MSM’s  FY13  results  were  in  line  with  our  and  street  expectations. Going forward, we believe domestic sugar demand may ease further but the company may be  poised to  reap  significant savings by purchasing raw sugar at lower prices from FY15-FY17. Also, we find its 6% dividend yield  enticing.  Hence, we maintain our BUY  call,  with an unchanged FV of MYR5.83.

• Within estimates.  MSM’s FY13 core earnings of MYR267m  (+35% y-oy)  was  within our and consensus expectations, making up 95-102% of our forecasts.  In 4Q13, revenue fell 12% y-o-y (-2% q-o-q), no thanks to weaker sugar demand.  That said, its core net profit surged 35% y-o-y (-39% q-o-q) on the back of  a  higher mix of market to long-term contract (LTC)  raw  sugar  cost  –  the  current  market  price  was  ~37%  below  the LTC price. A final DPS of 14 sen was declared, bringing its full-year DPS to 24 sen (vs FY12: 19 sen).
• Outlook.  Going forward, we believe domestic sugar demand may ease further  owing  to  the  withdrawal  of  the  MYR0.34/kg  subsidy  and  as consumers become more health  conscious. However, MSM is poised  to benefit  in  2015  when  its  LTC  to  purchase  raw  sugar  comes  up  for renewal. We think the new FY15-17 rate is likely to be favorable given that  there  is  currently  a  global  oversupply  of  raw  sugar ,  and  prices should remain depressed in the coming months.
• Forecasts and risks. We leave our forecasts unchanged. The key risks are: i) a worse-than-expected slowdown in domestic sugar demand, ii) a spike in raw sugar prices, iii) a weak MYR vs USD, and iv) a higher-thanexpected LTC rate.
• Investment  case.  We  continue  to  be  positive  on  MSM  given  that  it  is poised  to  make  significant  savings  by  purchasing  raw  sugar  at  lower prices  from  FY15-FY17.  That  said,  we  also  find  its  6%  dividend  yield appealing. Our FV is unchanged at MYR5.83, based on  a 15x FY14 P/E, in  line  with  the  stock’s  2-year  historical  average  P/E.  We maintain  our BUY call on the stock.

Financial Exhibits

SWOT Analysis

Company Profile
MSM Malaysia is Malaysia’s largest sugar refiner, commanding a 57% market share. It is in the business of purchasing raw sugar from raw sugar-producing countries and refining them into refined sugar, largely for domestic consumption.

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Source: RHB