MSM poised for stronger 2H earnings


MSM Malaysia Holdings Bhd is expected to register stronger earnings in the second half of the financial year 2021 (2H21), underpinned by higher exports volume and refining margins.

CGS-CIMB Securities Sdn Bhd analysts Nagulan Ravi and Ivy Ng Lee Fang, in a research report, stated that MSM have rightly hedged 99% of its financial year 2021 forecast (FY21F) domestic wholesale raw sugar requirement at US$0.13 (RM0.55) to US$0.14 per pounds (lbs) and 43% of its FY22F requirement at US$0.15-0.16/lbs.

Last year’s raw sugar price averaged at US$0.13-0.14/lbs.

“This bodes well for MSM given raw sugar prices have been trending higher over the past 18 months to US$0.185/lbs currently, due to supply disruptions in Brazil and Thailand,” the analysts stated in the report yesterday, following a recent update from the company’s management.

The analysts stated that MSM expects a 10% year-on-year (YoY) growth in its domestic sales volumes in FY21F and has raised its average selling prices (ASPs) for both the wholesale (up to the maximum ceiling price of RM2.69 per kg) and industry segments.

The higher ASPs and sales volumes would help boost MSM’s domestic refining margins in 2H21F, they added.

Ravi and Ng further stated that MSM had secured export contracts worth 65% to 70% of its original 300,000MT export sales target for FY21F.

“The group is now optimistic of delivering close to 350,000MT of export sales in FY21F, in line with our forecast of 340,000MT, which is a 25% YoY growth versus FY20,” Ravi and Ng added.

They said the higher export volumes would be driven by stronger demand from its largest export destination, Vietnam, which accounts for around 50% of its exports, and other countries that have reopened from Covid-19 restrictions.

Increased demand for its value-added products such as liquid sugar, fine syrup and premix products could increase volumes.

The analysts viewed exports growth would lower refining costs at the group’s refinery in Johor.

“Post the optimisation of its Johor refinery, MSM expects to achieve a 50% utilisation factor (UF) for its Johor refinery in 2H21.

“We project the Johor refinery could return to the black in FY22F as we project a 52% UF for the year, driven by higher exports volumes,” Ravi and Ng added.

CGS-CIMB forecast MSM to deliver Ebitda margins of 10.9% to 12.4% in FY21-23F, led by higher domestic and export margins and more robust export volumes.

“We raise our FY21-23F earnings per share forecast by 1.5% to 6.9% to reflect lower refining costs and higher export premiums.

“In light of this, we raise our target price (TP) to RM1.69 based on a price/net tangible asset (P/ NTA) of 1.2 times (one standard deviation below MSM’s 10-year average P/NTA) versus one time previously,” the analysts wrote.

The brokerage firm also upgraded MSM to ‘Add’ as the stock offers a 25% upside to its TP and attractive dividend yields of 6.1% to 7.5% in FY21-23F.

Further key catalysts include potential equity placements to collaborative partners and the completion of the sale of MSM Perlis, which will allow the MSM group to book a one-off gain from the disposal of the land of RM91.6 million at 13 sen per share.

The analysts attributed key risks to lower export margins and rising raw sugar prices.

MSM is currently working on doubling its liquid sugar facility’s capacity and enhancing its fine syrup facility due to the rising demand for these products.

In the longer term, the “Gula Prai” producer plans to expand its export segment further by increasing its regional presence in the Asia-Pacific region and establishing a local presence in countries such as China, Vietnam, the Philippines, Singapore, Indonesia and South Korea.

As of 2019, MSM corroborated up to 60% of the domestic market share and ranked the eighth largest sugar refiner globally by capacity.

MSM share price declined 2.22% to RM1.32 yesterday, valuing the company RM927.93 million.