PETALING JAYA: The spotlight is now on the management of the country’s largest sugar refiner, MSM Malaysia Holdings Bhd, after its chief executive officer was placed on leave of absence to explain inventory irregularities.
This is the second time in recent years that MSM appears to have an issue with its CEO.
Although the issue is unlikely to affect MSM’s 2020 earnings, CGS-CIMB Research said it was still negative on the development as it would shed a bad light on past governance and concerns of weak management at MSM.
On Tuesday, MSM said that its current CEO had been put on leave of absence over certain “irregularities” at its refinery in Johor.
According to MSM’s website, the company’s current group CEO is Datuk Khairil Anuar Aziz, who was appointed on April 23,2019.
He was given seven days to respond to the matter, according to the company’s filing with Bursa Malaysia.
In 2018, MSM also saw the departure of its former president and group CEO, Datuk Mohamad Amri, who claimed he was “constructively dismissed”.
MSM said the irregularities relating to the inventories of MSM Sugar Refinery (Johor) will not impact the current year’s earnings as it had been accounted for in FY19.
CGS-CIMB Research said MSM did not specify the nature of the inventory irregularities and said the company would continue its business as usual.
However, it “suspects this could be partly related to the write-down of inventory value in 2019 totaling RM50mil”.
According to the research house, in MSM’s 2019 annual report, the group revealed that it lost RM49.4mil due to inventories written down to net realisable value and RM1.5mil from inventories written off in 2019.
Besides worry over its weak management, the research firm also highlighted concerns over low utilisation at the group’s Johor refinery.
“We expect MSM to continue reporting losses, which could affect its ability to attract potential suitors, ” it said in its report yesterday where the brokerage reiterates its “reduce” call with an unchanged target price of 55 sen.
Meanwhile AmInvestment Bank Research noted that MSM Sugar Refinery (Johor) was currently in the red as there are not enough off-takers.
“The average utilisation rate of the Johor refinery was 23% in 1HFY20 versus 19% in 1HFY19.
“Currently, the Johor refinery is operating at utilisation rates of 26% to 30% versus the break-even rate of 50% to 60%, ” the research house added.
According to AmInvestment, the Johor refinery has an installed production capacity of one million tonnes per year, which is same as MSM Prai’s production capacity.
MSM has had a series of changes in its management team in the past couple of years.
When Mohamad Amri left in 2018, it was reported that he resigned after disagreeing over the appointment of Khairil to the board. Khairil was appointed as MSM executive director on Dec 11,2017.
He was later re-designated as group CEO on April 23,2019, more than a year after Amri vacated his office on Jan 22,2018.
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