KEY INVESTMENT HIGHLIGHTS

• Sales continued it momentum reaching RM2.60m (+21.5%yoy)
• Earnings was eroded by higher production cost
• Earnings forecasts; maintained
• We maintain our NEUTRAL call with a revised TP of RM1.24

Mixed results. MSM's 3QFY24 topline jumped to RM806.7m (+6.8%yoy) bringing the 9MFY24 revenue to RM2.60b (+21.5%ytd) riding on the increased of average selling price (+14%yoy), sales volume and incentive received for certain packed sugar sold in Malaysia market.

In contrast, earnings continued in the red following higher losses during the quarter, due to high input costs, mainly raw sugar, freight rate and volatility of ringgit despite better capacity utilization registered.

Quarterly. On a quarter-on-quarter basis, a strong revenue momentum continued, supported by the decent sales volume and incentive received for certain packed sugar sold in the domestic market despite the lower average selling price. However, earnings turned to the red, -RM49.8m due to continue net realizable value (NRV) provision, where the inventory value was higher than the market price, following the influx of sugar imports from AP players which has made MSM's sugar products uncompetitive compared to the cheaper sugars from AP, during this harvesting period.

Operational stats. During the quarter, the group utilisation factor (UF) remained decent, standing at around 50%, due to no planned shutdowns in scheduled at Prai and Johor refineries. This brought the yield to stay above 96% - demonstrating a good standard of sugar refining activity carried away.

Earnings estimate. We maintain our earnings estimates at this juncture, expecting steady demand in 4QFY24 driven by the upcoming festive season (Christmas and Chinese New Year). MSM is likely to benefit from higher average selling prices, particularly in the mass market segment, while applying more premium pricing to the industry subsegment following the end of the harvesting season. Additionally, AP players may scale back direct sugar imports from producer countries due to normalizing sugar prices.

Recommendation. We maintain our NEUTRAL call with a revised TP of RM1.24 (previously RM1.39) pegged to PER of 10.5x (slightly discount to the average historical FY14-15 PE of 11.7x) based on FY25 EPS of 11.8 sen.

Source: MIDF Research - 22 Nov 2024