KUALA LUMPUR: Malaysia’s largest sugar producer MSM Malaysia Holdings Bhd has gathered momentum to further divest its non-core assets as part of the group’s turnaround plan to ensure sustainable growth.
The sugar producer’s shareholders gave the nod yesterday to dispose of its entire stake in its wholly-owned subsidiary MSM Perlis Sdn Bhd to FGV Integrated Farming Holdings Sdn Bhd for RM175mil cash.
The disposal comprises 11 parcels of agriculture and industrial land, subject to adjustment for net working capital and net debt at completion.
MSM Perlis had ceased its plantation operation since September 2019 due to high operating cost for maintenance that resulted in unsustainable financial commitment.
Overall, MSM said the disposal of the equity in MSM Perlis is estimated to result in a gain of RM91.6mil.
Group chief executive officer Syed Feizal Syed Mohammad said the refiner has also identified some of the plant and machinery assets belonging to MSM Perlis, with a book value of RM50mil, for disposal.
“We are putting it up for international tender, we will see what is the best price offer we get at that point of time,” he told reporters during a press conference following the sugar refiner’s EGM yesterday.
Syed Feizal added that the group is also planning to sell some parcels of industrial land in the Klang Valley and Johor.
However, he explained that the approximate value of the parcels could not be disclosed as they are currently being revalued due to the current market conditions.
“MSM is also continuously assessing non-core assets to be divested. The company owns small parcels of industrial land and if there are no strategic need for them, we will put it for sale when the market window is good and try to achieve the best economic value for it,” Syed Feizal noted.
Overall, he said the discontinuation of MSM’s non-strategic operations has been a key strategy that is reflected on the group’s financial performance since the fourth quarter of last year.
“Strategically, the discontinuation of non-strategic operations consolidated up to 200,000 tonnes of production volume, along with the redeployment of qualified manpower and experts to MSM Johor and our refinery in Penang, MSM Prai Bhd, to accelerate production momentum and further optimise capacity utilisation,” he added.
Besides that, he expects MSM Sugar Refinery (Johor) Sdn Bhd to swing back to the black in the first half of next year as the group is confident of achieving the 65% to 70% utilisation factor (UF) by next year.
“The Johor refinery needs 50% UF to return back to the black, which is expected by end-year. Once it crosses the 50% mark, it would return back to profitability,” he pointed out.
The group’s sugar production at its refinery in Johor for this year and next year are expected to be around 300,000 tonnes and between 500,000 tonnes to 600,000 tonnes, respectively.
“We need to ramp up our capacity fast enough to meet the demand in Asia Pacific. It is not short of export orders. We are confident to fulfil this growth,” explained Syed Feizal.
On its exports, the group is on track to meet its targets this year as it has already bagged orders of 306,000 tonnes and delivered up to 144,000 tonnes to its customers.
“The balance will be delivered by the end of this year. For next year, exports should be above 450,000 tonnes,” said Syed Feizal.
With the reopening of more industries in the country, he believes demand for sugar would pick up gradually by 5% to 10% in the second half of this year.
“Previously, the Malaysian market consumed 1.5 million tonnes of sugar (a year) but due to the pandemic, consumption dropped to between 1.2 million and 1.3 million tonnes.
“I think we will get better next year and we hope Malaysia will achieve the previous consumption rate of 1.5 million next year,” he added.
On the price of raw sugar, Syed Feizal expects the bullishness in prices to continue in the short and medium term due to crops being hit by drought and the recent severe frost in Brazil.
“Some volume will be affected certainly so there will be less sugar in the market,” he said
However, he expects Brazil to get back to its full volume in the next 12 to 18 months.
“Towards the end of 2022, we may see prices getting back to at least their normal level,” he said.