MSM’s land sale not enough to offset high finance cost


THE proposed sale of MSM Malaysia Holdings Bhd’s agriculture land is insufficient to offset the high finance cost faced by the loss-making company, analysts said.

The land disposal would have a minimal positive impact on the group’s borrowings and consequently, finance costs, MIDF Research said.

“While the proceeds could improve the group’s cash position slightly, it is still far from partially offsetting the higher borrowing cost resulting in higher finance cost incurred to the group.

“Subsequent to this disposal, we view that the group would not have much non-core assets to dispose of,” the research house wrote in a note yesterday.

Earlier this week, MSM, a 51%-held subsidiary of FGV Holdings Bhd, entered into a sales and purchase agreement with Fraser & Neave Holdings Bhd for the disposal of nine parcels of agricultural land in Chuping, Perlis, for RM156 million.

The proposed disposal is part of the refined sugar producer’s asset rationalisation exercise to unlock and realise the value of its non-core assets.

Proceeds from the disposal expected to be completed in the second quarter next year will be used for bank borrowing repayments and working capital purposes.

“The purchase price of RM156 million for the plots of land represents a discount of -18% and -1.1% of the market value of RM190 million and net book value of RM157.7 million respectively,” MIDF Research said.

The lower price of the parcels of agriculture land is mainly premised on the short leasehold term of the lands and high operating costs in running the plantation areas.

“If computed based on net book value, the expected loss would be about RM1.7 million excluding expenses related to the disposal,” the research firm said.

AmInvestment Bank Bhd also expects MSM to recognise a one-off loss on disposal of RM1.8 million, given that the land will be sold below its net book value of RM157.8mil.

“Currently, we have a ‘Sell’ recommendation on MSM with a fair value of RM1.20 per share,” it said in a note yesterday.

MIDF Research is also keeping a ‘Sell’ call on the stock with a target price of 88 sen, based on an estimated financial year ending Dec 31, 2020, book value per share of RM1.76 to its two-year historical price-to-book ratio of 0.5 time.

Shares of MSM closed 0.95% lower at RM1.04 yesterday, valuing the sugar refinery company at RM731.1 million.

The company is involved in the business of sugar producing and refining, sales and marketing of refined sugar products, planting of rubber and oil palm, commodity trading, and raw and refined sugar trading.

It markets its products under the Gula Prai brand name.