• 6M20 core net loss narrowed to RM44.3m – above expectations, but largely aided by lower finance and tax expenses
• Revenue came in flattish yoy at RM959.6m – weaker wholesale segment was offset by higher contribution from the industrial and export segments
• We reduce our core net loss estimate for 2020E to RM47.3m, while adjusted 2021-22E earnings to –RM13m and RM36m respectively. Maintain HOLD at a lower TP of RM0.57, based on 0.25x PBR (from 0.3x) as concerns still linger on the sub-optimal utilisation of MSM Johor refinery plant

6M20 Core Net Loss Narrowed to RM44.3m; Above Expectations

MSM’s 6M20 core net loss narrowed to RM44.3m (vs 6M19 core net loss of RM72.4m) largely underpinned by lower finance and tax expenses. In particular, the lower finance cost was attributed in part to lower working capital needs (and hence borrowings) given a more efficient raw sugar procurement strategy as well as the absence of a one-off interest expense from modification of a term loan incurred in 2Q19. YTD revenue was flattish yoy at RM959.6m – whereby industrial and export sales of RM454m (+26% yoy) and RM141m (>100% yoy) respectively offset the subdued wholesale segment which fell 31% to RM361m. Overall, we deem the result above our and consensus expectations, with the variance to ours broadly on higher-than-expected export sales as well as lower finance and tax expenses.

Lower Demand in the More Profitable Wholesale Segment Weighs

Sequentially, revenue fell by 12% but core net loss narrowed to RM17.1m owing to the aforementioned factors. Near term, the management intends to prioritise better ASP & margins over volume especially for its wholesale segment, which now commands an ASP of RM2.51/kg for 6M20 (+7.5% vs 6M19 of RM2.33/kg) having raised its prices since Oct 2019. We foresee market share in the more profitable wholesale space to remain under pressure, exacerbated by a more competitive pricing by its closest competitor. Elsewhere, utilisation for MSM Johor remains low at c.26%, still a far cry from breakeven point of 48%.

Maintain HOLD

We narrow our 2020E core net loss estimate to RM47.3m (broadly on higher export sales and lower finance and tax expenses) while adjusted 2021/22E earnings to – RM13m and RM36m respectively. Post revision, our 12-month TP is revised to RM0.57, now pegged to a lower 0.25x PBR (from 0.3x previously) reflecting 1.5SD below historical 3-year mean given the persistent under-utilisation of the Johor refinery plant which remains a drag. Maintain HOLD

Source: Affin Hwang Research - 21 Aug 2020