MSM MALAYSIA HOLDINGS BHD

targeting 70% over the next few years from about 60% currently.

It said FY18 core net profit growth would be driven by increased manufacturing capacity. to large scale contractors,” it noted.

The brokerage added that management was still guiding for a financing growth of 8%-10% for FY18. “We have imputed into our FY18 estimates, a loan growth expectation of 8%.

“The group’s growth of consumer financing now consists of 45% personal financing and the remaining 55% is in house financing,” it said.

The research house has maintained its earnings forecasts for FY18 and FY19 as well as its “hold” call on TCM with an unchanged target price of RM1.68. Target price: RM3.86

WHILE MIDF Research expects MSM Malaysia Holdings’ earnings to see a turnaround in FY18, it said the issue of smuggled Thai sugar may limit its near-term share price upside.

The research house, which maintained its “neutral” call and target price on the stock, noted that the group’s first quarter 2018 revenue was down by 15% y-o-y to RM549mil as sales volume declined by 7% y-o-y to 222,679 tonnes.

“We gather that MSM is facing intense competition due to cheaper smuggled refined sugar from Thailand.

“In our view, things should only start to recover in the second half of FY18 as it takes time for the market to clear the stocks,” it said in a note.

It lowered its revenue and cost estimates for both FY18 and FY19, resulting in unchanged earnings forecasts.

The research house said it was reassured on the company’s long-term prospects after a recent meeting with MSM’s management, due to stable demand for its products.

Overall, the research house said it expected MSM’s earnings to turn around in FY18 with profit after tax estimated at RM97.1mil, against a loss after tax of RM32.6mil in FY17.

It said the key driver for this would be the significant decline in cost due to lower raw sugar price.

“Recall that MSM has registered three consecutive profitable quarters in third quarter 2017, fourth quarter 2017 and first quarter 2018 and we expect this trend to persist throughout FY18,” it said.

Year-to-date, the average sugar price is at 12.71 US cents and this is 20% lower than FY17 average of 15.80 US cents.

“As a result, we believe that MSM’s cost of production should drop at a faster rate than revenue decline,” it said.

In FY17, raw sugar accounted for 88% of MSM’s production cost.