Sunday, May 19, 2024

The Sweet Success Of MSM Malaysia

Syed Feizal Syed Mohammad, Group Chief Executive Officer, Expounds on His Vision for the Group and the Challenges Ahead

Here’s a little exercise for anyone reading this in Malaysia. Take a look at any packet of sugar in your house. Chances are the packet – regardless of whether it is coarse, fine, white or brown – will have the words “Gula Prai” on it. From its beginnings in 1964, Gula Prai has been the preferred brand of sugar for countless Malaysians, reaching a brand value of more than RM624 million.

The company behind Gula Prai is none other than MSM Malaysia Holdings Berhad. Presently the market leader in Malaysia’s sugar market, MSM Malaysia holds more than 60 percent of the domestic sugar market share. This is a position that Group Chief Executive Officer Syed Feizal Syed Mohammad aims to not only secure but also to expand, as he reveals to International Business Review in an exclusive interview.

It has been more than three years since Syed Feizal was entrusted with the position of MSM Malaysia’s Group CEO. Having celebrated his third anniversary in the post in February this year, he reflects on his time at the helm of
the company.

He reveals that when he first took office, he was tasked with turning around MSM. And to achieve that, he had to focus on three objectives, namely the transformation of MSM, addressing the controlled ceiling price of sugar by the government, and the mitigation of the MSM Johor refinery.

And Syed Feizal has been more than equal to the challenges. He explains that by drawing on his close to 30 years at a leading energy sector MNC, he was able to introduce dynamic changes to MSM Malaysia. “I helped to introduce a different work culture into MSM, where we stress on Safety, Quality, Integrity, Diversity, and also Sustainability. I am happy to say today that MSM has gone to a great extent in terms of transformation,” he proudly states.

At the same time, the successful improvement of MSM Johor’s refinery is also another source of pride for Syed Feizal. He highlights that when the refinery was built in 2018, it was not done in an optimal manner with certain problems plaguing its equipment.

Since Syed Feizal took over the Group, along with Hasni Ahmad, Group Chief Operating Officer who joined about the same period, improvements have been made to the hardware while there was also a change of personnel and leadership team at the refinery. As a result of this, MSM Johor managed to record a profit as of December 2023, an achievement which they had not been able to reach in the last four years.

An aerial view of MSM Johor’s refinery at Tanjung Langsat Port. Since Syed Feizal Syed Mohammad took over as Group CEO of MSM Malaysia Holdings, improvements have been made to the refinery’s management and equipment, thus enabling it to record a profit in 2023 for the first time in four years.
MSM Malaysia employees packing sugar into 50 kg bags. The Gula Prai brand is the trademark brand of MSM Malaysia and is the favoured sugar of Malaysian households since 1964.

Gula Prai is the third most popular FMCG F&B product in terms of household penetration for the past three years according to Kantar.

Premium Quality Assured

It should be noted that even before Syed Feizal took the helm of MSM Malaysia, the organisation was already regarded as an industry leader, not just locally but internationally as well. And this is owing to the premium quality of its product.

To illustrate, MSM Malaysia’s refined white sugar has a rating of 45 from the International Commission for Uniform Methods for Sugar Analysis (ICUMSA) indicating it is a highly refined white sugar of high purity.

In 2023, under Syed Feizal’s watch, MSM Malaysia upgraded its already considerable offerings with the launch of Gula Super which is, he reveals, “an even higher quality sugar, which is equivalent
to RON 97 for petrol.”

More than just offering premium products to consumers and industries, MSM Malaysia is also committed to environmental, social and governance (ESG) best practices. For instance, the company has played a role in community building in FELDA estates, given that its ultimate beneficiary owner is FELDA through FGV Holdings Berhad. At the same time, being a responsible corporate citizen, MSM Malaysia sources its raw materials from sustainable plantation and mills.

The Group CEO also reveals that MSM Malaysia’s stature as an ESG-compliant corporation was further boosted in December 2023, Bursa Malaysia – the operator of the Malaysian stock exchange – informed them that the company has been placed on the FTSE4 Good index. Given that companies on this index are those that score highly in ESG measures, this is definitely a feather in MSM Malaysia’s cap as well as that of Syed Feizal.

