Analysts positive on FGV paring down MSM stake

An analyst said a reduction in shareholding in MSM would enable FGV to streamline its costs better. “It would be easier to improve productivity when the scale of operations are smaller, ” he said.

PETALING JAYA: FGV Holdings Bhd’s potential disposal of part of its controlling stake in MSM Malaysia Holdings Bhd would only bode well for the group.

Analysts are of the opinion that this is a positive direction for FGV – which has grown far too big – to sell off its non-core businesses.

It remains to be seen if MSM, which runs FGV’s sugar business, is able to improve its financial performance, especially when average selling prices (ASPs) are depressed due to the glut in the sugar supply.

MSM, which commands a market share of around 60% in the local sugar-refining business, has been making losses for two consecutive quarters.

It registered a net loss of RM10.39mil in the fourth quarter of the financial period ended Dec 31, 2018 and RM7.06mil in the first quarter of this year.

An analyst said a reduction in shareholding in MSM would enable FGV to streamline its costs better.

“It would be easier to improve productivity when the scale of operations are smaller, ” he said.

MIDF Research said in a report that MSM was currently facing a possible worsening financial performance in view of the domestic refined sugar glut and stiff competition amidst the liberalisation of the sugar industry.

It said this would have a negative impact on FGV’s profitability, going forward.

Talk is rife that JAG Capital Holdings Sdn Bhd, Wilmar International Ltd and two companies from Indonesia and China are looking at purchasing the stake in MSM.

JAG Capital is owned by former Finance Minister II Datuk Seri Johari Abdul Ghani, who holds a 99.99% stake, while Wilmar International is linked to the Kuok Group.

Another analyst, however, said those purchasing the stake from FGV would most likely be government-linked companies.

“There is also mention of PPB Group Bhd wanting to buy back a stake in MSM, but I don’t think that would happen. It’s quite difficult to say, nothing is confirmed yet, ” he said.

Back in 2009, PPB sold its 100% stake in MSM to FGV for RM1.22bil, which saw the exit of tycoon Robert Kuok, who was famously known as the “Sugar King”.

Kuok Brothers Sdn Bhd is the ultimate holding company of PPB with a 50.18% stake. Kuok Brothers also has a 18.65% stake in Wilmar, out of which 18.53% is held by PPB.

FGV said in a Bursa Malaysia announcement last Friday that the group was exploring potential collaborations in the palm and sugar industries, both in the upstream and downstream sector. These include strategic alliances.

FGV reiterated its statement that it was working on its transformation plan, which included reviewing all under-performing and non-performing businesses, especially the group’s legacy investments.

“Since MSM’s Johor refinery came onstream in 2019, its total refining capacity increased to 2.2 million tonnes, enabling the company to serve both its domestic requirements and seek new opportunities in export markets.

“As such, FGV and MSM are exploring all avenues to successfully enter regional and international markets. Discussions are still at a preliminary stage, ” it said. MSM issued the same announcement yesterday.

MIDF Research said it is positive on the news, as it would potentially alleviate the precarious situation that MSM is in at the moment.

The research house expects MSM to be in a loss-making position for financial year 2019 (FY19) and (FY20).

MIDF Research also said another potential scenario is the possibility that FGV would be selling off the MSM Johor sugar refinery if the pursuit for strategic alliance is scrapped.

It has maintained its “buy” call on FGV with a target price of RM1.40 and also reiterated its “sell” call on MSM with a target price of RM1.07.

FGV closed 3.6% higher yesterday at RM1.15 with 24.1 million shares being traded, while MSM ended the day 15.94% higher at RM1.60 with 14.62 million shares being traded.

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