Raw sugar price and inadequate subsidy. 1Q12 core net profit of RM64.1m (-27.8% YoY, -15.5% QoQ) after excluding non-cash items was below ours and consensus, at 23% of our full-year forecast. This weaker result underlines that the recent sugar subsidy mechanism revised by the government does not sufficiently compensate for the higher raw sugar input cost. This is a structural problem which is not easy for MSM to muddle out from, and we believe that lower profit margins will prevail in the quarters to come.

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Source: Maybank Research - 8 May 2012