KUCHING: While there have been that MSM Malaysia Holdings Bhd (MSM) is still in talks with the government to increase local sugar price by 40sen per kilogram (kg), analysts opine that a price increase of this quantum is unlikely.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed that it is unlikely that the government would increase the ceiling price by 40 sen per kg as the ceiling prices had already been adjusted in March this year.
The research firm recalled in a flash note that MSM had previously appealed to the government to raise ceiling prices to pass on raw sugar costs by this quantum.
To note, raw sugar costs for the average financial year 2016 (FY16) was at about US$0.20 per pound versus FY15’s US$0.153 per pound.
“The government responded by increasing the prices for wholesale and retail sugar by seven per cent and four per cent to RM 2.87 per kg (up 19 sen) and RM2.95 per kg (up 11sen) effective March 1, 2017 which is less than what MSM expected.
“Moreover, raw sugar price had recently declined from US$0.20 per pound since March 2017 to current levels of US$0.16 per pound,” the research firm said.
While AffinHwang Capital believed it is unlikely to see 40 sen per kg increase, it did not discount the possibility of an increase of a smaller quantum.
The research firm’s back-of-the-envelope calculation showed that for every one sen increase in domestic average selling prices (ASPs), net profit increases by 1.5 per cent-1.6 per cent for FY17-19E.
Hence, if the government were to increase sugar price by the remaining quantum which is 29 sen (40 sen minus 11 sen) and keeping everything else constant, AffinHwang Capital’s earnings will jump by 44 per cent by plugging in a 29 sen per kg increase in the domestic segment. To note, the research firm currently assumes MSM’s domestic price to be a blended RM2.84 per kg.