Sweeter outlook on the cards for for MSM Holdings

MSM refinery Pasir Gudang johor

OVER the last few years, MSM Malaysia Holdings Bhd has faced issues of overcapacity due to a supply glut in the local sugar market as well as governance issues.

The company reported losses for two consecutive years of 2019 and 2020, which in turn dented its share price performance.

Prior to that, MSM was liked by some investors as it was the country’s largest refined sugar producer.

MSM’s stock had traded above RM5 in large 2016 but since then, it has been on a declining trend, hitting a low as 28 sen in March 2020. It closed at RM1.31 yesterday.

In 2019, it had attracted many suitors when its major shareholder FGV Holdings Bhd said it was planning to sell its 51% stake in the company.

Interested parties were said include Singapore-based agribusiness firm Wilmar International Ltd and former Second Finance Minister Datuk Seri Johari Abdul Ghani.

Their interest in MSM lies in the latter’s underutilised sugar refining capacity of 2.25 million tonnes per year.

MSM sugar refiningMSM sugar refining

Its Johor refinery that has one million tonne capacity has faced issues of underutilisation and breakdowns.

In April, MSM announced a temporary production shutdown at the refinery for due to a boiler breakdown.

The plant resumed its operations yesterday.

MSM chief executive officer Syed Feizal Syed Mohammad expects the Johor plant to achieve a 50% utilisation rate by next month from 22% in the first quarter of this year.

He adds that a 50% utilisation rate is the breakeven level for the plant in Johor.

Syed Feizal reckons that the group is on track for a turnaround this year.

Over the last two quarters, MSM has been reporting profits thanks to higher exports sales, better margins, higher utilisation rates and collaboration with global brands.

“We are poised to return as a dividend-paying stock and create greater shareholder value moving forward, ” he tells StarBizWeek.

Syed Feizal was appointed as the CEO of MSM in Feb 2021 after former GCEO, Dato Khairil Anuar, who was asked to leave after MSM’s board found his clarification about an adjustment to write off inventories that amounted to RM36.6mil unacceptable.

Moving forward, Syed Feizal expects MSM to sustain its quarterly profits driven by improvements in its Johor operations, the introduction of new products, and lower operating expenses.

“We are re-balancing the domestic market by taking advantage of MSM Prai and MSM Johor locations in reducing selling and distribution costs, ” he says.

“The local market volume has been stable even during the pandemic period. While there is some growing demand for less sugar, the overall market demand for sugar remains high with population increase year-on-year and per capita consumption patterns recorded.

“Our growth in the export segment and enhanced market position on the domestic front provides a strong impetus for MSM to achieve sustainable growth ahead.”

In addition, the group had also diversified into downstream sugar products such as liquid sugar and syrup that could garner higher margins.

“We expect the Johor refinery to reach a utilisation rate of 50% by Q3.

“In addition, we have upgraded the capacity for value-added products such as liquid sugar, fine syrup and premix with an annual production capacity of 140,000 metric tonnes per year, ” Syed Feizal says.

He says the new products are mainly for the export market with an approximate revenue contribution of RM260mil a year.

At the moment, MSM exports 30% of its production volume and it is planning to grow it to 50% in the medium to long term.

Syed Fiezal says that MSM’s exports market growth would be driven by its collaborations with major industry players including Wilmar, Maxwill, Coca-Cola and Pepsi.

“Our aim is to strengthen our regional presence through the export of sugar and value-added products such as liquid sugar, fine syrup and premix, ” he says.

For FY2020, MSM exported 270,628 tonnes of sugar products with a sales revenue of RM467mil as compared to 83,341 tonnes and RM173mil sales recorded in FY2019.

For this year, MSM is targeting to increase the export volume to 330,000 tonnes with an estimated revenue contribution of RM600mil.

“In 2019, MSM started to export value-added products such as liquid sugar, fine syrup and premix.

“We are certainly targeting to increase the export of these value-added products moving forward which are in very high demand, ” Syed Fiezal says.

MIDF Research expects MSM’s financial performance to improve gradually this year on the back of improved production costs, higher volume, and a higher premium.

“we maintain our sanguine outlook on the group as MSM is currently in the midst of improving its utilisation rate of Johor refinery to more than 50% this year, ” it says in a recent report.

The research house expects demand from the export segment to remain upbeat but the group’s overall revenue could be impacted by the underperformance from the wholesale segment.

The outlook for MSM seems to look sweeter than before, especially with its expanding exports market that could address the group’s overcapacity issues that have been dragging its profitability since 2018.

But the issues with its plant operation in Johor could be something to watch for as there are still hiccups in its operation.

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