• Upgrade to HOLD (TP: RM1.10). MSM Malaysia Holdings Bhd (MSM) reported a lower 9MFY24 core loss after tax (LAT) of RM14mn, supported by margin improvement due to higher average selling prices (ASPs) and better utilisation factor (UF). We deem MSM’s 9MFY24 core LAT inline with our expectations as we anticipate earnings recovery in 4QFY24, driven by higher anticipated export sales volume amid improving NY11 prices. Following recent price weakness, we upgrade MSM to a HOLD (from a SELL) with an unchanged TP of RM1.10. This is based on FY25F BVPS of RM2.22, pegged to a 0.5x PBV ratio.

• Key Highlights. In 3QFY24, MSM’s revenue grew by 6.8% YoY to RM861.4mn driven by higher ASPs, improved sales volume, and the government’s RM1/kg incentive for Coarse Grain Sugar (CGS) and Fine Granulated Sugar (FGS). However, MSM reported a higher core LAT of RM41.2mn (vs. 3QFY24: -RM35mn), primarily due to foreign exchange translation loss of RM18.8mn, resulting from appreciation of the MYR against USD. On QoQ basis, revenue increased by 3.4% supported by the higher sales volume, which offset lower ASPs. This reflects a similar NY11 price level of NY11 in 3QFY24 and 2QFY24, averaging USD 19.4c/lb and USD 19.6c/lb, respectively. However, the higher core LAT was mainly attributable to the aforementioned forex loss.

• Earnings Revision. No changes.

• Outlook. We anticipate MSM’s 4QFY24 performance will achieve a similar PAT level to 1QFY24 which was RM41.7mn. We believe the growth will be driven by elevated NY11 starting from Sep 2024 with the average price from October to date is USD22.14/lb vs. 1QFY24: USD22.56/lb (refer Chart 1) due to the unexpected fire outbreak in Sao Paulo, Brazil. Hence, the elevated NY11 price will encourage higher sales volume in the export segment. Additionally, we remain optimistic that the government incentives for the wholesale segment for 1kg CGS and FGS of 24,000MT/month, translating to RM24mn/month will continue until pricing mechanism is revised.

Source: BIMB Securities Research - 22 Nov 2024