Quick take: MSM drops 6.2% after Q4 earnings, top loser on Bursa


KUALA LUMPUR: MSM Malaysia Holdings Bhd is the top loser in early trade this morning after posting its first quarterly losses since June 2017, on lower sales volume and cheaper average selling prices.


The sugar manufacturer shed 6.25%, or 15 sen to RM2.25. In the past one year, the counter has fallen some 41%.


The company posted a net loss of RM10.39mil in the three months ended Dec 31, as revenue dropped 16.4% to RM531mil. This reduced the group’s full year net profit to RM35.6mil.


Its revenue for the quarter fell 16.4% to RM531.13mil, from RM635.56mil in the same period a year ago due to lower overall sales volume and average selling price.


For the full year of 2018, the group posted a net profit of RM35.6mil, from a net loss of RM36.34mil a year ago on the back of stronger ringgit and lower raw sugar cost.


The group also warned of challenging year ahead as the excise duty (soda tax) for sugar beverages of 40 sen per litre starts April 1, 2019.


CGS-CIMB Research said MSM’s final results were 25%and 39%below the house and consensus’ full-year net profit projections, respectively, due to weaker refining margin.


It said the key challenges facing MSM in 2019 included the 10 sen/kg reduction in the ceiling price for refined sugar products to RM2.85/kg effective Sept 1, 2018, which it estimate could lower its revenue by RM47.5mil per annum.


Furthermore the excise duty of 40 sen per litre, effective April 1, for ready-to-drink beverages with high sugar content, could lead to lower sugar demand from industrial players.


Lastly, MSM continues to face competition from imported refined sugar and rising international raw sugar price


We cut our earnings forecasts and target price to RM2.23 (based on P/BV of 0.8x from 1x to reflect concerns overlosses from its new refinery).


“We continue to rate MSM a ‘reduce’ given its rich valuations, unexciting earnings prospects, and rising net gearing ratio (54% as at Dec 30, 2018). Key upside risk islower raw sugar costsfor sugar,” CGS-CIMB said.


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