Malaysia Smelting Corp Bhd (‘MSC’) is one of the largest, fully-integrated producers of tin metal in the world. In the last commodity boom in 2007, it ventured into other mining businesses, such as gold, coal and nickel. The collapse of the commodity bubble in 2008 hit the company quite badly & it's now in the process of divesting all these non-tin related ventures in order to pay down its high bank borrowings.
Recent Corporate Development
MSC has just proposed to a secondary listing of its shares on the Singapore stock exchange. The proposed secondary listing is viewed as an avenue to increase the trading activity of MSC shares as well as to provide an alternative market for MSC to raise funds for working capital purposes. MSC is a 73.12%-owned subsidiary of The Straits Trading Company Ltd, a company listed on the Singapore stock exchange. For more, go here.
Recent Financial Results
In the latest results for QE30/6/2010, MSC reported a net profit of RM8.0 million- an increase of 14% or RM1.0 million over the net profit achieved in QE30/6/2009 as well as a turnaround from a net loss of RM29 million incurred in the immediate preceding quarter (QE31/3/2010).
The improved net profit was mainly due to lower interest expense, satisfactory performance in the Malaysian operations & higher contributions from its investment in the Rapu Rapu polymetallic project in the Philippines.
Table 1: MSC's last 8 quarterly results
Chart 1: MSC's last 18 quarterly results
Valuation
MSC (closed at RM3.80 on September 15, 2010) is now trading at a PE of 9 times (based on annualized EPS of 42.4 sen) or at a Price to Book of 1.1 times (based on NTA per share of RM3.58 as at 30/6/2010). At these multiples, MSC is deemed reasonably priced.
Technical Outlook
MSC is now resting on the horizontal support of RM3.80. The stock has been rising within a bearish (or, rising) wedge, with resistance at RM4.20-4.25. A breakout above that signal the start of MSC's upleg with first strong resistance at the horizontal line at RM5.50.
Chart 2: MSC's weekly chart as at Sept 13, 2010 (Source: Tradesignum)
MSC should rise in tandem with the rise in the price of tin. In first half of 2008, when tin price spiked up to USD25000, we saw a sharp rise in MSC to above RM9.00. Currently, tin price is rising again after it broke above the horizontal resistance at USD21500-22000 last week. Tin closed at USD23500 on LME yesterday. Further rise in tin price is likely & this should be the catalyst for a play in MSC.
Chart 3: MSC & Tin's weekly chart as at Sept 1, 2010 (Source: Tradesignum & LME)
Conclusion
Based on improved financial performance, higher prices for tin & possible excitement from a dual listing of the stock on SGX, MSC could be a good stock for medium-term investment.
Dear Alex,
ReplyDeleteWhat is your views on APB and DRB Hicom?
Thanks in advance
Good day Alex,
ReplyDeleteAppreciate your insight on SMI and KENCANA?
Dear Alex,
ReplyDeleteMay i ask your view on direct sale company between Amway and Hai-O ?In term of their management team, business strategy and investor attractive value.
For age of 35. i supposed not to keep all saving in bank only. For stock market defensive counter. Can i know if Digi is one of the top pick?
Appreciate your generosity and kind sharing.
AL
Hi ThomasKG
ReplyDeleteDRBHicom's recent financial results is quite encouraging with pre-tax profit of RM223 million. After excluding a negative goodwill of RM71 million, its operating profit is fairly substantial at RM152 million. If it can maintain this level of operating profit, it may hit a full-year EPS of 20 sen. As such, DRBHicom (at RM1.20 now) is now trading at a reasonable PE of 6 times.
APB's financial performance has deteriorated as compared to last year. For 9-month ended 30/6/2010, it recorded a EPS of 2.36 sen- giving an annualized EPS of 3.15 sen for FY2010. Based on last Friday's close of RM1.06, it's trading at a PE of 33 times. That's too demanding.
Chartwise, APB is coming to its horizontal support of RM1.00 & immediate resistance at RM1.15 while DRBHicom's support is at RM1.15 and it's testing its resistance at RM1.20.
Hi solomon
ReplyDeleteSMI broke above 2 strong resistance at RM0.25 & RM0.30 recently. It's now resting on the RM0.30 support. Its next resistance levels are at RM0.34 & RM0.38.
KENCANA is in a short-term uptrend line, with support at RM1.55. Its resistance is at the horizontal line of RM1.65 & then at RM1.75.
Please check on the financial performance before pulling the trigger.
Hi Ai Ling
ReplyDeleteFor the detailed analysis on Haio & Amway, you should get a full report from your remisiser. My technical take on the two stocks are:
1) Amway may have hit its target of about RM8.00 after breaking to the upside of its expanding triangle at RM6.80.
2) Hai-O is still in a downtrend line with breakout at RM3.60-65. The recent rebound has run its course & the stock is now sliding lower. It may find support within at either the psychological level of RM3.00 or the support of the parallel line (to the downtrend line) at RM2.85.
Digi is a well-run company. Based on its closing price of RM24.70 on Friday, Digi is traidng at a PE of 17 times (FY2010 EPS forecast to be about 143 sen). The stock has an attractive dividend yield of about 7.2%. A good entry would be about RM22-23.00.