MSM: Difficult to maintain profitability

KUALA LUMPUR: MSM Malaysia Holdings Bhd may face difficulty in maintaining profitability if the price of raw sugar rises, as the impact of the 11 sen sugar price increase to RM2.95 per kg earlier in March is too small.

“Based on the current scenario, sugar (price) must be increased at least by 40 sen but what we are getting from the government is only 11 sen. The 11 sen lessens our burden but, still, we are in a very difficult situation to maintain our profitability,” MSM non-independent non-executive director Datuk Zakaria Arshad told reporters at its AGM yesterday.

He said MSM will look at ways to get the 29 sen difference, including continuing talks with the government to raise sugar prices further.

“We are the lowest selling sugar price in this region. Even Thailand who produce raw sugar, are selling much higher than us at over RM4. It is a challenge for us if government doesn’t increase the sugar price. We know the government also has difficulty in increasing the price but we try to work closely with them,” Zakaria said.

He said MSM is fortunate that raw material price has dipped from US$0.20 at end-2016 to US$0.16 now but if the price of raw sugar rises, it would be tough for MSM to remain profitable.

MSM president and group CEO Mohamad Amri Sahari said besides the drop in raw sugar price, the current foreign exchange rate at circa 4.3 is good for MSM but the outlook for 2017 remains challenging as the raw sugar price is very volatile.

“Performance wise, this year is very tough, very challenging because of raw sugar price. First quarter this year the price was very high and forex also was at 4.45 compared with last year at 4.1. Every US$0.10 movement in forex costs us over RM30 million,” he said.

Last year, MSM achieved a record production output of 1.117 million tonnes, representing 8.1% growth year-on-year. Amri said it aims to set a new record this year at 1.150 million tonnes, despite constraints from the government’s price cap and raw sugar price movement.

Amri said the refinery in Tanjung Langsat, Johor, is 45% completed and is on track to begin operations on May 1, 2018. Construction is expected to be completed in the first quarter of 2018.

The refinery, which will increase MSM’s sugar production from one million tonnes to two million tonnes, will cost about RM1 billion (US$259 million), of which RM400 million has been spent.