Analysts expect better quarters ahead for MSM, depite disappointing Q3

KUALA LUMPUR: MSM Holdings Bhd has posted its steepest quarterly losses, but some analysts say Malaysia’s largest sugar producer can expect better quarters ahead.

MSM’s earnings forecasts for financial years 2020 and 2021 have been raised by Affin Hwang Capital, despite posting a record net loss of RM185.10 million in the third quarter (Q3) ended September 30, 2019.

Affin Hwang raised MSM’s earnings forecasts for the two years by 11-17 per cent.

It expects further sequential earnings improvement for MSM in the coming quarters.

This will be due to an increase in ASP (average selling price) and volume sales with a moderating local and global supply glut situation, a reduction in raw material costs from Q1 2020 due to the cessation of an extended procurement contract at higher-than-market raw sugar prices and earnings contribution from the ramp-up of liquid sugar production starting in Q4 2019.

Affin Hwang maintained its “hold” call on MSM, with lower target price of 98 sen from RM1.05 previously, on lower depreciation costs post the fixed asset impairment and write-off.

Meanwhile, MIDF Research revised MSM’s financial years 2019 and 2020 core losses downward to RM160 million and RM133 million respectively. This was in view of the current heightened domestic sugar price war and dwindling sales demand as well as higher refining and finance cost.

“The outlook of the group’s fundamentals remains bleak as it continues to be suffered from lower average selling price of its refined sugars and higher operating costs.

“This negative repercussion from the liberalisation of the sugar industry by the government also has been reverberating across MSM’s domestic market where it derives 90 per cent of its revenue,” it said.

MIDF Research expects the prolonged oversupply of cheaper foreign refined sugar in the domestic market would continue to present a precarious situation for MSM.

“In addition, we view that the Johor refinery will continue to negatively impact the group’s wellbeing as it contributes to higher refining and finance costs.

The firm kept its “sell” call on MSM with lower target price of 70 sen from 88 sen previously.

Year to date, MSM’s share price has decreased 69.79 per cent. The stock closed at 3.87 per cent lower yesterday at 87 sen.

By Farah Adilla - November 22, 2019 @ 8:43am