MSM (5202) - MSM Malaysia Holdings - Lower taxes boost final results
Target RM5.23 (Stock Rating: HOLD)
MSM's FY14 net profit was 7% above our and consensus’ forecasts, mainly due to higher sales volumes and a lower effective tax rate. We project flattish earnings in FY15 due to stiff competition from imported sugar. We raise our FY15-16 earnings forecasts by 2-6% to reflect lower raw sugar costs. This has the effect of increasing our target price, based on a P/E of 14.3x (MSM's historical average P/E), to RM5.23. MSM remains a Hold given the share price support from its 4.8% dividend yield and M&A potential.
Strong sales volumes and lower taxes boost 4Q
4Q’s revenue grew 17% yoy as higher exports and industries sales revenue more than offset its weaker domestic sales. The average selling price (ASP) achieved for domestic sugar sales fell 2% due to competition from imported sugar. Its 4Q EBITDA margin grew 7% pts yoy to 20% due to lower raw sugar costs. MSM posted a 4% drop in its pretax profit for FY14 as its profit margin was squeezed by lower-priced imported refined sugar. However, it managed to nudge up a 1% net profit growth due to lower zakat payment. The group is expected to declare its final dividend at a later date. We project a final dividend of 14 sen, bringing its total dividend to 24 sen for FY14.
Gaining market share through aggressive marketing
MSM raised its domestic market share for sugar to 64% in 2014 from 57% IN 2013 thanks to its stepped-up marketing activities. It expects to incur lower raw sugar costs in 2015 as it has fully utilised the higher-priced raw sugar committed under long-term contracts in 2014. It has also locked in most of its raw sugar prices, but not its forex exposure in 2015. MSM remains optimistic that the government will look into the proposal to stop the issuance of new approved permits (APs) for the import of sugar to create a level playing field for the sugar industry. The group estimates that imported refined sugar accounted for 270k-300k tonnes or 22-24% of domestic sales volumes in 2014. We are positive on its market share gains, but remain concerned about competition.
Scaled-down expansion plans, but remain keen on M&A
MSM has indicated that it now plans to build a 1m tonne (instead of 2m tonnes planned earlier) sugar refinery at the Port of Tanjung Pelepas in Johor. The group also revealed that it is currently looking at potential opportunities to expand its business overseas. It has budgeted a capex of RM120m for 2014.
Source: CIMB Daybreak - 12 February 2015
Target RM5.23 (Stock Rating: HOLD)
MSM's FY14 net profit was 7% above our and consensus’ forecasts, mainly due to higher sales volumes and a lower effective tax rate. We project flattish earnings in FY15 due to stiff competition from imported sugar. We raise our FY15-16 earnings forecasts by 2-6% to reflect lower raw sugar costs. This has the effect of increasing our target price, based on a P/E of 14.3x (MSM's historical average P/E), to RM5.23. MSM remains a Hold given the share price support from its 4.8% dividend yield and M&A potential.
Strong sales volumes and lower taxes boost 4Q
4Q’s revenue grew 17% yoy as higher exports and industries sales revenue more than offset its weaker domestic sales. The average selling price (ASP) achieved for domestic sugar sales fell 2% due to competition from imported sugar. Its 4Q EBITDA margin grew 7% pts yoy to 20% due to lower raw sugar costs. MSM posted a 4% drop in its pretax profit for FY14 as its profit margin was squeezed by lower-priced imported refined sugar. However, it managed to nudge up a 1% net profit growth due to lower zakat payment. The group is expected to declare its final dividend at a later date. We project a final dividend of 14 sen, bringing its total dividend to 24 sen for FY14.
Gaining market share through aggressive marketing
MSM raised its domestic market share for sugar to 64% in 2014 from 57% IN 2013 thanks to its stepped-up marketing activities. It expects to incur lower raw sugar costs in 2015 as it has fully utilised the higher-priced raw sugar committed under long-term contracts in 2014. It has also locked in most of its raw sugar prices, but not its forex exposure in 2015. MSM remains optimistic that the government will look into the proposal to stop the issuance of new approved permits (APs) for the import of sugar to create a level playing field for the sugar industry. The group estimates that imported refined sugar accounted for 270k-300k tonnes or 22-24% of domestic sales volumes in 2014. We are positive on its market share gains, but remain concerned about competition.
Scaled-down expansion plans, but remain keen on M&A
MSM has indicated that it now plans to build a 1m tonne (instead of 2m tonnes planned earlier) sugar refinery at the Port of Tanjung Pelepas in Johor. The group also revealed that it is currently looking at potential opportunities to expand its business overseas. It has budgeted a capex of RM120m for 2014.
Source: CIMB Daybreak - 12 February 2015
