MSM’s 1HFY14 earnings were in line. We remain unexcited about MSM’s prospects,  given  tougher  operating  conditions  due  to  lower  domestic sales volume (as Thai sugar continues flooding the market) and higher raw  sugar  costs.  We  make  no  changes  to  our  forecasts  and  MYR5.23 FV, based on a 15x CY15 P/E. Maintain NEUTRAL.    
 
Within  estimates.  MSM’s 1HFY14  net  profit  was  in  line  with  our  and consensus expectations, making up 48-55% of FY14 forecasts.

Core  net  profit  up  1.7%  y-o-y. The company’s  1HFY14  revenue  fell 2.3% y-o-y, due to weaker sugar demand from both domestic and export markets.  Its  core  net  profit,  however,  rose  1.7%  y-o-y,  on  the  back  of stronger domestic sales (which fetch higher margins) in 2Q as a result of the increased demand from the festive season.

Forecasts.  We  leave  our  forecasts  unchanged  for  now,  pending  an analyst briefing today.   

Risks.  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) no long-term-contract (LTC) for raw sugar.

Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  recommendation  on MSM. We believe  the stock  would  only  re-rate  if  the  Government  takes steps to impose some control over raw sugar imports into Malaysia and renew the LTC, which would reduce some of MSM’s purchasing risks.   

FV  kept  at  MYR5.23.  Our  unchanged  MYR5.23  FV  is  based  on  a  P/E target of 15x CY15, which is in line with the stock’s 2-year  historical average  P/E.  We highlight that MSM’s dividend yield is,  however,  still relatively decent at >4% per year.

Financial Exhibits

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 it into refined sugar, largely for domestic consumption.

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Source: RHB