Company Name: MSM MALAYSIA HOLDINGS BERHAD
|Research House: MIDF||Price Call: HOLD||Target Price: 5.25|
MSM Malaysia Holdings Bhd
(Aug 18, RM5.44)
Recommend neutral at RM5.46 with revised target price of RM5.25 (from RM4.20): MSM's 1HFY11 net profit of RM138.8 million slightly exceeded our and consensus expectations, accounting for 52.3% and 50.8% of the full-year forecast. No dividend was declared for the current quarter.
The marginal drop was due to lower sales volume for the domestic market despite higher average prices. We believe this is partly attributable to the second round removal of sugar subsidy (price increased to RM2.30 per kg in May) this year (the first round was in January, which saw the sugar price increase to RM2.10 from RM1.90 per kg). In 1H10, the price of sugar was much lower, at around RM1.65 per kg.
We are encouraged by the fact that revenue rose 11.9% quarter-on-quarter in 2QFY11 to RM562.9 million. The increase was mainly driven by higher local and export sales.
Earnings before interest and tax (Ebit) margin in 1HFY11 remained intact at 18% as cost kept pace with higher selling prices. Despite steady volume, net profit climbed to RM138.8 million (more than 100% year-on-year) against RM62.6 million in 1HFY10. This was due to a fair value gain in derivatives by RM30.3 million. In 1HFY10, there was a corresponding loss of RM62.8 million.
MSM does not meet our 'buy' definition at its current level. However, we have identified MSM as one of the stocks to hold if the economy experiences a downturn. For now, we are recommending a 'neutral' with a higher target price of RM5.25 per share from the previous RM4.20 per share. We are ascribing a higher FY12 earnings per share multiple of 12.5 times against the previous10 times at the same level as its regional peers' average. ' MIDF Research, Aug 18
This article appeared in The Edge Financial Daily, August 19, 2011.