MSM (5202) : MSM Malaysia Holdings - Profit margins hit by new APs
Target RM4.91 (Stock Rating: HOLD)
MSM's 9M14 net profit was broadly in line, making up 76% of our and 77% of consensus’ full-year forecasts. We expect a slightly better 4Q due to lower raw material costs. 3Q’s net profit fell 35% yoy as rising competition from cheaper imported refined sugar crimped margins. This is reflected in the weak 3Q profit margins compared to a year ago. We keep our earnings forecasts and roll over our target price, which is based on a P/E of 14.3x, MSM's historical average, to end-2015. MSM remains a Hold given the share price support from its 3.5% dividend yield and M&A potential.
Competition from imported refined sugar
3Q’s revenue grew 3% yoy as higher exports and industries sales revenue more than offset the weaker domestic sales. However, the average selling price (ASP) achieved for sugar sales to large domestic industrial players remained weak compared to ASPs for the domestic market due to the government's decision to allow more imports of refined sugar for selected players. This, coupled with the delivery of three shipments of higher-priced raw sugar under its long-term contracts, caused its 3Q EBITDA margin to decline 7% pts yoy to 12%. On a qoq basis, net profit fell 39% due to weaker sales and higher costs of production
Main takeaways from briefing
The group expects to incur lower raw sugar costs in 4Q as it has already taken delivery of most of the higher-priced raw sugar committed under its long-term contracts in 9M14. The group indicated that it has locked in its raw sugar prices and exchange rate exposure till July 2015, but did not disclose any further details. It remains optimistic that the government will consider its proposal for a stop to the issuance of new approved permits (APs) for the import of sugar to create a level playing field for the sugar industry. We are neutral as it is broadly in line with our projections.
Some delays in its joint venture with Al-Khaleej
The group has recently extended its MOU with Al-Khaleej to build a US$250m-270m sugar refinery in Port of Tanjung Pelepas, Johor. We gather the slight delay was due to technical issues. The JV refinery will raise the group's total production capacity by 2m tonnes to 3.25m tonnes. The group also revealed that it is open to collaboration with any local or foreign sugar companies as part of its plans to become a global player.
Source: CIMB Daybreak - 20 November 2014
Target RM4.91 (Stock Rating: HOLD)
MSM's 9M14 net profit was broadly in line, making up 76% of our and 77% of consensus’ full-year forecasts. We expect a slightly better 4Q due to lower raw material costs. 3Q’s net profit fell 35% yoy as rising competition from cheaper imported refined sugar crimped margins. This is reflected in the weak 3Q profit margins compared to a year ago. We keep our earnings forecasts and roll over our target price, which is based on a P/E of 14.3x, MSM's historical average, to end-2015. MSM remains a Hold given the share price support from its 3.5% dividend yield and M&A potential.
Competition from imported refined sugar
3Q’s revenue grew 3% yoy as higher exports and industries sales revenue more than offset the weaker domestic sales. However, the average selling price (ASP) achieved for sugar sales to large domestic industrial players remained weak compared to ASPs for the domestic market due to the government's decision to allow more imports of refined sugar for selected players. This, coupled with the delivery of three shipments of higher-priced raw sugar under its long-term contracts, caused its 3Q EBITDA margin to decline 7% pts yoy to 12%. On a qoq basis, net profit fell 39% due to weaker sales and higher costs of production
Main takeaways from briefing
The group expects to incur lower raw sugar costs in 4Q as it has already taken delivery of most of the higher-priced raw sugar committed under its long-term contracts in 9M14. The group indicated that it has locked in its raw sugar prices and exchange rate exposure till July 2015, but did not disclose any further details. It remains optimistic that the government will consider its proposal for a stop to the issuance of new approved permits (APs) for the import of sugar to create a level playing field for the sugar industry. We are neutral as it is broadly in line with our projections.
Some delays in its joint venture with Al-Khaleej
The group has recently extended its MOU with Al-Khaleej to build a US$250m-270m sugar refinery in Port of Tanjung Pelepas, Johor. We gather the slight delay was due to technical issues. The JV refinery will raise the group's total production capacity by 2m tonnes to 3.25m tonnes. The group also revealed that it is open to collaboration with any local or foreign sugar companies as part of its plans to become a global player.
Source: CIMB Daybreak - 20 November 2014
