KEY INVESTMENT HIGHLIGHTS

• 2QFY20 normalised loss narrowed down further to –RM21.2m from –RM25.4m as at 1QFY20

• Cumulative 1HFY20 normalised loss also contracted to –RM55.8m, in-line with our expectation

• Average selling price to gradually improve in the coming quarters across all the business segments

• Growth in future sales volume to primarily stem from the industries and export segments

• Upgrade to BUY with an unchanged TP of RM0.74

Quarterly loss narrowed down further. MSM Malaysia Holdings Bhd’s (MSM) 2QFY20 normalised loss narrowed down further to - RM21.2m from 1QFY20 normalised loss of -RM25.4m. This was despite the advent of MCO during the quarter-in-review. The improvement in financial performance was mainly due to better cost management as well as lower finance cost. Cumulatively, 1HFY20 normalised loss contracted -RM55.8m (vs 1HFY19: -RM74.8m). This came in within our expectations.

Resilient revenue. Despite the Covid19 pandemic, 1HFY20 revenue came in at RM959.6m which was similar with that of 1HFY19. This was mainly supported by the industries and export segment which grew by +26.1%yoy and +110.4%yoy to RM454m and RM141m respectively. Both segment reported better sales volume and average selling price as compared to 1HFY19. Meanwhile, the wholesale revenue came in -31.6%yoy lower at RM361m, mainly due to the decline in sales volume to 144k mt (-36.3%yoy). Fortunately, the weaker sales volume as partly buffered by higher average selling price of RM2,507/mt (+7.3%yoy).

Impact to earnings. We are keeping our earnings estimates unchanged at this juncture.

Target Price. We are maintaining our target price of RM0.74. Our valuation is based on forecasted FY21 book value per share of RM1.48 to the price-to-book ratio of 0.5x. Our target PBV is the group’s two year historical average multiple

Upgrade to BUY. We are comforted by the continuous improvement in the group’s financial performance as seen in its 2QFY20 results. This was despite the advent of the Covid19 pandemic. While we acknowledged that it is still a loss-making quarter, the losses had gradually reduced. Moving forward, we opine that this improvement will continue to be seen in the upcoming quarters. On the revenue front, the steady increase in ASP of its sugar products would also bode well for the group. Note that the group has been steadily revising upwards the sugar price with its customer since last year. We anticipate the sales volume would also increase, primarily from the industries and export. The group has been putting a lot of effort to increase its presence outside Malaysia. Internally, we expect the group’s operating cost to show considerable improvement following the complete cessation of MSM Perlis. This would also lead to higher utilisation rate at both MSM Sugar Refinery (Johor) and MSM Prai. Given the continuous improvement seen in the group’s quarterly performance, we are maintaining our stand that the group would turn profitable in FY21. Nonetheless, we refrain from imputing any dividend to be on the conservative end. On another note, given the decline in MSM’s share price in recent months, we view that the valuation has turn attractive at this juncture with PBV hovering at about 0.3x. All factors considered, we are upgrading our recommendation on MSM to BUY (from NEUTRAL)

Source: MIDF Research - 21 Aug 2020