• We foresee a challenging 3Q24 earnings performance for MSM, as NY11 price levels remains similar to 2Q24.

• We expect minimal impact on MSM earnings from the recent Budget 2025 announcement to increase the sugar tax to 90 cents/litre from 50 cents/litre on certain beverages, effective 1st Jan 2025.

• We downgrade our call on MSM to SELL with an unchanged TP of RM1.10 based on FY25F BVPS of RM2.22, pegged to a 0.5x PBV ratio. We anticipate the challenging 3Q24 results may weigh on share price performance, suggesting the recent price rally may not be sustainable in the near term.

3Q24’s Earnings Expected to Remain Challenging

We anticipate MSM’s 3Q24 earnings will remain under pressure, as we expect MSM to experience a similar low average selling prices (ASPs) as seen in 2Q24. This is likely to affect its export volumes and sales in 3Q24, given the stable NY11 average price at USD19.4c/lb in 3Q24, compared to USD19.6c/lb in 2Q24. Additionally, there is a risk that MSM may miss its fullyear export sales target, as the lower NY11 trend in 2Q24 and 3Q24 could negatively impact 2024’s export sales volume. To recap, 1H24 export volume accounted for only 33% of the full-year target of 300kMT.

Nonetheless, Better Prospects in 4Q24

We believe MSM may be able to increase its export segment selling price and report hedging gains in 4Q24. This will be driven by the surge in NY11 prices which surged from a low of USD18.5c/lb to the highest of USD23.5c/lb in the 4th week of September due to the unexpected fire outbreak in Sao Paulo, Brazil damaging around 80,000ha of sugarcane plantation. Additionally, we anticipate a higher sales volume for MSM in 4Q24 from the stockpiling ahead of festive periods such as Christmas and Chinese New Year.

Impact of the Increase in Sugar Tax

In the recent budget 2025 announcement, the government revealed plans to raise the sugar tax by 40 cents, bringing it to 90 cents/litre from the current 50 cents/litre, effective January 1, 2025. This tax applies to ready-todrink beverages with sugar content exceeding 5g per 100ml as well as fruit and vegetable juices with sugar content above 12g per 100ml. However, we believe the impact on MSM will be minimal, as the wholesale segment, which includes coarse grain sugar (CGS) and fine granulated sugar (FGS) in 1kg/2kg packages for household and in-house beverage preparation, accounts for around 40% of its sales volume. Moreover, management has guided that sugar sales to the soft drinks industry make up less than 15% of MSM's total sales volume.

Downgrade to SELL with an unchanged TP of RM1.10

We downgrade our call on MSM to SELL with an unchanged TP of RM1.10 based on FY25F BV/PS of RM2.22, pegged to a 0.5x P/BV. We anticipate the challenging 3Q24 results may weigh on share price performance, suggesting the recent price rally may not be sustainable in the near term.

Source: BIMB Securities Research - 25 Oct 2024