KUALA LUMPUR (May 27): MSM Holdings Bhd's net loss widened to RM34.71 million in the first quarter ended March 31, 2020, from RM7.06 million a year ago, due to lower gross margin, higher finance cost and higher depreciation, as a result of the commercialisation of its Johor plant under MSM Johor.
“The higher net loss was largely due to provisions for higher finance cost amounting to RM7.54 million and the recognition of depreciation of RM8.6 million, following the commercialisation of MSM Sugar Refinery Sdn Bhd (MSM Johor) in April 2019.
"Additionally, there was a provision of RM7.48 million for increase in operational cost in MSM Johor due to lower plant utilisation, together with a one-off provision of RM5.38 million for operational rationalisation exercise,” MSM said in a statement today.
The weaker earnings came despite a 5.23% increase in quarterly revenue to RM510.84 million from RM485,44 million last year, following a steady improvement in average selling price (ASP) and total sales volume.
Total sales volume grew by 5%, due to the newly-launched export products like premix and liquid sugar, as well as the shipment of fine syrup in February, MSM said.
MSM Group chief executive officer Datuk Khairil Anuar Aziz said the revenue improvement “reflects the group’s sustainable growth strategies which include product diversification to penetrate export markets and a strategic shift that aims to increase margins by raising the ASP of refined sugar”.
Despite the weakening ringgit, MSM saw an 8.5% decline in average raw sugar cost against the same quarter last year due to lower average price of NY#11, and a 30% reduction in total raw sugar purchased, following the implementation of the “Just-In-Time” mechanism in January this year to optimise raw sugar stocks.
“We were able to introduce the ‘Just-In-Time’ mechanism for the procurement of raw sugar to enhance the group’s cash flow and reduce storage costs, since unfavourable contracts that had locked in price at a high level expired in December 2019,” Khairil Anuar said.
During the quarter, MSM produced a total of 234,037 tonnes of refined sugar, 7% more than the 217,880 tonnes recorded in 1QFY19. Refining costs, on the other hand, grew by 20% due to the increase in capacity, higher depreciation in MSM Johor and the increase in gas tariffs from January.
On prospects, MSM expects reduced demand due to the Covid-19 outbreak, although the sugar refiner said this may be mitigated by increased exports, especially of its newly-launched products.
“Our refineries have been operating at normal capacity, despite the reduction in domestic sugar demand due to the temporary closure of business premises, mainly in the hospitality, as well as food and beverages (F&B) sectors.
“However, the slow demand in the domestic front was mitigated by the increase in export enquiries. MSM has exported more than 9,000 tonnes of refined and liquid sugar, with an estimated return of RM18.95 million as at April 2020,” Khairil said.
Moving forward, domestic sales are projected to improve in tandem with the gradual lifting of the movement control order (MCO), and the expected increase in demand during the festive season.
Separately, MSM announced in a stock exchange filing that its recently-appointed independent and non-executive director Datuk Syed Hisham Syed Wazir will become its new chairman from June 1. Syed Hisham, 65, was appointed as the group's director on May 8.
Among others, Syed Hisham is the independent and non-executive director of Bermaz Auto Bhd, the non-executive chairman of both SIRIM NPT Sdn Bhd and SIRIM QAS International Sdn Bhd, and a director at SIRIM STS Sdn Bhd, as well as SIRIM Granulab Sdn Bhd.
MSM's current chairman Datuk Wira Azhar Abdul Hamid will step down from his post on May 31, following his resignation as part of an agreement to resolve the issue over directors’ fees at FGV.
MSM to relocate Perlis ops to Johor
MSM also announced today its rationalisation plan to relocate the group’s refining operations at MSM Perlis Sdn Bhd (MSM Perlis) to its new refinery, MSM Johor, which is located in Tanjung Langsat, Johor.
The exercise, which has been communicated to staff over the last few months, involves redeploying manpower and resources to MSM Johor, where utilisation levels are to be ramped up, MSM said, adding that qualified staff from Perlis have also been offered opportunities to relocate to the group’s facilities in Prai, Penang and Sungai Buloh, Selangor.
“MSM Perlis, due to its unfavourable location of 130km away from the nearest port, and low production capacity, is a high cost facility,” MSM said, while noting its other two refineries in Johor and Prai are positioned near Tanjung Langsat Port and Penang Port respectively, and able to efficiently connect to Malaysia’s market centres.
Meanwhile, MSM has been working closely with its parent FGV Holdings Bhd to develop a new agriculture growth area on MSM’s assets at Chuping, Perlis, called FGV Agro Food-Valley, that will offer more than 300 employment opportunities.
“When this rationalisation exercise is completed, MSM will be better positioned to balance its production capacity and costs,” the sugar refiner said.
MSM shares closed one sen or 1.5% at 67.5 sen today, valuing the company at RM474.51 million. The counter has fallen some 51% from its year-ago level of RM1.37.