This article first appeared in The Edge Financial Daily on June 27, 2018

KUALA LUMPUR: MSM Malaysia Holdings Bhd (MSM), which expects to perform better this year amid lower global raw sugar prices, is now looking to penetrate the African and Chinese markets to optimise the surplus production capacity that it will have when its new sugar refinery in Tanjung Langsat, Johor, commences operations next month.

MSM, currently commanding some two-thirds of the domestic refined sugar market, is studying options on how to enter the two markets so it does not “financially burden MSM” unnecessarily, according to the group’s chairman Datuk Wira Azhar Abdul Hamid.

After the group’s annual general meeting yesterday, Azhar told reporters the cost of the options — including a partnership or a direct export — is the group’s main concern as “it is not financially strong”.

According to the group’s 2017 annual report, MSM’s gearing ratio stood at 38% in 2017, up from 26% in 2016, mainly due to loans it took to build the new refinery.

In the financial year ended Dec 31, 2017 (FY17), the group posted a net loss of RM32.57 million, against a net profit of RM120.72 million in FY16, mainly due to higher raw material costs and a weakened ringgit.

But things are looking brighter this year, Azhar said. “We expect a better financial performance in 2018 compared to a challenging 2017, given a lower international raw sugar price and a stronger ringgit this year that will ensure raw sugar cost will stabilise,” he said. About 88% of MSM’s production cost is derived from importing raw sugar.

Azhar said the challenge now is how to manage the surplus capacity of the new sugar refinery and add new export markets to the group’s portfolio profitably.

The new refinery has an annual production capacity of up to one million tonnes. MSM invested RM1.1 billion in the refinery and Azhar expects the group to take six years to recoup the investment. He said the group is in talks with external parties to optimise the new refinery’s operations, but did not elaborate.

Separately, he said the group needs to reshape to stay competitive as the government is looking to liberalise the industry. Last Friday, the government set up a special task committee to disband monopolies across all industries locally.

“We cannot stand still and we need to move out (venture to other countries) as soon as possible,” said Azhar, appointed to helm MSM last September. He said the group is also facing pressure from shareholders to bring in value after the group invested heavily in the new refinery.Last year, MSM exported 139,504 tonnes of sugar; Singapore was its biggest export market, followed by Papua New Guinea, Hong Kong, New Zealand and South Korea.

On the group’s new chief executive officer (CEO), Azhar said the appointment will be unveiled after the new plant has started operations. The group is currently reviewing the potential candidates, he added.

Its former president and CEO Datuk Mohamad Amri Sahari @ Khuzari left the group in January. Mohd Shaffie Said is now the acting CEO.