MSM Malaysia : Hit by trading loss and higher cost of raw sugar HOLD

STOCK FOCUS OF THE DAY

MSM Malaysia : Hit by trading loss and higher cost of raw sugar HOLD

We are upgrading MSM Malaysia from SELL to HOLD as its share price has fallen below our fair value of RM4.50/share. Our fair value implies a FY17F PE of 24.7x. MSM's FY16 results were below our expectations and consensus estimates. MSM reported a net profit of RM14.4mil in 4QFY16, bringing net earnings to RM120.7mil in FY16 (FY15: RM275.3mil). Included in MSM's FY16 net profit were net trading gains of RM38.0mil. Excluding the net trading gains, MSM's FY16 net profit would have been 31.5% lower. MSM's trading swung from a gain of RM35.4mil in 3QFY16 to a loss of RM65.2mil in 4QFY16 due to the volatility in raw sugar prices. In 4QFY16, raw sugar prices plunged before rising again.  MSM was affected by a higher cost of raw sugar imports in FY16. As a result, gross profit margin declined from 21.2% in FY15 to 12.4% in FY16. Average cost of raw sugar realised was US$0.20/pound to US$0.21/pound in FY16 compared with US$0.153/pound in FY15. Average exchange rate realised was US$1.00: RM4.18 in FY16 vs. US$1.00: RM3.84 in FY15. MSM's gross profit margin shrank QoQ in 4QFY16 in spite of a hike in the average selling price of refined sugar to the industrial customers.

Others :

CB Industrial : Profit growth to be supported by increased order book    HOLD

Genting Plantations : 4QFY16 profit boosted by RM136mil disposal gain  HOLD

Genting Singapore : Stabilising finally      HOLD

MBM Resources : Volume issue for Auto Parts persists  HOLD

Malaysia Building Society : Further provisioning ahead    HOLD

Telekom Malaysia : Flat EBIT with higher capex guidance HOLD

Alliance Financial Group : Investment expenses to inflict short-term pain but bring longer-term benefits               HOLD

Econpile Holdings : 1HFY17 results in line, bags RM570mil Pavilion Damansara Heights job              HOLD

STOCKS ON THE  RADAR

Malton,SCGM,Oldtown,UOA Development

ECONOMIC HIGHLIGHTS

UK : Uncertainty to have some impact on 2017 growth

Euro : Can inflation momentum sustain?

Malaysia : Inflationary pressure to stay intense

NEWS HIGHLIGHTS

SapuraKencana Petroleum : Secures US$1.5bil financing facilities

Airlines Sector : AirAsia X posts record annual profit despite forex hit

Oil & Gas Sector : Petron Malaysia gains strong momentum in final quarter