Malaysia Smelting Corp (MSC) turned around in 1QFY12, although its RM5.7m core net profit represented only 6.5%
of our full-year estimates. We expect
its smelting plant and mining operation in Malaysia to continue to
generate promising return. However, PT Koba Tin is still mired in losses arising from the closure of expensive pits,
which led to lower tin volume and higher unit costs. We see the losses easing
on the commissioning of cheaper pits but the renewal of its mining right
remains a hurdle. We see its associate
contribution improving after the resolution of shipment issues encountered in
1Q. Hence we maintain our BUY recommendation, with a FV of RM5.60.
Turning around in
1QFY12. MSC swung back to the black in 1QFY12 with a core profit of RM5.7m
compared with a core loss of RM21m in the preceding quarter. Although the company’s bottomline only met 6.5% of our full-year estimates when
annualised, we deem the results within our expectation, which already factors
in a weaker start for 2012. Meanwhile,
its revenue was largely in line
owing to higher sales at its
Butterworth smelting plant.
Malaysia op chalks up
good returns. On the back of strong volume, MSC’s smelting plant in
Butterworth in Penang posted another robust quarter, with a PBT of RM29.8m. As
we indicated earlier, the smelting business has always been solid and
stable unit, performance mainly reliant on
its plant utilization rate. Separately, its tin mining operation in
Perak achieved moderately good results, posting a PBT of RM10.1m during the
period. Meanwhile, Rahman Hydraulic Tin (RHT) managed to maintain its tin
mining output at 535 tonnes q-o-q, which mitigated the impact of the lower
average tin price of USD22,900 a tonne compared with our assumption of 24,000
for 2012. Moving forward, we expect the sound performance of its Malaysian
operation to continue and remain the group’s main income generator.
PT Koba Tin’s losses
narrow. MSC’s Indonesia operation remained in the red with a loss of
RM27.9m despite a recovery in tin price from an
average of USD20,800 to USD22,900 a tonne q-o-q. The management’s
on-going efforts to turn around this unit have seen the
progressive closure of expensive pits, which led to lower tin volume in 1QFY12. Given
PT Koba Tin’s legacy of high
fixed cost of USD2.5m per month, the lower volume translated into higher units, and consequently a huge loss. With its turnaround plan well in
progress plus the commissioning in stages of its cheaper costcum-higher quality
pits, we expect this subsidiary’s losses to ease in the upcoming quarters. Nonetheless, the major
hurdle remains in the ability of its new business partner to secure an
extension of its mining rights, which are due to expire in March 2013.
Source: OSK188
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