Malaysia Smelting downgraded to ‘sell’ with tin price under pressure

MALAYSIA Smelting Corp Bhd (MSC) has been downgraded to a ‘sell’ with a much lower 52-week target price of RM1.40 on concerns with tin prices expected to remain under pressure in the near term.

In a research report released today, Affin Hwang Investment Bank Bhd (AHIB) said MSC’s share price has a correlation of 0.93x with tin prices, based on data from 2016 to current, and has yet to reflect the recent tin price decline in February 2023.

“We remain concerned on a weakened global economic environment which may hamper tin prices,” it said.

Its previous target price was RM2.10. The MSC counter was trading at RM1.95 at 11am today.

In an exchange filing on Feb 17, MSC posted a net profit of RM25.89 million for the fourth quarter ended Dec 31, 2022 (4Q22), down 60% for the same period a year earlier, on turnover of RM391.15 million.

For the full year, MSC posted a net profit of RM93.36 million, down 17% from the year before, on RM1.50 billion in turnover.

In the research note, AHIB said that tin prices are expected to remain under pressure in the near term, with the global demand outlook weakening substantially amidst weakening macroeconomic fundamentals and a strengthening of the US dollar.

Quoting Fitch Solutions, it said a combination of demand-side factors has led to a major decline in prices, with economic indicators such as elevated inflation implying a weaker consumer spending on electronics (a major source of tin demand).

On the supply side, it said the San Rafael mine in Peru is restarting its operations, following January’s supply disruptions. San Rafael is a leading tin producing mine in South America and the third in the world, producing c.9% of the world’s tin.

It said that London Metal Exchange (LME) tin prices have come down  about 30% to the US$22k/mt range, from the peak back in late-January 2023.

It said tin prices started rising back in December 2022 through January 2023, as China announced its intention of reopening its economy, followed by the supply disruptions of the San Rafael mine. – TMR