MSM share price surge and FGV privatisation intrigues

TheEdge Mon, Mar 15, 2021 11:57am - 3 years View Original


KUALA LUMPUR (March 15): The privatisation offer to FGV Holdings Bhd will close at 5pm today. Shareholders have been given more time to contemplate the offer of RM1.30 per share made by its controlling shareholder Federal Land Development Authority (FELDA). 

The meteoric rise in MSM Malaysia Holdings Bhd’s share price recently would not have escaped the eyes of FGV’s shareholders considering FGV holds a 51% stake in the sugar refiner. FELDA holds a 9.43% stake. 

MSM’s share price has implications for the value of FGV. 

As at 11am today, MSM’s share price had climbed three sen to a two-year high of RM1.92. The stock had more than tripled in three weeks to RM1.89 at the close of last Friday from a mere 55.5 sen on Feb 24. 

Notably, the sugar refinery reported a net profit of RM56.24 million for the fourth quarter ended Dec 31, 2020 (FY20) against a revenue of RM630.33 million, also the first quarterly net profit after eight consecutive quarters of losses. 

While some would link the share price rally to MSM’s improved quarterly financial performance released on Feb 25, others believe that there is more to it. 

The spike in interest in MSM has drawn attention to FGV’s earlier plan to divest its equity stake in the country’s largest sugar refinery. 

Besides, speculation is also rife that MSM might be mulling over selling off its new facilities in Johor that was commissioned in 2018. 

The refinery in Johor has doubled MSM’s capacity to 2.2 million tonnes. The new capacity, however, did not help to boost MSM’s earnings but caused a drag on its financial performance due to a low utilisation rate as a result of overcapacity, while the government then granted more import licences to industrial players to import refined sugar directly. 

FGV revealed its intention to sell part of its stake in MSM to a strategic partner roughly two years back. 

One of the bidders mentioned in 2019 was JAG Capital Sdn Bhd, an investment holding company linked to former finance minister II Datuk Seri Johari Abdul Ghani. 

Johari, who has a 32.72% stake in CI Holdings Bhd and 32% equity interest in KUB Malaysia Bhd under his belt, has not been absent from corporate activities in the past two years. 

His latest acquisition was a 4.96% direct stake and 4.93% indirect stake in Media Prima Bhd last month.  

Some quarters have pointed out that the largest shareholder of Media Prima is Tan Sri Syed Mokhtar Albukhary, through Aurora Mulia, holding a 31.9% stake in the company. When Syed Mokhtar bought into Media Prima in 2019, many were wondering about the tycoon’s rationale to buy into the loss-making media group. 

Media business aside, Syed Mokhtar also owns a sugar refinery — Central Sugars Refinery Sdn Bhd (CSR).

As MSM's share price escalated, some quarters noted that the two businessmen are “friends” and both might have casted their eyes on MSM’s sugar refining business. 

It might be natural for the investing fraternity to speculate that Syed Mokhtar might want to consolidate his sugar refining operations. 

Back in 2014, there was market talk that the tycoon was considering divesting CSR to the FELDA group. 

Nevertheless, the plan did not come to fruition. Just last year, Syed Mokhtar’s private vehicle Perspective Lane (M) Sdn Bhd (PLSB) sent an expression of interest to participate in FGV via an injection of plantation assets into the plantation group via a share swap. However, FGV announced that it will not be pursuing the proposal by PLSB. 

Better prospects ahead for MSM

Things should look brighter from here on for MSM, according to analysts. They believe that the sugar refinery’s prospects in 2021 look bright judging by the net profit achieved for the fourth quarter ended Dec 31, 2020 (4QFY20).

Affin Hwang Research forecast that MSM will be able to sustain its robust export volume in 2021, which would complement its domestic business sales. It noted in a report that export sales increased by 170% in 2020 to RM468 million, on account of higher volume tonnage of 272,000 metric tonnes. 

CGS-CIMB Research, meanwhile, takes the view that the sustainability of earnings displayed in 4QFY20 will depend on the white sugar premium trend which, the research house's report said, played a key part in lifting MSM’s 4QFY20 earnings. 

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