Malacca Securities Sdn Bhd downgraded its call for Malaysia Smelting Corporation Bhd (MSC) to SELL and lowered its target price (TP) as the group’s financial results for FY23 ended on a softer note.
The independent research house said as the group’s full-year results came below expectations, it reduced its core profit after tax and minority interests (core PATMI) by 10% and 9% to RM95.4 million and RM99 million, respectively, for FY24F and FY25F.
“With the downward revision of the earnings forecast, we reduced the target price to RM1.82 and downgrade to SELL.
“Our target price is based on an assigned target price-earnings ratio (PER) of 8x to its FY24F earnings per share (EPS) of 22.7 sen,” it said in its Stock Digest note today (Feb 16).
For 4QFY23, it said the tin metal and tin based products producer’s core net profit came in at RM11 million, a decrease of 7% quarter-on-quarter (QoQ) and a decrease of 62% year-on-year (YoY), which bring the sum to RM86.7 for the full year (FY23).
“The core earnings came in below expectations, amounting to 85% and 94% of ours and consensus estimates of RM101.6 million and RM92.7 million, respectively.
“For FY23, cumulative core PATMI stood at RM86.7 million, a decline of 10% YoY, in tandem of 5% drop in revenue. The softer profit was due to the weaker performance in the tin mining segment due to lower average of tin price, offsetting the better performance in the tin smelting segment,” the research house said.
In 2023, the lower average tin price of RM118,100 per metric ton (MT) compared to RM136,7000 per MT in 2022.
Malacca Securities said YoY the group saw a 3% increase in revenue due to higher average tin price of RM116,000 per MT as compared to RM98,000.
“However, core PATMI plunged 62% due to weaker performance in the tin smelting segment, affected by forex loss and the absence of sale of refined tin from processed tin intermediates and sale of by-products.
“Nevertheless, tin mining segment saw improvements due to higher average tin price and tin production quantity in 4Q23,” it added.
MSC has proposed a final single tier dividend of RM0.07 but the date of payment will be determined and announced at a later date.
“Also, MSC announced the adoption of a dividend policy of distributing at least 30% of its net profit going forward,” the research house added.
As for the tin price outlook, Malacca Securities said it gathered that the tin prices have turned positive, trading above USD27,000 per MT at this moment for London Metal Exchange (LME) three-month forward tin price after hovering sideways during August to December 2023.
“We expect the tin prices to have limited downside risk with the support from surging demand in electric vehicle (EV) and electrical and electronics (E&E) industries as well as the rising adoption of solar energy on the path towards greener environment.
“The upside could be limited on the back of China’s moderate economic growth and the ongoing conflict in the Middle East region would be a risk factor for the volatility in tin prices.”
Meanwhile, on MSC’s level, the research house expected higher efficiency from lower operational and manpower costs with its energy saving initiatives in the Pulau Indah plant.
“The Butterworth smelting plant will be gradually decommissioned by mid-2024 and the group anticipates cost savings of up to 30%.”
It added: “The risks to our recommendation include the volatility in the tin prices which affect average selling prices and margins and foreign exchange fluctuations as the tin prices are traded in USD.”
