• Post our meeting with MSM yesterday, we gather that export volume remains strong, and will likely serve as a key impetus for a profitable 2021
• We are positive on the group’s overall better production efficiency, in part due to a better raw sugar procurement strategy, which significantly optimised stock level and has thus translated into cost savings
• We raise our earnings projections by 3-25% to RM102-125m for 2021-23E, inputting higher volume sales and overall lower opex. Our TP is raised to RM1.70, based on a higher 2021E 0.7x PBV (from 0.6x previously)

Higher Export Volume Likely to Sustain Into 2021…

Export sales surged to RM468m (+170% yoy) in 2020, backed by higher volume tonnage of 272k MT (+226% yoy). We gather that the robust export volume will likely sustain into 2021, with Vietnam expected to be a key contributor on top of the other existing export markets. The group aims to achieve 350k MT in export sales for 2021, with c.65% (or 220kMT) of its targeted volume already secured to date.

… Coupled With Favourable ASP Uptrend

The group also locked in favourable price premiums of US$140-145/MT for exports secured to date, tracking the rise in global refined sugar prices which have appreciated +10% Ytd. The tightness in supply in major production countries such as Thailand and Brazil, which coincided with the increased demand from major consumption countries such as China, is expected to keep sugar prices elevated in the near term.

Positive on Better Raw Sugar Procurement Strategy

Meanwhile, with around 80% of production cost coming from raw sugar, we view the refreshed procurement strategy as key for the group to sustain favourable margins going forward. For 2021, we gather that MSM hedged c.85% of its raw sugar requirement (wholesale) at US$0.13-0.14/lbs (2020: c.US$ 0.13). Correspondingly, we foresee EBITDA margin to average at c.10% for 2021-23E, higher against the past 3-year average of c.6%.

Maintain BUY

Post earnings revisions, our TP is raised to RM1.70, now based on a higher 0.7x 2021 PBV reflecting its 3-year mean PBR - as we foresee brighter prospects for its export sales, complementing its domestic business. Additionally, we are positive on the group’s better cost containment measures, in view of its refreshed raw sugar procurement strategy and overall better capacity utilisation.

Source: Affin Hwang Research - 9 Mar 2021