STRONG POSITION: With sugar being a relatively inelastic product with few economical substitutes, OSK Research analyst remains confident of MSM’s performance going forward.
KUALA LUMPUR: Demand for MSM Malaysia Holdings Bhd’s (MSM) products will remain resilient even under a tough economic environment, with sugar consumption fairly inelastic and facing limited competition, said OSK Research Sdn Bhd (OSK Research).
“Sugar, being a relatively inelastic product with few economical substitutes and with competition between two companies within the country, we expect MSM’s products to remain stable and register a positive albeit modest growth in financial year 2012,” OSK said in a research note yesterday.
Falling raw sugar prices arising from a bleak economic backdrop would serve to reduce MSM’s raw sugar cost as it approaches its year-end deadline to sign a new long-term raw sugar supply contract, it said.
OSK Research also said raw sugar costs represent about 80 per cent of the company’s cost of sales.
Raw sugar prices had retreated to US$0.25 per lb from US$0.30 per lb at the end of August.
“With additional sugar subsidies unlikely, we expect another round of a price ceiling hike next year to cushion MSM’s higher cost,” OSK Research stated.
The research house had as such, upgraded MSM to a ‘buy call’ from neutral after the significant share price retracement of 16.1 per cent over the past two weeks. —Bernama