MSM’s 1HFY13  core  earnings  of  MYR143m  (+24%  y-o-y)  beat  both  our and  consensus  estimates.  No  dividends  were  declared.  We  leave  our forecasts  unchanged  pending  the  company’s  analyst  briefing  later today.  For  now,  we  maintain  our  NEUTRAL  stance  on  the  counter,  as well as our MYR4.71 FV, based on a 13x FY14 P/E. The stock still offers decent dividend yields of 3-4%. 
 
- Above estimates. MSM registered 1HFY13 core earnings of MYR143m (+24% y-o-y), which came ahead of expectations, representing 61% and 62% of our and consensus’ full-year estimates. During the quarter, core profit  surged  63%  y-o-y  (+24%  q-o-q)  on:  i)  higher  export  sales,  and  ii) lower  raw  sugar  costs,  while  overall  profit  margins  also  improved  in 2QFY13. No dividends were declared.  

- Outlook.  Raw  sugar  prices  continued  to  trade  at  low  attractive  levels amid a global oversupply. About 50-60% of MSM’s raw sugar purchases have  been  locked  in  at  USD0.26/lb  based  on  long-term  contracts  from FY12 through FY14, at  56% above the current market price. Looking at its  2Q13  financial  performance,  this  phenomenon  appears  to  have benefitted  MSM  so  far.  However,  the  recent  MYR  depreciation  vs  USD (down  10%  in  the  past  three  months)  does  not  bode  well  for  the company given that raw sugar is procured based on the greenback.

- Forecasts.  We  are  leaving  our  forecasts  unchanged,  pending  MSM’s analysts’ briefing later today.

- Risks.  The  key  risks  to  our  forecasts  include:  i)  slowing  demand  for sugar, ii) reduction in sugar subsidy, iii) spike in raw sugar prices, and iv) further weakening of the MYR.  

- Investment  case.  For  now,  we  continue  to  value  MSM  at  a  FV  of MYR4.71, based on a 13x FY14 P/E, representing -1σ from its 21-month historical  average  P/E.  Our  main  concern  now  is  cost  pressure  from unfavourable  forex  movements.  However,  the  stock  still  offers  decent dividend yields of 3-4% at the current level. Maintain NEUTRAL.

Source: RHB