Padini Holdings, WCE Holdings, Gadang Holdings, Sapura Energy

STOCK FOCUS OF THE DAY

MSM Malysia : Lower cost, higher selling prices to sweeten FY17F            HOLD

Maintain HOLD on MSM Malaysia with a higher fair value of RM4.95/share vs. RM4.50/share previously. Our fair value is based on a FY18F PE of 20x. Our PE assumption of 20x is roughly in the middle of MSM's four-year PE band of 11.3x to 29.4x. We have raised MSM's FY17F net profit by 27% to account for improved operating profit margin resulting from higher selling prices and lower cost of raw sugar. We have also increased MSM's FY18F net earnings by 19%. Our earnings forecast excludes trading gains or losses. Excluding trading gains of RM38mil, MSM's net profit would have been RM82.8mil instead of RM120.7mil in FY16. MSM is expected to benefit from the recent drop in raw sugar prices. At the same time, the group has raised selling prices by about 2% to 11% in FY17F. We reckon that the fall in raw sugar price would compensate for the depreciation in the MYR this year.

Going forward, raw sugar price could ease further when the European Union (EU) abolishes the sugar production quota from 1 October 2017 onwards. Global supply of sugar is expected to increase when the quota is abolished. We forecast sales volume of MSM's refined sugar products to be flat at 1.03mil tonnes in FY17F vs. a 0.8% drop in FY16. Volume growth is expected to be stronger at 11.2% in FY18F due to the maiden contribution from the new sugar refinery in Tanjung Langsat, Johor. The US$259mil sugar refinery is envisaged to be completed in mid-FY18F. We believe that demand for sugar would be unexciting in FY17F due to the higher selling price and as consumers become more health conscious. 

STOCKS ON RADAR

Padini Holdings, WCE Holdings, Gadang Holdings, Sapura Energy

ECONOMIC HIGHLIGHT

Malaysia : Upside to manufacturing despite some headwinds

NEWS HIGHLIGHTS

Tenaga Nasional : Inks power deal with Edra Power

Manufacturing Sector : Ire-Tex to propose board revamp at upcoming EGM

Media Sector : REV Asia continues to attract buying interest

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