INVESTMENT HIGHLIGHTS

• 9MFY18 earnings below expectation

• 9MFY18 earnings is much better against 9MFY17 loss

• Stable outlook for FY18

• Earnings estimate reduced for FY18 and FY19

• Maintain NEUTRAL with lower TP of RM3.03

9MFY18 earnings below expectation. MSM Malaysia Holdings Berhad (MSM) 9MFY18 core earnings of RM45.7m came in below expectations as it met 67%/65% of consensus/our earnings forecast respectively. The negative deviation is caused by lower than expected sales volume. As expected, no dividend is announced.

9MFY18 earnings is much better against 9MFY17 loss. 9MFY18 core earnings has improved significantly against 1HFY17 core net loss of RM54.4m. The earnings turnaround is caused by the impact of the decline in raw sugar price in which its impact is more than the revenue decline.

Stable outlook for FY18. The Company mentioned that “The Group maintains its positive outlook to remain profitable for the year”.

Earnings estimate reduced for FY18 and FY19. FY18 core earnings has been cut by 21% to RM59.4m. As for FY19, we have reduced our core earnings estimate by 13% to RM101.3m. We have assumed lower sales volume for both FY18 and FY19.

Maintain NEUTRAL with lower TP of RM3.03. The lower Target Price is in line with lower earnings forecast. Valuation is based on unchanged Forward PE of 21x to FY19 EPS forecast. The 21x Forward PE is based on +1.0SD Valuation as we expect earnings to turnaround in FY18.

Source: MIDF Research - 22 Nov 2018