MSC to ride on tin price recovery

Background

Malaysia Smelting Corp Bhd (‘MSC’) is one of the largest, fully-integrated producers of tin metal in the world. It diversified into gold, coal, nickel and base metal mining activities in early 2008. This was an error & the company has since "focused its efforts on cost rationalization and reduction as well as working on various alternatives to reduce its overall gearing including possible divestments of some of the Group’s non-tin assets".

We are taking a fresh look at MSC since tin prices had recently achieved a bullish technical breakout, which may signal a new upleg for MSC. For my first posting on MSC, go here.

Recent Financial Results

MSC's financial performance has slowly improved after the huge loss suffered in QE31/12/2008. Of the pre-tax loss of RM80.3 million recorded in that quarter, RM57.0 million came form provision for impairment loss & write-off & another RM20.3 million due to loss in exchange in USD borrowings.


Table: MSC's 8 quarterly results


Chart 1: MSC's last 15 quarterly results

Valuation

MSC (closed at RM3.55 yesterday) is now trading at a PER of 8.5 times. This was arrived at by using the annualized EPS for QE30/9/2009 & QE30/6/2009 totaling 21 sen. This PER is expected to decline as MSC's earning improves in line with higher prices of tin.

Outlook for Tin

From Chart 2 below, we can see tin prices had just broken to the upside of its triangle formation last week. From Chart 3 below, we can the close correlation in the movement of MSC's share price & the price of tin. At the end of 2006, both MSC & tin has a technical breakout & rose sharply. The present technical breakout in tin may lead to a breakout in MSC (see Technical Outlook below).


Chart 2: Tin daily price chart as at Dec 29, 2009 (source: London Metal Exchange)


Chart 3: MSC's monthly chart & Tin weekly price chart as at Dec 29, 2009 (source: Tradesignum & London Metal Exchange)

Technical Outlook

From Chart 4 below, we can see that MSC will face stiff resistance at RM3.70. A break above this level could be the start of the upleg for this stock. The next resistance is at RM3.90-4.00 (see Chart 5 below).


Chart 4: MSC's weekly chart as at Dec 29, 2009 (Source: Tradesignum)


Chart 5: MSC's monthly chart as at Dec 29, 2009 (Source: Tradesignum)

Conclusion

Based on the above, MSC could be a good stock for medium & long-term investment. A break above RM3.70 could signal the start of the upleg for MSC.