Malaysia Smelting Corporation Bhd (Trading Buy)

• As a global integrated tin mining and smelting group, MSC is a proxy to soaring tin prices. Global tin prices have jumped 69% YTD to USD34,750/MT currently (off the record closing peak of USD36,594/MT in mid-August) in tandem with the growing demand for tin (which is used as solder in semiconductors, electronics, solar photovoltaics and lithium-ion batteries etc).

• With exposure covering both the upstream (i.e. tin mining) and downstream (namely tin smelting) activities of the tin value chain, the group saw its bottomline turning around from net loss of RM12.3m in 1HFY20 to net profit of RM25.1m in 1HFY21 as average tin prices surged 65% YoY to RM111,450/MT on higher tin production quantity during the period.

• This comes after 2QFY21 turned in net profit of RM2.9m (+228% YoY) despite the interruptions in its operations due to the imposition of full movement control order (FMCO) by the government starting from 1 June 2021.

• Whilst 3QFY21 might still be affected by the FMCO impact, the stronger average tin prices of USD34,542/MT quarter-to-date (which is above 1HFY21’s average of USD28,249/MT) is expected to lift its forward quarterly earnings.

• Meanwhile, the group’s cost and operation efficiencies will be enhanced when its new and modern Pulau Indah smelting plant (which will see a 50% capacity increase and 30% cost savings) is fully commissioned by end-2021 / early-2022.

• Technically speaking, after sliding from a high of RM2.85 in early May to a low of RM1.73 in late June this year, MSC shares have subsequently bounced off the 50% Fibonacci retracement line and plotted a sequence of higher lows and higher highs.

• With the stock now treading near the lower boundary of the ascending price channel and above the 200-day SMA line, the rising momentum indicator (which has just crossed the zero-line) is signalling the share price could extend its uptrend ahead.

• On the way up, MSC shares will probably advance towards our resistance thresholds of RM2.70 (R1; 16% upside potential) and RM2.90 (R2; 24% upside potential).

• We have pegged our stop loss price at RM2.00 (representing a 14% downside risk from yesterday’s close of RM2.33)

OpenSys (M) Bhd (Trading Buy)

• A technical breakout from an ongoing consolidation pattern could be on the cards for OPENSYS shares after moving sideways since mid-June this year.

• In particular, an upward shift in the share price is anticipated following: (i) the formation of a positive MACD divergence pattern (as the MACD lines were trending up while the stock has been flattish), and (ii) the momentum indicator cutting above the zero-line (thus triggering a buy signal).

• Riding on the renewed strength, we reckon the stock will likely climb to challenge our resistance targets of RM0.50 (R1; 19% upside potential) and RM0.56 (R2; 33% upside potential).

• Our stop loss price is pegged at RM0.36 (or 14% downside risk).

• Business-wise, OPENSYS has four revenue models, namely: (i) outright sales of cash recycling machines and cheque deposit machines to financial institutions, (ii) software development services, (iii) outsourcing services via the deployment of bill payment kiosks to utility, insurance and telecommunication companies, and (iv) maintenance services of the machines. The group also runs a dedicated online solar energy platform (buySolar), which is an online marketplace for renewable energy focussing on solar solutions and financing.

• Amid the challenging economic environment, OPENSYS posted net profit of RM2.8m (+7% YoY) in 2QFY21, bringing its cumulative earnings to RM4.6m (+9% YoY) for the 6-month period ended June 2021.

• And with net cash & short-term investments standing at RM40.6m (or 9.1 sen per share) as of end-June this year, the group remains in a financially steady position.

Source: Kenanga Research - 14 Sept 2021