Summary

• Below expectations. Malaysia Smelting Corporation Bhd’s (MSC) 3QFY23 core net profit came in at RM11.8m, which bring the sum to RM75.7m for 9M23. The core earnings was below expectations, only accounts to 60% and 68% of ours and consensus estimates of RM125.6m and RM110.5m, respectively. Key deviations were due to (i) lower-than-expected utilization rate in the Pulau Indah plant and (ii) softer-than-expected sales in the refined tin for 3Q23.

• YTD. For 9M23, cumulative net profit stood at RM75.7m (+4.0% YoY). The higher profit was due to better performance contributed by the higher profits from increased sales of refined tin derived from the processed tin intermediates and higher sales of by-products and smelting revenue. However, the overall average tin price was lower at RM118.8k/MT for 9M23 vs. RM148.8k/MT in 9M23.

• YoY. Higher revenue was recorded in 3Q23 due to higher average tin price of RM123.8k/MT vs. RM104.7k/MT in 3Q22. Core net earnings stood at RM11.8m as compared to -RM31.3m in 3Q22 thanks to higher average tin price and sales quantity of refined tin. The tin smelting segment had narrowed down the loss after tax to -RM2.7m from –RM46.0m as there were sharp decline in tin price and longerthan-expected furnace outage at Pulau Indah plant due to logistic delay to secure specialized fire rated furnace bricks during 3Q22.

• QoQ. Core net earnings fell 58% QoQ from RM28.4m in 2Q23, no thanks to the tin smelting segment which recorded a loss after tax of –RM2.7m, despite higher average tin price.

• Outlook. On the mining segment, we believe the MSC will focus on improving and increasing daily mining output and productivity. Meanwhile, for the smelting segment, it will be supported by better production efficiency and lower operational cost from the state of art technology at the Pulau Indah plant. Besides, the Butterworth smelting plant will be gradually decommissioned by mid-2024 and the group anticipates cost savings of up to 30%.

• Tin prices outlook. We gather that tin prices continues to demonstrate a sideways trend, trading between USD25,400-26,800/MT over the past 3 months. We expect that tin prices may hover at current range and to average c.USD26,000/MT as the outlook could be supported by the EV demand and ongoing adoption of solar energy (solar PV).

Valuation & Recommendation

• Downward revision of core earnings. Following the softer-than-expected reported numbers, we reduced the core net earnings forecast by 19.1%, 8.2% and 1.6% to RM101.6-108.5m for FY23-25f, adjusting for the lower sales in the refined tin segment going into 2024 and factoring in marginally lower operating expenses moving forward.

• Maintained Hold, with lower TP of RM2.02. With the downward revision of the earnings forecast, we reduced the target price to RM2.02 and maintained a HOLD recommendation on MSC. Our target price is based on an assigned target PER of 8.0x to its FY24f EPS of 25.2 sen.

• Risks to our recommendation include the volatility in the tin prices which affect average selling prices and margins. Foreign exchange fluctuation risk - given that the tin prices are traded in USD and MSC purchased most of their raw material from other miners.

Source: Mplus Research - 20 Nov 2023