Journey to Wealth
MSM Malaysia - Beneficiary of weak US$ HOLD
MSM is aHOLD for its decent FY12F dividend yield of 4%. Our fair value of RM5.40/sharefor MSM is based on a PE of 14x on FY12F EPS.
MSM held ananalyst briefing yesterday. We understand that the group would be announcingits final gross DPS for FY11 soon.
AlthoughMSM did not disclose the amount of the final gross DPS for FY11, the group saidthat it would adhere to its official policy of a net payout of 50% of netprofit. We estimate this at 19 sen, which translates into a final gross DPS of11 sen for FY11.
The boardmeeting will be held at the end of March 2012. This will be followed by theannual general meeting in June 2012. The final gross DPS will most likely bepaid in July 2012.
The cost ofraw sugar locked-in under the long-term contract (LTC) was US$0.26/pound. Theprice was higher than the spot prices of US$0.2236/pound to US$0.2375/poundrecorded in December 2011 due to the inclusion of freight cost. The freightcost of US$0.02/pound translates into US$44/tonne roughly.
We alsounderstand that the 'government did not shortchange' MSM with the increase of54 sen/kg in the sugar subsidy. We take this to imply that the subsidy of 54 sen/kgis more or less enough to offset the higher cost of raw sugar locked-in underthe new LTC. The cost of raw sugar locked-in under the old LTC (from FY09-FY11)was US$0.175/pound.
We gatherthat MSM had already concluded negotiations on the terms and conditions of thenew LTC with its suppliers. However, the LTC is not signed yet due to the difficultyin legal documentation. This is because the suppliers are from differentcountries.
MSM is abeneficiary of the weak US$ as raw sugar is purchased in US$. We understandthat MSM's operating margins would improve if the US$ were to continue to depreciate.
Sincereaching a high of US$1.00:RM3.2048 on 3 October 2011, the US$ has depreciated5.5% against the RM to US$1.00:RM3.029 currently.
There havenot been any updates on the new sugar refinery in Sarawak since it was reportedin the media last year. We understand that East Malaysia only accounts for 10%of MSM's domestic sales volume.
Source: AmeSecurities
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