MSM’s 2019 results were broadly in line with both our and consensus expectations. The group posted a core net loss of RM128.8m, as a result of volume and ASP declines, in addition to losses arising from the new Johor refinery plant. In view of a more cautious macro outlook both locally and the export market, we trim our 2020-21E earnings by 3-7%. Subsequently, we lower our TP to RM0.83 based on a 2020E PBR of 0.35x. We maintain our HOLD call as upside potential looks limited at this juncture.

2019: Broadly Within Expectations

MSM’s 2019 revenue came in at RM2bn (-9.4% yoy), underpinned by lower sales volume (-0.2% yoy) and lower ASPs (-6.5% yoy). Excluding one-off PPE impairment, MSM posted a core net loss of RM128.8m owing to depressed ASP as well as start-up losses arising from the new Johor refinery plant (commenced April 2019) which is running at a low 20% utilisation rate. The core net loss recorded was broadly within both our and consensus full-year forecasts.

Sweeter Outlook on Better ASP

On a qoq basis, we observed some uptick in margins, owing to better ASPs seen across all 3 of MSM’s core sales channels namely: wholesale, industrial and the export market. In tandem with more favourable NY11 sugar prices, partly attributed to lower forecasted production in key raw sugar exporting countries (India & Thailand), we expect ASPs for MSM to fare better in 2020. Moving ahead, on top of existing operations, the group will look to focus on expanding its range of value-added/downstream products which should bode well in further lifting overall product ASP.

Maintain HOLD

We trim our 2020-21E earnings by 3-7%, in light of a cautious macro outlook (both domestic and export markets) on the back of the Covid-19 outbreak which may disrupt the end-consumption of sweet products, in our view. Subsequently, we cut our 12-month TP to RM0.83 (from RM0.98) based on a 2020E PBR target of 0.35x (from 0.4x), to be more inline with the latest 2-year average PBR. All in, we maintain our HOLD rating on MSM as upside potential looks limited. Upside/downside risks: i) sharp recovery/decline in ASP; ii) stronger/weaker-than-expected volume sales, and iii) easing/intensifying competition in the export market.

Source: Affin Hwang Research - 26 Feb 2020