MSM’s outlook remains cloudy on oversupply
KUALA LUMPUR: MSM Malaysia Holdings Bhd’s (MSM) outlook remains cloudy especially in the near term as the group faces an oversupply in the domestic market and the export market remains challenging.
In Affin Hwang Investment Bank Bhd’s (AffinHwang Capital) view, it will be challenging for MSM in the near term to fill the capacity at the group’s new Tanjung Langsat refinery which commenced operations in September 2018, “as the capacity increase comes amidst an oversupply in the domestic market”.
“The export market remains challenging, as seen in the lower volumes, down 22 per cent year on year (y-o-y), and steeper average selling price (ASP) declines (down 19 per cent y-o-y) recorded by MSM in the first nine months of 2018 (9M18).
“In addition, cost pressures could arise in the fourth quarter of 2018 (4Q18) due to start-up costs relating to the new refinery,” the research firm said.
As such, AffinHwang Capital made adjustments to its ASP forecasts and reduced its earnings estimates by 15 to 11 per cent for 2018E to 2020E.
The research firm’s net profit estimates for 2018E, 2019E and 2020E amounted to RM59.6 million, RM94 million and RM114.9 million, respectively.
“We also highlight that the proposed ‘sugar tax’ in Budget 2019 could potentially put a dampener on demand for refined sugar, which poses downside risk to MSM’s domestic revenue.”
AffinHwang Capital thus maintained its ‘sell’ call with a target price of RM2.54 per share.
Similarly, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) cut its financial year 2018 (FY18) core earnings forecast for MSM by 21 per cent to RM59.4 million.
As for FY19, MIDF Research reduced its core earnings estimate by 13 per cent to RM101.3 million.
“We have assumed lower sales volume for both FY18 and FY19,” the research arm said.
Hence, MIDF Research maintained ‘neutral’ with a lower target price of RM3.03 per share.