KUALA LUMPUR (May 26): MSM Malaysia Holdings Bhd is set to see its margins improve from the sale of fine white sugar at a floating price, which has just been allowed by the government, say analysts.
However, the analysts believe the loss-making group is likely to experience the “positive effects” only next year as time is needed to market the new premium product.
“We shall see the positive effects starting next year, given that the larger acceptance and understanding of its (fine white sugar) benefits would take some time to digest,” MIDF Research told The Edge.
“As more marketing jobs need to be done for the new product, additionally, they (MSM) also need to have the volume before they can break even and cushion the margin erosion coming from higher input costs of refined and coarse sugar.”
MSM and Central Sugar Refinery Sdn Bhd (CSR) — the two largest sugar producers in Malaysia — have been supplying refined sugar and coarse sugar at the set retail ceiling price of RM2.95 per kg and RM2.85 per kg, respectively, which the government said is set to continue.
MSM argued that persistent price ceilings have curbed its ability to deliver better earnings which, coupled with rising labour and input costs and a shrinking ringgit, have made for a challenging environment in which to operate.
The company, owned 51% by plantation outfit FGV Holdings Bhd, has reported losses for the past six quarters straight. For the first quarter ended March 31, 2023 (1QFY2023), the company saw its net loss widen by 29.59% to RM35.88 million, from RM27.68 million a year earlier, as a result of lower margins and higher operating costs.
Quarterly revenue fell 1.26% to RM588.39 million from RM595.92 million, due to reduced export sales volume in order to prioritise local sales demand.
For the latest full financial year (FY2022), MSM sank into the red with a net loss of RM178.71 million, from a net profit of RM125.35 million in the previous year, despite a 13.55% rise in revenue to RM2.57 billion from RM2.26 billion.
The company did not declare a dividend for FY2022 while its latest dividend distribution of three sen per share was the lowest ever since its incorporation in 2011.
Both MIDF Research and BIMB Securities Research expect the new premium product to sell at RM4.20 a kg.
“Generally, this (new product) will improve the overall margin and over the loss-making coarse grain sugar since the selling price is 57% higher,” MIDF Research said.
BIMB factored in a preliminary assumption that MSM may produce 70,000 tonnes of fine white sugar in FY2023, which would garner a revenue of RM70.5 million or about 2% of total revenue.
And based on an annual output of 100,000 tonnes, BIMB foresees fine white sugar providing MSM a revenue of RM103.8 million in FY2024 and RM113.7 million in FY2025.
“We are cautiously optimistic on the new product though we expect demand to gain traction particularly next year given larger acceptance and understanding of its benefits,” BIMB said.
“We also acknowledge that demand for the product could potentially demonstrate resilience among the targeted market and customers, particularly the industrial users,” it added.
Including the bright prospects of the new product, the completion of rectification works for MSM's Boiler 1 at its Johor plant, and normalisation in costs, BIMB forecasts MSM to post a net profit of RM62.1 million in FY2023, RM74.4 million in FY2024 and RM111.1 million in FY2025.
BIMB said its assumptions are subject to change pending MSM’s analyst briefing next Monday (May 29).
On Friday, MSM shares closed 7.62% or eight sen lower at 97 sen, bringing the company a market capitalisation of RM681.89 million. The counter soared to a near 15-month high on Thursday.