Below estimates. MSM posted 2QFY12 revenue of RM546.1m (-3.0% y-o-y, +2.7% q-o-q) and core earnings of RM48.6m (-3.9% y-o-y, -27.0% q-o-q). Revenue declined y-o-y despite higher effective selling prices following a RM0.34 per kg subsidy hike as domestic and export volumes fell. Higher raw sugar costs arising from the new raw sugar long term contract (LTC) placed a further dampener on earnings. 1HFY12 revenue and net profit came in at RM1,077.9m (+1.1% y-o-y) and RM115.2m (-17.2% y-o-y) as higher effective selling prices are unable to offset weaker volumes and steeper raw sugar costs from the new raw sugar LTC. 1HFY12 EBIT margins consequently narrowed by 3.8 ppt to 14.0%. The 6-months earnings represent 43.0% and 42.4% of our and consensus forecasts. In contrast, MSM's 1HFY11 profits accounted for 52.3% of its FY11 earnings.

Less sugar consumed. 1HFY12 domestic selling prices rose by some 15.4% y-o-y, suggesting that volumes may have fallen by as much as 13.3%. Exports, which represent 15%-20% of total volumes, are however priced at market prices. With 1HFY12 refined sugar prices falling to USD611.5 per tonne (-14.0% y-o-y), the company's total sales volume contraction should thus be lower than the 13.0% figure. 2QFY12 cost of sales fell 2.8% y-o-y despite the more expensive LTC raw sugar (+48.6% y-o-y) as lower average 2QFY12 spot raw sugar prices of USD0.21 per lb (-13.4% y-o-y) and softer sales volumes lowered costs. We will get more insight on MSM's sales volume during the period under review at its analyst briefing today.

Maintain NEUTRAL. We trim our FY12 and FY13 forecasts by 5.2% and 5.3% as we cut our domestic and export volume assumptions. Our FV is however reduced just marginally as we roll over our valuation horizon to FY13. We value MSM at a FV of RM4.95, based on 13.0x FY13 PER. FY12 and FY13 dividend yields are decent but unspectacular at 3.4% and 3.6% respectively.

Source: OSK