeds for its rejuvenation plan at MSM Prai. This plan is aimed at ensuring operational reliability and extend the plant’s useful life by another 30 years, with an anticipated cost of RM100mn.

MSM Johor Opportunity to Improve

With both boilers rectified and available for operation, along with its plan to install a 3rd boiler, we believe the operational efficiency issues at MSMJ have been addressed. Nonetheless, its utilisation factor (UF) remains sluggish no thanks to challenges to secure market share in a competitive export market. Thus, should Wilmar is chosen as its strategic partner at MSMJ, we believe it could easily ramp up its production to cater to the export demand. To recap, MSM increased its export target to 300kMT in FY24 from the total export sales of 240kMT in FY23.

Maintain a BUY call with a 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 like MSM due to its i) continued government incentive, ii) efforts to ramp up MSM Johor’s UF, and iii) high export sales anticipated from various countries.

Source: BIMB Securities Research - 12 Aug 2024