Malaysia Smelting Corporation Bhd’s (MSC) recorded 1QFY24 core net profit of RM18.3m (+66% QoQ, -48% YoY).
Malacca Securities (MSSB) said today (May 27) that although the core PATMI amounting to 19% and 17% of MSSB’s and consensus estimates of RM95.4m and RM110.5m, respectively, MSSB deems it is broadly within expectation as earnings could be back loaded following the recent rally in tin prices.
MSSB upgrades MSC to HOLD (from Sell), with a higher TP of RM3.40 (from RM1.82) and kept their forecasts unchanged. MSSB believes the TP is justified at the industry is in a commodity upcycle phase with rising investments in the EV, Solar and E&E and the recent China recovery. The ongoing supply constraints of tin ore in Indonesia and Myanmar and the highly correlated MSC price with tin price despite earnings volatility may drive the P/E elevated going forward.
In 1Q24, revenue dropped 10% to RM362.5m due to lower sales quantity of refined tin and lower smelting revenue, but the core PATMI jumped 66% to RM18.3m as higher average tin price of RM124.9k/MT (4Q23: RM116k/MT) was observed during the quarter. Also, the smelting arm recorded a net profit of RM9.9m due to favourable tin price movements and forex gains.
Revenue saw an increase of 7% as compared to 1Q23 due to higher average tin price. However, core PATMI plunged -48% mainly due to the absence of sale of refined tin derived from the processed tin intermediates and sale of by-products, and lower smelting revenue. Meanwhile, the tin mining segment recorded softer profit due to lower tin production quantity.
MSC will be relocating entire smelting operations from Butterworth (will be decommissioned by 2025) to Pulau Indah and the group anticipates cost savings of up to 30% due to higher efficiency from lower operational and manpower costs, and its energy saving initiatives. Meanwhile, the subsided tin ore supply disruption at Wa State, Myanmar, coupled with the Indonesian Government lifting restrictions on their tin export may bode well for the group.
MSSB believes the LME 3-month Forward Tin price have turned more positive, trading above USD33k/MT at this moment after hovering sideways during Aug-Dec 2023. MSSB expects the tin prices to have limited downside risk with the support from surging demand in EV and E&E industries as well as the rising adoption of solar energy on the path towards a greener environment.
