Price hike timely for MSM, slight earnings boost expected
KUALA LUMPUR: The recent sugar price hike announced by the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC) is timely for MSM Malaysia Holdings Bhd (MSM) but analysts believe that the group will likely see minimal impact on its earnings from the price hike.
In a report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) noted that the maximum wholesale price and retail price for coarse grain white refined sugar would be raised to RM2.87 per kilogramme (an increase of seven per cent) and RM2.95 per kg (an increase of 3.8 per cent), respectively.
“This effectively means that MSM could sell its product to domestic wholesalers at the maximum price of RM2.87 per kg.
“Given that the group is already charging its wholesalers at RM2.66 per kg in the fourth quarter of the financial year 2016 (4QFY16), which is not far from its previous cap price of RM2.68 per kg, we believe that the announcement
This effectively means that MSM could sell its product to domestic wholesalers at the maximum price of RM2.87 per kg. AllianceDBS Research
is timely for the group to pass on the increased cost of raw sugar,” it opined.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the increase represents approximately four per cent hike in the price of refined sugar.
“MSM had previously been in negotiations with the government for a 20 to 30 per cent retail price increase for refined sugar from the current RM2.84 per kg.
“Hence, the four per cent increase to RM2.95 per kg is far below its expectations. In addition, the recent increase in price of refined sugar to the industries segment has contributed to the drop in sales volume for this segment of about 14 per cent,” it said.
Overall, MIDF Research said, “We expect that the revenue derived from retail price increase will be mitigated by the expected decrease in sugar consumption and hence, sales volume is expected to drop.
“Also, the price increase only affects the domestic segment which only accounts for 53 per cent of total revenue in FY16.”
Aside from that, the research team projected that MSM could see a 2.1 per cent increase in its FY17 earnings, if it decided to pegged its prices to a four per cent hike in ceiling prices.
MIDF Research pegged a ‘sell’ call on the stock while AllianceDBS Research recommended a ‘hold’ for MSM.