PETALING JAYA: MSM Malaysia Holdings Bhd has reiterated that the two-month suspension of its Johor sugar refinery will not affect its earnings for the financial year ending Dec 31,2021 (FY21).
In a recent analyst briefing, the company said during the Johor plant suspension, effective March 31, it would prioritise its refined sugar for the domestic market and push forward its export sales volumes. It would also be utilising the 1.5 months of refined sugar stocks as at end-March.
In addition, MSM said it would not need assistance from the government or other players to meet its committed sales volumes, as its Prai plant and inventory would be able to cater to all its committed sales volumes.
However, MSM conceded that it might not take on additional export volumes given the plant shut down. The group also noted that the fixed costs of the Johor refinery would continue to be expensed out during the shutdown period in the second quarter of 2021.
Despite the company’s assurance, CGS-CIMB Research said it remained concerned about the potential earnings risk from MSM’s Johor plant shutdown.
The brokerage maintained “reduce” on MSM, with an unchanged target price of RM1.22, based on 0.9 times book value.
It noted that while MSM did not specify the details of the boiler issues, which led to the temporary shutdown of the Johor plant, the company said the rectification work would improve the plant’s utlisation rate.
“The reason behind the boiler breakdown issues that led to a longer than usual plant maintenance shutdown in Johor remains unclear. In contrast, it has plans to shut down the Prai plant for maintenance in the second half of 2021 for seven days versus two months for Johor, ” CGS-CIMB Research said.
“Our current earnings forecasts have not imputed any potential disruptions to the Johor plant, ” it added.
CGS-CIMB Research argued MSM had the option to shut down one boiler at a time to keep its Johor plant running, but the management decided to suspend the plant’s operations, with hopes of ramping up production in the second half of 2021.
“It said it may claim against insurance as the boilers are under warranty, but did not specify the potential issues that would allow them to make the potential claims, ” it said.
“The group said that following the rectification work on the boilers, it would be able to achieve utilisation rates of at least 50% for its Johor refinery, against 27%-28% previously, ” it added.