MSM: Sugar Refiner Faces Persistent Headwinds, Downgraded to Sell
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation |
MBSB Research has downgraded its recommendation on the sugar refiner from NEUTRAL to SELL, citing a challenging market outlook and delayed recovery. The target price has been revised downwards to RM0.71 from the previous RM1.20, reflecting a valuation based on FY26 EPS of 5.1 sen at a PER of 14.0x. The bank anticipates the company’s recovery to commence in FY26, rather than FY25, due to weakened demand exacerbated by the influx of Thai sugar and a narrowing Average Selling Price (ASP) premium.
Performance Review
The company’s earnings for the second quarter of FY25 remained in the red year-on-year. While PBT losses were reduced to RM22.7 million, this was primarily offset by a significant 8.7% year-on-year decline in Average Selling Price (ASP), despite a 6.3% year-on-year increase in sales volume to 270,000 Mt. Management attributed these challenges to the uncontrolled dumping practices of imported sugar into the country, which suppressed sales volumes and price competitiveness. Dull local F&B activity during non-festive months further compounded the issue.
Operationally, the group’s Utilisation Factor (UF) showed an improvement, reaching approximately 49% in 2Q25, up from 47.4% in the previous quarter. This improvement was largely due to the absence of planned shutdowns. The overall yield remained high at 96.1%, a standard indicative of efficient refining operations.
Future Outlook and Challenges
The outlook remains challenging, with the primary headwind being the estimated 1 million tonnes oversupply of Thai sugar in regional markets. This glut, a consequence of China’s ban on Thai sugar exports due to regulatory compliance, has intensified downward pressure on ASPs and significantly eroded previous premiums in the industry and export segments, thereby impacting margins.
Earnings forecasts for FY25E-FY27F have been adjusted to -RM10.3 million, RM35.7 million, and RM64.8 million, respectively, reflecting the subdued sales volume expected due to the refined sugar influx. Despite the bleak near-term, the Johor refinery’s Boiler 3 is slated to commence operation in 1Q26, with its UF projected to be in the 30-35% range for FY25-FY26. Overall, the group’s UF is now estimated to range between 53% and 56%. Furthermore, MBSB Research is adopting a more conservative stance, anticipating a competitive price war among Asia Pacific players that may persist for the next two years, carrying inventory forward.
