MSM’s Johor refinery expected to be profitable by early 2022

MSM’s Johor refinery expected to be profitable by early 2022
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KUALA LUMPUR (Sept 15): MSM Holdings Bhd is expecting its Johor refinery to turn profitable in 2022 once the utilisation factor breaches 50%.

“Once we cross the utilisation factor of 50%, then we will get Johor refinery in the black. We should get the utilisation factor to 50% by year end. Anything above 50% will put Johor in the black.

“Next year, it will be a turnaround year for Johor. But for group level, it will be this year,” said MSM group chief executive officer Syed Feizal Syed Mohammad during a virtual press conference after the group’s extraordinary general meeting (EGM) today. 

Currently, the Johor sugar refinery’s utilisation factor stands at 30% with a production volume of 300,000 tonnes.  

With the utilisation factor anticipated to increase in the coming months and into 2022, Syed Feizal said the additional production volume will be channelled to the increase in the domestic market as well as the export market.  

The domestic market’s sugar consumption is expected to return to its usual 1.5 million tonnes soon. Domestic sugar demand had been affected by the movement control order, sliding to 1.2 million to 1.3 million tonnes. 

As for the export market, Syed Feizal said the export market is never short of demand. 

“We’re in the market of four million tonnes per year in Asia Pacific and MSM has a great vantage point to deliver sugar, besides the Thais. We just need to be able to ramp up our capacity fast enough to meet all these demands. 

"There is no shortage of export orders. We are confident in fulfilling this growth,” said the group CEO. 

Currently, the group has a total of 306,000 tonnes of export orders in hand, where it has delivered 144,000 tonnes. It hopes to complete all its orders this year. 

In 2022, the group is looking to increase its export orders to slightly over 450,000. 

When asked if MSM is looking into a strategic partnership for its Johor refinery, Syed Feizal said that at this juncture, he cannot disclose any information about parties who are in discussions with the sugar refiner. 

“What we can say is that we are open to any strategic fit. The right fit partner has to come in to fulfil the export offtake which is part of the blueprint for the sustainability of MSM Johor. 

"So, the offtake agreement has to be that and also in terms of technical and commercial value. If they can meet all these criteria, then we may think of a right fit partner at the entity level of Johor, not at the holding level,” he explained.

MSM sees raw sugar prices remaining bullish for the short term, due to the lower production in Brazil as the country faces unprecedented weather conditions. But believes that raw sugar prices will normalise towards the end of 2022. 

Based on the Sugar No. 11 contract, raw sugar price is currently around 19 cents per pound. 

MSM has already hedged its position for next year. 

Separately, the EGM today saw shareholders approve the group’s disposal of its entire equity interest in its wholly-owned subsidiary MSM Perlis Sdn Bhd to FGV Holdings Bhd’s unit FGV Integrated Farming Holdings Bhd for an initial consideration of RM175 million. 

The disposal of the entire equity interest in MSM Perlis is expected to result in a RM91.6 million gain for the group after completion. 

Besides the disposal of MSM Perlis, Syed Feizal said the group will also be putting up the former refinery in Perlis for sale. It has plant and machinery worth around RM50 million, according to book value. 

“We are still putting it up for international tender and see what offer we can get it for,” he added. 

The group also has several small parcels of industrial land that it might put up for sale, if there is no strategic need for those land. One of the parcels is located in Pulau Indah and another in Johor, both of which are currently being revalued. 

“If there is no strategic need for those land, we will put it up for sale when the market window is right and we will try to achieve the best possible economic value for it,” he said. 

At the time of writing, MSM’s share price was up 0.59% to RM1.71. This puts the group’s market capitalisation at RM1.24 billion. 

Read also:
MSM shareholders green-light disposal of MSM Perlis to FGV's unit for RM175m cash

Joyce Goh