KUALA LUMPUR (Sept 9): CGS-CIMB Research maintained its "reduce" rating of MSM Malaysia Holdings Bhd at 54.5 sen with an unchanged target price (TP) of 55 sen after MSM's group chief executive officer (CEO) was placed on leave of absence and required to explain certain irregularities relating to inventories of MSM Sugar Refinery (Johor) Sdn Bhd.
MSM, however, did not specify the nature of the inventory irregularities and said the company will continue its business as usual.
In a note yesterday, the research house said it remains negative on the news as it suggests weak management at MSM.
According to CGS-CIMB, MSM had said the irregularities relating to the inventories of MSM Sugar Refinery (Johor) will not impact its earnings for the current year as they had been accounted for in the financial year ended Dec 31, 2019 (FY19).
“We suspect this could be partly related to the write-down of inventory value in 2019 totalling RM50 million. In MSM’s 2019 Annual Report, the group revealed that it lost RM49.4 million due to inventories written down to net realisable value and RM1.5 million from inventories written off in 2019.
“Although we are relieved to hear that this issue is unlikely to affect FY20 earnings, we are still negative on this news as it would shed a negative light on past governance/management of MSM. This is the second time in recent years that MSM appears to have an issue with its CEO,” it said.
The research house highlighted that in January 2018, MSM’s then president and group CEO Datuk Mohamad Amri vacated his post and claimed that he had been constructively dismissed.
CSG-CIMB said it was reported by the media that he tendered his resignation after disagreeing with the appointment of Datuk Khairil Anuar Aziz as an executive director on MSM’s board.
“We reiterate 'reduce' with an unchanged TP of RM0.55 (P/NTA) as we expect MSM to continue reporting losses, which could affect its ability to attract potential suitors. We are also concerned over the low utilisation of its Johor refinery and weak management,” it said.
At 10.15am, MSM had dipped 0.96% or half a sen to 51.5 sen, with a market capitalisation of RM362.04 million.