MSM is a
HOLD for its decent FY12F dividend yield of 4%. Our fair value of RM5.40/share
for MSM is based on a PE of 14x on FY12F EPS.
MSM held an
analyst briefing yesterday. We understand that the group would be announcing
its final gross DPS for FY11 soon.
Although
MSM did not disclose the amount of the final gross DPS for FY11, the group said
that it would adhere to its official policy of a net payout of 50% of net
profit. We estimate this at 19 sen, which translates into a final gross DPS of
11 sen for FY11.
The board
meeting will be held at the end of March 2012. This will be followed by the
annual general meeting in June 2012. The final gross DPS will most likely be
paid in July 2012.
The cost of
raw sugar locked-in under the long-term contract (LTC) was US$0.26/pound. The
price was higher than the spot prices of US$0.2236/pound to US$0.2375/pound
recorded in December 2011 due to the inclusion of freight cost. The freight
cost of US$0.02/pound translates into US$44/tonne roughly.
We also
understand that the “government did not shortchange” MSM with the increase of
54 sen/kg in the sugar subsidy. We take this to imply that the subsidy of 54 sen/kg
is more or less enough to offset the higher cost of raw sugar locked-in under
the new LTC. The cost of raw sugar locked-in under the old LTC (from FY09-FY11)
was US$0.175/pound.
We gather
that MSM had already concluded negotiations on the terms and conditions of the
new LTC with its suppliers. However, the LTC is not signed yet due to the difficulty
in legal documentation. This is because the suppliers are from different
countries.
MSM is a
beneficiary of the weak US$ as raw sugar is purchased in US$. We understand
that MSM’s operating margins would improve if the US$ were to continue to depreciate.
Since
reaching a high of US$1.00:RM3.2048 on 3 October 2011, the US$ has depreciated
5.5% against the RM to US$1.00:RM3.029 currently.
There have
not been any updates on the new sugar refinery in Sarawak since it was reported
in the media last year. We understand that East Malaysia only accounts for 10%
of MSM’s domestic sales volume.
Source: AmeSecurities
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