- We maintain a HOLD on MSM Malaysia Holdings Bhd with an
unchanged fair value of RM5.40/share. Our fair value is based on a PE of 14x on
FY12F EPS.
- However rolling forward our valuation basis to FY13F, our fair
value would imply a PE of 13.2x.
- MSM’s 1QFY12 results were within consensus estimates and
our expectations. The group has not announced 4QFY11’s final dividend yet. We
believe that this would be done during the AGM, which should take place anytime
soon.
- The group’s revenue rose 5.7% YoY to RM531.8mil while gross
profit fell 23.2% YoY to RM105.5mil in 1QFY12.
- The YoY improvement in revenue in 1QFY12 was due to a hike
in the selling price of sugar from RM2.10/kg to RM2.30/kg in May 2011.
- Hence, the effect of the increase in the selling price was
reflected in 1QFY12’s results but not 1QFY11’s financials.
- The Malaysian Government had also raised the sugar subsidy
from 20 sen/kg to 54 sen/kg effective January 2012 to help mitigate the rising
cost of raw sugar.
- In spite of this, MSM’s gross profit margin shrank from 27.3%
in 1QFY11 to 19.8% in 1QFY12.
- We believe that MSM’s gross profit margin was abnormally high
in 1QFY11 and that the level of gross profit margin of 19% to 20% is the
normalised margin for the group.
- 1QFY12’s gross profit margin of 19.8% is in line with our expectations
of 19.5% for the full year.
- According to Bloomberg, the average price of raw sugar in the
free market was US$0.2345/pound in 1QFY12. This was 6.2% higher than the
average price of US$0.2209/pound in 1QFY11. However since then, price of raw
sugar has dropped and it is currently hovering at US$0.2105/pound.
- We believe that domestic demand was weak in 1QFY12. Due to
festive reasons, we reckon that domestic demand is usually the most robust in
3Q of the financial year.
- Out of all of MSM’s domestic customers, we estimate that about
30% of the sales are to unsubsidised customers such as multinationals and large
food and beverage companies.
- We have forecast that sales volume of MSM’s refined sugar
products would expand 4% in FY12F.
Source: AmeSecurities
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