MSM Malaysia Holdings Berhad (MSM) reported a mixed performance for 3QFY24. Revenue showed strong growth, rising 6.8% year-on-year (YoY) for the quarter and 21.5% year-to-date (YTD), driven by higher average selling prices, increased sales volume, and incentives for certain packed sugar in the Malaysian market. However, earnings remained in the red, with a loss of RM49.8 million in the quarter due to elevated production costs. Key cost pressures include high raw sugar prices, freight rates, and the volatile ringgit.
MSM faces challenges from net realizable value (NRV) provisions, where inventory costs exceed market prices. This issue was exacerbated by cheaper sugar imports from approved permit (AP) players, making MSM’s products less competitive. However, operational metrics remained stable, with a decent utilization factor of 50% and yield above 96%, reflecting efficient sugar refining processes.
MSM’s earnings estimates remain unchanged, with expectations for improved demand in 4QFY24 due to upcoming festive seasons. The company plans to leverage higher selling prices, particularly in the mass market, and apply premium pricing to industrial segments as sugar imports normalize post-harvesting season.
The stock is maintained at a NEUTRAL rating, with a revised target price (TP) of RM1.24 (down from RM1.39). The expected total return is -4.36%, factoring in a projected share price decline (-6.38%) and dividend yield (+2.03%). The TP is based on a price-to-earnings ratio (PER) of 10.5x for FY25, slightly discounted from its historical average.
While revenue growth remains robust, MSM continues to face profitability challenges due to cost pressures and competition from cheaper imports. The company’s performance hinges on stabilizing input costs and leveraging the festive season demand in the near term. Investors are advised to adopt a cautious stance, as structural challenges persist in MSM’s operational and competitive landscape. – MIDF
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