Hot Stock MSM rises 3% despite sugar subsidy scrapped

by **Cals** Mon 28 Oct 2013, 13:40

Hot Stock MSM rises 3% despite sugar subsidy scrapped

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Monday, 28 October 2013 11:10

KUALA LUMPUR (Oct 28): MSM Malaysia Holdings Bhd rose as much as 3% in morning trade. The stock had risen after the government said during the Budget 2014 announcment last week that the sugar subsidy of 34 sen per kg will be scrapped effective this Oct 26.

At 10.23am today, MSM rose nine sen or 2% to RM5.02 with a trade volume of 17,000 shares. The ninth-largest gainer had earlier climbed as much as 16 sen to RM5.09.

In a note, CIMB Investment Bank analyst Ivy Ng Lee Fang said the subsidy removal may not dent MSM’s domestic business profit margin as a similar hike in the retail sugar price offsets it.

However, Ng said she is negative on the development as it will lead to lower domestic sugar consumption.

“In view of this, we cut our sales volume growth assumptions by 3% points for 2014 and 2015, which leads to a 1.2% cut in our FY14 and FY15 earnings per share forecasts.

"In line with the earnings downgrade, we lower our target price to
RM4.94 (based on 14.3x FY15 P/E, an unchanged 10% discount to the target market P/E). We maintain our "underperform" rating due to unexciting earnings prospects," Ng said.

Meanwhile, Ng said CIMB has gathered that MSM plans to raise the selling price for its refined sugar by 34 sen per kg.

While MSM is allowed to pass on the impact from the subsidy removal through higher selling prices, she fears that this will negatively impact demand for refined sugar in Malaysia.

“We estimate that this will push the Malaysian sugar price above international white sugar prices which may reduce the competitiveness of some industries that manufacture products with high sugar content.

“The 34 sen per kg revision represents the steepest hike in sugar prices (in absolute terms) allowed by the government since the sugar subsidy was implemented in 2009,” Ng said.

Ng said this may prompt manufacturers to relocate their bases or reduce sugar content in their products.

In another note, JF Apex echoed that the increase in sugar prices may lead to declining sales volume of sugar.

The research firm said losers resulting from the sugar subsidy removal are MSM and Brahim’s Holdings Bhd.