Strong balance sheet gives MSM edge over rival

by **Cals** Thu 17 Oct 2013, 10:07

Business & Markets 2013

Written by AmResearch

Thursday, 17 October 2013 09:51

MSM Malaysia Holdings Bhd
(Oct 16, RM5.13)
Maintain hold at RM5.05 with a fair value of RM5.40: Brahim’s Holdings Bhd has announced that its 60% owned subsidiary, Admuda Sdn Bhd, has received approvals from Sarawak’s Ministry of Resource Planning and Environment and the state Land and Survey Department (Kuching Division) to build a sugar refinery in Demak Laut Industrial Park, Kuching.

The proposed sugar refinery will have a revised production capacity of 180,000 tonnes per year and is expected to be completed by 2015. This is not positive for MSM as the competition from Admuda might result in loss of sales. A silver lining for MSM is that Admuda’s sugar refinery is targeted for completion only in 2015.

Presently, Sabah and Sarawak account for 6% to 7% of MSM’s total sales revenue. Based on its sales revenue of RM2.3 billion in 2012 financial year ended Dec 31 (FY12), the contribution from these two states amounted to about RM138 million.

MSM currently has a market share of about 40% in Sabah and Sarawak. We believe Tradewinds (M) Bhd commands the remaining 60% of the market share.

We do not discount the possibility of a price war among sugar refiners in Sabah and Sarawak in 2015. MSM’s competitive edge is its strong balance sheet and experience in the sugar refining business in Malaysia.

MSM has been reducing its reliance on the domestic market by exporting overseas. The export market accounted for 22% of total sales volume in the first half (1H) of FY13, compared with 10% in 1HFY12.

Admuda might face problems related to distribution and packaging because the roads in Sabah and Sarawak are not as extensive and well-connected as in the peninsula.

As at end-June 2013, MSM’s net cash stood at RM359.5 million. In contrast, Brahim’s net debt was RM151.3 million. In September this year, Brahim’s completed the first tranche of its placement of 10.7 million shares at RM1.45 per share. Maintain “hold” on MSM. — AmResearch, Oct 16

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This article first appeared in The Edge Financial Daily, on October 17, 2013.