PETALING JAYA: MSM Malaysia Holdings Bhd
’s earnings are expected to improve, driven by higher average selling prices (ASPs) for export products, a better hedging position on the raw sugar price and potentially lower input costs, benefiting from a strengthening ringgit.
The producer of Gula Prai refined sugar fell into the red in the second quarter of 2024 (2Q24), recording a core net loss of RM14.1mil. This was despite two consecutive profitable quarters (4Q23 and 1Q24), pointed out BIMB Securities Research.
As such, MSM’s core net profit for the first half of 2024 (1H24) missed the research house’s estimates, accounting for 4% of the full-year forecast.
“The disappointing performance in 2Q24 was mainly driven by a significant drop in export sales volume, down by 40% quarter-on-quarter (q-o-q) to 37,000 tonnes in 2Q24 from 62,000 tonnes in 1Q24, a decline in ASPs due to softening raw sugar prices in 2Q24, and higher input cost resulting from a hedging loss.
“Despite receiving a government subsidy of RM24mil per month for one kg coarse grain sugar/fine granulated sugar, MSM was unable to offset the hedging losses in the exports segment,” the research house said in a report yesterday.
Prices of raw sugar had risen to 28 US cents per pound in November last year, underpinned by the El Nino weather phenomenon, which led to production shortfalls in major sugarcane-producing countries; India and Thailand, the largest global exporters of raw sugar after Brazil, as well as the sugar export ban by India.
“Thanks to improvement in the raw sugar performance and hedging gains in 4Q23 and 1Q24, MSM reported higher industry and export sales volume.
“However in 2Q24, with the average raw sugar price declining to 19.6 US cents per pound, MSM experienced hedging losses that impacted its export sales, leading to a 40% q-o-q and 30% year-on-year drop in export volumes.
“This contributed to a core net loss of RM14.1mil for the quarter,” the research firm said.
Going forward, BIMB Securities Research expects MSM’s 3Q24 earnings to remain challenging, as raw sugar in 3Q24 traded at a similar level with 2Q24 (19.4 US cents per pound versus 19.6 US cents per pound).
Moreover, the 1H24 export volume represents 33% of the management’s full-year export sales target of 300,000 tonnes for the financial year 2024 (FY24).
“However, with raw sugar rising to 23.3 US cents per pound following the fire outbreak in Sao Paulo, Brazil, we anticipate a hedging gain in 4Q24, which should translate into better earnings prospects for MSM.
“With the upcoming festive season in 4Q24 and 1Q25, we expect higher sales volumes, as retailers and wholesalers stock up ahead of Christmas and Chinese New Year.”