Of course, at the end of the day, MSM Malaysia is a corporate enterprise. A public-listed corporate enterprise. So, aside from doing good by society and the environment, it is imperative that it does good by its shareholders.

And on that front, Syed Feizal has more than delivered, and he happily reveals that, “Over the past three years, MSM Malaysia’s market cap has increased by nearly 500 percent”. This has given the company a value of more than RM1.94 billion, making it among the top 10 most valuable F&B companies listed on the main board of Bursa Malaysia.

Tackling Challenges

No doubt MSM Malaysia’s journey since Syed Feizal Syed Mohammad took the role as Group CEO has been, if one would pardon the pun, a sweet one. Nevertheless, there are still certain challenges that need to be overcome.

This includes, he says, increased pressure on MSM Malaysia’s earning potential, one of which caused by the decision by the Ministry of Domestic Trade and Cost of Living (KPDN)
to issue permits to 37 companies to import a total of 285,700 tonnes of refined white sugar as of 2023.

The KPDN’s decision to do so is ostensibly to meet public demand for sugar, but Syed Feizal is quick to point out that this need not be so. In fact, he states, MSM Malaysia has more than enough production capacity to meet the needs of the people and industries of the various FMCG F&B producers.

But rather than being driven by protectionist sentiments, Syed Feizal’s concerns over the increased import of refined sugar are based on more practical and utilitarian grounds. For one thing, given the recent weakening of the Malaysian ringgit, he noted that expanding imports will just put further pressure on the currency.

Furthermore, he notes that the increasing imports to ensure food security is not always the best course of action. During times of crises, exporters may turn off the supply. This can be seen in examples such as India’s ban on the export of onions and Indonesia’s ban on
the export of palm oil in 2022.

At the end of the day, it is local players like MSM Malaysia that will always be dependable suppliers. Because of this, we should not introduce elements that may negatively impact them.

This brings us to another challenge, and one that was previously highlighted in these pages, namely the ceiling price of sugar for sale in Malaysia, which has been set at RM2.85 per kg for coarse grain sugar and RM2.95 per kg for fine sugar by KPDN.

According to Syed Feizal, “This is a 10-year-old price that does not work anymore.” To illustrate, he gives the example of how raw sugar was previously sold at around 12 to 14 US cents per pound when he joined MSM Malaysia. In 2023, that price had skyrocketed to as high as 28 US cents per pound, which is around 80 percent of MSM Malaysia’s input cost.

“So,” Syed Feizal states, “you can imagine the economics doesn’t work and we have been bleeding in the consumer segment in the last 30 months.”

Aside from the considerable strain it has been putting on MSM Malaysia, price controls on sugar in Malaysia has resulted in Malaysian sugar slipping across the border to neighbouring countries owing to the considerable price differences.

In fact, Malaysian sugar is the cheapest in the region, even more so than Thailand which itself is the 3rd largest exporter of raw sugar in the world. And since sugar is subsidised
by the government, this effectively means that Malaysian public money is moving out of the country.

An employee look at a sugar crytallizations on the production line at MSM Sugar Refinery(Johor) Sdn Bhd Tanjung Langsat, Industrial Complex Pasir Gudang in Johor, Malaysia, on Friday, August. 21, 2020. Photographer: Samsul Said/Bloomberg
MSM Malaysia is involved in the A to Z of the sugar manufacturing and distribution value chain including processing and packaging. The company has a production capacity of 2 million tonnes annually.

In order to better understand and gain different perspectives on price controls on sugar,International Business Review spoke to one of the largest retailers in the country and a prominent economist. This is what they had to say.

The Retailer’s Perspective

Datuk Wira (Dr) Ameer Ali Mydin, Managing Director of Mydin

As the Managing Director of MYDIN, which was founded by his late father Mydin Mohamed in 1957, Datuk Wira Ameer is regarded as one of the foremost leaders in the Malaysian retail sector as well as widely deserved accolades too. Taking the lead of the family legacy with his visionary stewardship, MYDIN today has successfully stood proud as national largest Halal wholesaler and retailer chain in Malaysia with 68 outlets nationwide.

