KUALA LUMPUR: Affin Hwang Capital research reiterated its sell call on MSM Malaysia Holdings Bhd
with a target price of RM1.10 due to depressed average selling prices and a weaker ringgit dragging on profitability.
Despite a sequential pick-up in domestic volumes, Affin Hwang said ASPs have yet to recover due to the protracted glut in sugar supply as a result of approved permits (AP) as well as smuggled sugar.
It noted that the introduction of local sugar tax could further weigh in 2H19 in addition to the issuance of APs to F&B manufacturers in East Malaysia.
Affin Hwang noted that revised forecasts by the USDA imply a three million MT sugar deficit in stocks in 2019/20, which improves export prospects and could lift MSM's Johor refinery utilisation rate.
"In the meantime, the global premium for refined sugar is still low, which compels the group to stay selective on its exports destinations," it said.
It added that MSM is planning to diversify its portfolio with new value-added products to serve the Asian market while exploring potential international collaborations to support both upstream and downstream aspirations.
"While credit is due for management’s forward-looking initiatives to address the company’s current plight, it is early days yet to ascertain any positive outcomes arising from these manoeuvres," said the research house.
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