Lower Tin Prices Hampers Malaysia Smelting Corporation’s Performance

Malaysia Smelting Corporation Bhd’s (MSC) 2QFY23 core net profit declined 27.9% YoY to RM28.4m, dragged down by weaker contribution from the tin mining segment that was impacted by lower average tin prices.

“Revenue for the quarter fell 20.0% YoY to RM327.0m,” said Malacca Securities in the recent Stock Digest.

Segmentally, 2QFY23 tin smelting pre-tax profit stood at RM21.6m vs. pre-tax loss of -RM8.2m recorded in the previous corresponding quarter.

However, the tin mining segment pre-tax profit contracted 51.6% YoY to RM23.2m, dragged by the decline in average tin price to an average of RM116,500/MT during the quarter.

Nevertheless, tin prices have turned stable, rising 0.3% QoQ. On the mining segment, Malacca Securities gathered that MSC remains committed to gradually improve its mining efficiency, targeting an output of 11.0 tonnes/day of tin ore by end 2023.

“The move will be supported by additions of new machineries to Rahman Hydraulic Tin (RHT) mine and the development of additional processing plants at the Sungai Lembing tin mine,” said the research house.

Meanwhile, the smelting segment will be supported by better production efficiency and lower operational cost from the state of art technology at the Pulau Indah plant. Looking ahead, the Butterworth smelting plant will be gradually decommissioned by mid-2024.

The research house gathered that tin prices continue to demonstrate a recovery trend, trading between USD25,400-26,800/MT over the past 2 months.

Going into the remainder of the year, the research house believes that tin prices may hover at current range and to average USD26,000/MT as the prospects of stronger demand will be supported by the revolution of technology (electric vehicles) and rising adoption to generate environmentally friendly electricity (solar PV).

“Following the recent appreciation in share price, we reiterate our Hold recommendation on MSC with a higher target price of RM2.20,” said Malacca Securities.

Risks to their recommendation include the volatility in the tin prices which affect average selling prices and margins. Then there is the foreign exchange fluctuation risk, given that the tin prices are traded in USD and MSC purchased most of their raw material from other miners.

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