KUCHING: Malaysian listed sugar refiner, MSM Malaysia Holdings Bhd (MSM) has plans to increase its sugar storage space on the back of acquiring the Food Safety System Certification 22000 (FSSC) which will help the group compete on a global platform.
The research wing of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted these issues as key takeaways from a recent visit to MSM’s sugar refineries.
“Management shared with us its interest to obtain the FSSC.
“The certification provides a globally accepted assurance that food safety standards within the production process of the supply chain are complied with,” it noted in its research report yesterday.
“We view this as a positive effort by MSM to increase its competitiveness globally to aid in the expansion of its export segment which has shown growth potential – growing at a three-year cumulative annual growth rate (CAGR) of 39.5 per cent up to financial year 2011 (FY11).
“We believe that the certification is forthcoming, possibly in 2QFY13.” This was on the back of MSM revealing that it was in talks to acquire neighbouring land to increase its raw sugar storage, noted MIDF Research.
“The company shared that it was in talks to acquire a neighbouring land owned by Keretapi Tanah Melayu Bhd (KTMB) to increase its current raw sugar storage capacity up to 200,000 metric tonnes (mt),” it added.
“With a future production capacity of 125,000mt per month and assuming 84 per cent utilisation with a raw to refined sugar yield of 97per cent, the increased storage will support the company’s future estimated raw sugar requirement of 101,850mt per month.
“Meanwhile, the additional capacity will likely be used as buffer storage for festive periods that are usually accompanied by higher demand for sugar, during downtime in any storage facility, or to take advantage of favourable world sugar prices.”
The research firm expected the land acquisition to materialise without a glitch given the close working relationship between MSM and KTMB fostered through years of operation and use of the dedicated railway system that runs right onto the premises of the Seberang Perai plant.
“Our expected timeline for completion of the upgrade in storage capacity is 1QFY14.” Meanwhile, management had guided an allocation of RM 140 million for capital expenditure (capex) for FY13.
MIDF Research believed this capex allocation might signal the potential completion or near-completion in FY13 – of the increase in raw sugar storage capacity and the acquisition of a plantation land of milling operations up north.
MIDF Research did not expect to see any material impact to MSM’s earnings until FY15 or FY16, given the pace of upgrades and upstream expansion.
“Despite the progress updates on the upgrade of supporting facilities and on the possible re-integration of upstream operations, we have yet to observe any real physical upgrade, extensions or additions to MSM’s plant and operations,” it advised.
“It is likely that the actual increment in raw sugar melt capacity will only be seen at the tail-end of the four year timeline, namely in FY15 or FY16.
Therefore we do not see any material impact on earnings till then.” MIDF Research pegged a target price of RM4.43 per share for MSM, based on a price earnings ratio of 12.8 times the average of its regional peers.