More than just a successful businessman, he is also a passionate proponent of the free market. With this in mind he spoke to International Business Review on the issue of the ceiling price for refined sugar in Malaysia, which is currently set at RM2.85 per kg.

Datuk Wira Ameer admitted that the ceiling price of sugar has had a positive impact on the retail sector. The issue, however, is whether it is “the right price” and whether having price controls is the right thing to do. And the answer to that, he said, is a resounding “No”.

The Problem with Price Controls

Firstly, Datuk Wira Ameer highlighted, “Price controls distort the free market.” And when the market is distorted, he explained, two things tend to happen. Either sales will increase, which is not an accurate reflection of market realities, or it leads to smuggling as people will take advantage of the price differences to sell to other countries.

Expanding on this, Datuk Wira Ameer gave the example of cooking oil, saying “Packet cooking oil is RM2.50 in Malaysia but costs the equivalent of RM5 in Thailand, and there have been many reports of Malaysian packet cooking oil making its way across the border because we have porous borders.”

Datuk Wira Ameer noted that the Malaysian government spends almost RM80 billion a year on subsidies. This obviously is a huge strain on the nation and is also unsustainable.

For him, having a free market is the answer. As he told International Business Review, “Government should only intervene during crises such as wars and disasters”. This is to prevent exploitive practices. He further highlighted how, by removing subsidies, prices of currently controlled goods may increase, but the effect on the B40s can be mitigated as the government can use the money saved on subsidies by having more targeted aid to them.

“In the current scenario, they are subsidising 35 million people, whereas in the other one, they only need to subsidise 1 million, maybe even 2 million households,” he explained.

With regards to concerns that prices may skyrocket should subsidies and hence price controls be removed, Datuk Wira Ameer gave the example of what happened when the government removed subsidies for chicken. “The price of chicken was at RM9.40 and
now we are selling at RM7.98 only. It went down and didn’t go up because the market dictates pricing.”

And so, it will be the same situation with sugar. The market will find a way to dictate the pricing, which will fluctuate accordingly. Because, as he puts it, “When you don’t have price controls, that is when competition will come out.”

The Economist’s Perspective

Dr Carmelo Ferlito, CEO of the Center for Market Education

As someone who has been heavily influenced by the Austrian School of Economics as well as the theories of Joseph Schumpeter, Dr Carmelo Ferlito is a passionate proponent of the free market. Having received a Master in Economics and a PhD in Economic History from the University of Verona in his native Italy, Dr Ferlito is currently the CEO of the Center for Market Education as well as a Senior Fellow at the Institute for Democracy and Economic Affairs (IDEAS).

Given his school of thought, it comes as no surprise that Dr Ferlito takes a dim view of price controls, having previously noted that they are not a good or effective measure against price increases.

Expanding on that view, he told International Business Review, “First and foremost, we need to distinguish what is causing the increase of prices. Not all price increases can be properly called inflation.”

Dr Ferlito observed that several economists have defined inflation as a generalised and persistent increase in prices due to the supply of money growing faster than the output. This is reflected in the famous adage by Milton Friedman of “Too much money chasing too few goods.”

Normal price adjustments due to the interaction between supply and demand cannot be properly called inflation, Dr Ferlito explained. For example, supply-side shocks may cause a so-called re-adjustment of relative prices, such as during the Great Lockdown where the movement, hence supply, of goods was hindered and we had a policy-induced supply shock.

The Ugly Effects of Price Controls

With regards to the price of sugar in Malaysia, he noted that, “There have been a series of conditions that have put price pressure on sugar.” As such, he continued, “The removal of ceiling prices will, in the short run, result in an increase in price as it will reflect the friction between supply and demand.”

