MSM All Well And Refined

In 4QFY23, MSM reported a significant turnaround with a profit of RM49.9m, narrowing the FY23 earnings losses to -RM49.9m, compared to the -RM178.5 recorded in the previous fiscal year. The turnaround can be attributed to its strategic focus on enhancing ASP, cost reduction measures, including hedging optimisation, and the expansion of sales volume through the diversification of distribution channels.

On quarter-on-quarter basis, a strong revenue momentum continued, thanks to the +27% higher in ASP realised and +11% higher sales volume, that attributed by +48% increase in export segment, which had lifted the topline by +17.7%qoq to RM949.9m. Overall, there was a noticeable uptick in sales volume, especially in the industry and export subsegments. MIDF said it attributes this positive trend to the vibrancy of local Food and Beverage activity, driven by increased demand from Asia-Pacific countries.

The house remains sanguine on MSM’s long term business prospects, given that all rectification works in the Johor Refinery have been completed. This refinery can now operate to a full throttle, increasing its capacity utilisation factor from 15-30% to 40-50%, thereby paving a better economies of scale in refining cost structures ahead.

MIDF is changing its valuation to P/E to better reflect mid-long-term outlook, revised TP of RM3.43 is based on a FY24F EPS of 28.5sen, pegged to a P/E of 11.0x, which 20% higher than international sector P/E of 10.0x. Given a more attractive +47.1% potential return at the revised TP, it has maintained its BUY call.

The house opines MSM’s outlook is starting to stablize, as post-rectifications at MSM Johor refinery would lead to a better utilisation rate in coming quarters. On top of that, the quantum of increased ASP and higher sales volume from APEC countries would eventually be able to mitigate the elevated sugar costs. Potential downside risks are strengthening dollar against Malaysia ringgit continued EL-Nino that would hamper sugar production and yield in major producer countries eg. Brazil, Thailand and India, as this will increase the raw sugar cost, NY11 spike in natural gas price.

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