Integrated producer of tin metal and tin-based products. Listed in 1994, Malaysia Smelting Corporation Berhad (MSC) is currently one of the world's leading integrated producers of tin metal and tin-based products and a global leader in custom tin smelting. Through its 80% owned subsidiary RHT, MSC operates the largest hard rock open-pit tin mine in Malaysia, located in Klian Intan, Perak. For its tin smelting operations, MSC will gradually phase out its Butterworth Smelter and migrate its operations to the new smelting plant in Pulau Indah (with 50% higher smelting capacity of 60k/mt) and lower production cost (c.20% cost savings).

Bumpy road ahead but likely to trend sideways after recent slump. To recap, tin prices made a U-turn after hitting an all-time high of more than USD50k in March as global demand was dampened by aggressive monetary policy tightening in most major economies and China's (the world's largest tin-consuming country) zero Covid-19 policy. Market consensus expects tin prices to stay fragile in the near term, given the weak macro environment. In such a lacklustre sentiment, MSC's share prices has slid 62% from the 52-week high of RM5.45 to RM1.98 yesterday as market fears further earnings downgrade. However, we reckon this will be partially cushioned by (i) higher mining output and efficiencies (FY22 target: 12mt/day vs 1QFY22 9.5mt/day) and (ii) improve yield and cost savings in the smelting segment on the back of the operations of Pulau Indah smelter; (iii) the appreciation of USD against ringgit (leads to higher average tin prices in MYR terms).

Long run: supported by robust tin outlook. In the long run, the demand for tin will remain robust, given its key component in the technology era, including the fast growing adoption of electric vehicles and solar PV. Meanwhile, tin supply might deteriorate following the thin pipeline of tin mining projects coupled with Indonesia's ( 2nd largest tin exporter) government planning on stopping its tin export, causing a structural supply deficit and supporting tin prices. With this, we reckon long-term tin prospects remain intact and advocate a buy-on-weakness stance for MSC.

Building a base. Technically, MSC is building a base near the RM1.80-1.95 long-term support area. A decisive breakout above RM2.36 will form a double bottom and spur the price toward RM2.77-3.00. Cut loss at RM1.66.

Source: Hong Leong Investment Bank Research - 18 Aug 2022