MSM Malaysia Holdings Bhd has narrowed its net loss in its latest financial results but challenges loom on in its quest to return to the black.
CGS-CIMB Research is concerned over the recent rise in raw sugar prices to 14 US cents (57 sen) from the 2020 low of 9 US cents which could negatively impact the company’s profit margin for local refined sugar in FY2021F as well as its current leadership vacuum.
MSM continued to be in the red for 9M FY2020 but its net loss narrowed to RM127.47 mil (9M FY2019: RM259.49 mil) while on a quarterly basis, its net loss for 3Q FY2020 has reduced substantially to RM71.21 mil from -RM185.1 mil in the same period a year ago.
Recall that MSM has sacked its group chief executive Datuk Khairil Anuar Aziz in October after the sugar company’s board found his clarification about an adjustment to write off inventories that amounted to RM36.6 mil as unacceptable.
“We expect MSM to post lower losses in 4Q FY20F on the back of higher sales volumes and lower operating costs following the closure of the Perlis refinery in June and write-off of biological assets,” wrote analyst/head of research Ivy Ng Lee Fang in a results review.
“The group reiterated its strategy to turnaround by consolidating production in MSM Johor, lowering production costs and raising average selling price by removing first layer wholesalers from the supply chain.”
All-in, CGS-CIMB Research upgraded MSM to a “hold” rating (previously “reduce”) with an unchanged target price of 55 sen.
“We feel that the worst could be over for the group from an earnings perspective, but MSM lacks re-rating catalysts due to uncertain leadership following the recent removal of former CEO and its loss-making Johor refinery,” added the research house.
Meanwhile, MIDF Research downgraded MSM to “neutral” (from “buy” previously) with a lower target price of 56 sen (from 74 sen previously), citing “not much positive catalyst at this juncture”.
While acknowledging that it was still a loss-making quarter, the research house noted that the losses had gradually reduced.
“Moving forward, we expect demand from the export and industries segment to remain upbeat,” projected analyst Khoo Zhen Ye.
“However, the group’s revenue performance could be impacted by the underperformance from the wholesale segment.”
Although MSM’s financial performance is poised to improve in the coming quarters, the research house expects the rate of improvement to be slower than initially anticipated.
“Given that we expect the group to make a little profit in FY2021, we do not impute any dividend assumption yet,” noted Khoo. “On another note, there is also uncertainty with regard to the top management of MSM.”
At 10.30am, MSM was down 1 sen or 1.85% at 53 sen with 916,700 shares traded thus valuing the company at RM373 mil. – Nov 17, 2020
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