That increase, Dr Ferlito explained, will be temporary. Because, “it will signal to the supply side that profit opportunities are there to be exploited and entrepreneurs will react to these signals by increasing their supply and the increase in supply will cool off prices.”

On the flipside, the effects of continuous price controls can be quite damaging. As Dr Ferlito expounded, “When the price ceiling is below the market price (such as the case of sugar in Malaysia where the retail price of refined sugar is capped at RM2.85 per kg), you reduce the incentive for suppliers to produce.”

Giving the example of the poultry industry in Malaysia, Dr Ferlito reminded us how price controls on chicken in Malaysia resulted in situation where producers had to contend with costs that were higher than the ceiling price for chicken. This led to a shortage of chicken in
the market.

The same situation, therefore, is at risk of happening with sugar. After all, he emphasised, “Suppliers are not charitable organisations and they are run for profit”. If your government imposed selling price is below your production cost, or very close to your production cost, why should you make the effort to keep your company running? Ultimately, we respond
to incentives and price controls are destroying incentives.”

A view of the MSM Prai refinery. Located in Penang, Malaysia, it is the largest sugar refinery in Malaysia with a capacity of more than 960,000 tonnes and is also the birthplace of the Gula Prai brand.
The sight of sweet success – Yes, that is literally an excavator on top of a mountain of sugar in one of MSM Malaysia’s warehouses.

Syed Feizal notes that even Brazil, which is the world’s largest exporter of raw sugar and owns 70 percent share of the global sugar market, has higher sugar prices than Malaysia, at the equivalent of RM3.50 to RM3.80 per kilo.

And when we take into consideration that major exporters such as Brazil and Thailand are able to enjoy lower production costs by tapping into the biomass produced that is, bagasse – by their sugar plantations to convert into biofuel to power their refineries, the discrepancy is even more astonishing.

Syed Feizal emphasises that “It is time that these economic anomalies are addressed.” As such, MSM Malaysia has been in dialogue with the government, and he is happy to note that there has been some progress on that front, saying “I think we have a very good practical government who understands business. The translation of industry requests has gotten positive traction and the leadership of Prime Minister YAB Datuk Seri Anwar Ibrahim is a welcomed one.”

The Road Ahead

Moving forward, Syed Feizal has big plans for MSM Malaysia. For instance, he reveals that the company is aiming to revive the long dormant upstream segment in Malaysia. This upstream integration will, he says, enable MSM Malaysia to secure 30 to 50 percent of its raw sugar supply. In fact, they have already presented plans to the Economic Planning Unit, and it has been met positively. Challenge is the availability of land.

In addition, the company is also embracing digitalisation, with the Group CEO saying,
“We need to recognise that IR4.0 is here, and therefore, we must also quickly evolve.
That is why we have a framework on IR4.0.”

In fact, MSM Malaysia has already embraced certain aspects of digitalisation such as smart contracts which has reduced the time of processing contracts with clients from seven days to just two to three days. And what’s more, there is no paper involved, thus enhancing the company’s ESG credentials.

And this adoption of smart technology, Syed Feizal hopes, will further manifest itself with
the deployment of AI into their production process. This is part and parcel of his aspirations for MSM Malaysia to go digital across all aspects of the business, thus enhancing efficiency and productivity.

From left: Hasni Ahmad – Group Chief Operating Officer of MSM Malaysia, Sakinah Salleh – Group Chief Executive Officer of Koperasi Permodalan Felda, Syed Feizal Syed Mohammad – Group Chief Executive Officer of MSM Malaysia Holdings Sheikh Farouk Sheikh Mohamed – Managing Director of AEON Big Malaysia and Malaysian actress Nabila Huda, at the launch of MSM Malaysia’s premium brand of sugar Gula Super

While MSM Malaysia has gone through its share of ups and downs, it has consistently kept its position as the trusted supplier of sugar to the Malaysian people. And since Syed Feizal Syed Mohammad took over as Group Chief Executive Officer in 2021, the company has been on an upward trajectory. Dynamic leadership coupled with vision and strong corporate values hit all the sweet spots for MSM Malaysia Holdings Berhad’s success.

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