MSC: Earnings Soared As Tin Prices Made New Historical High

Results Update

For QE31/12/2021, MSC's net profit rose 121% q-o-q or 329% y-o-y to RM64 million while revenue rose 16.7% q-o-q or 9.7% y-o-y to RM255 million.

Revenue rose y-o-y due to higher tin price has negated the drop in refined tin production quantity as a result of continued operation disruption from the declaration of force majeure because of coronavirus-related disruption to production. The force majeure, which has been in force since 7 June 2021 (here), had been lifted on 20th December 2021 (here).

The Group recorded a profit before tax of RM85.2 million in 4Q 2021 as compared with RM20.5 million in 4Q 2020, mainly due to higher average tin prices of RM158,267 (4Q 2021) as compared with RM76,870 (4Q 2020) per metric tonne. 

The tin smelting segment recorded a profit before tax of RM13.9 million in 4Q 2021 as compared with RM17.8 million in 4Q 2020, mainly due to the absence of a reversal of inventories written down of RM21.1 million that was recorded in 4Q 2020. The tin smelting segment has also benefited from higher profit margins from sales of refined tin derived from its tin intermediates, and also from higher average tin prices. 

The tin mining segment recorded a profit before tax of RM57.9 million in 4Q 2021 as compared with RM11.4 million in 4Q 2020, mainly due to higher average tin prices in 4Q 2021. 

The Group’s share of results of associates and joint ventures recorded a net share of profit of RM1.0 million in 4Q 2021 as compared with a net share of loss of RM4.1 million in 4Q 2020.

Table: MSC's last 8 quarterly results


Graph; MSC's last 60 quarterly results

Tin Price Movement

Like prices of many commodity, tin prices rose sharply after the start of the pandemic, from a low of USD13,350 in March 2020 to the current price of USD44,200. The sharp price rally is driven by increased demand for tin used in the production of electronics and electrical products coupled with constrained supply due to the COVID-19 pandemic. Any change in this supply & demand dynamics will have an impact on the prices of tin. 


Chart 1: Tin price chart as at 18 Feb 2022 (Source: Investing.com)

Valuation

MSC (closed at RM4.08 last Friday) is trading at a PE of 14 times (based on the last 4 quarters' EPS of 28.50 sen). As such, MSC is deemed fairly valued.

Technical Analysis

MSC rose sharply after it broke above the line connecting its peaks from 2011 to 2020 (R1-R1) at RM1.00 in December 2020 (see Chart 2). This bullish breakout sent the share price to a high of RM2.93 in February 2021. Thereafter, the share prices consolidated until October 2021 under the downtrend line, RR (see Chart 3). In middle of October 2021, MSC broke above the downtrend line, RR at RM2.50 and the uptrend resumes.

Chart 2: MSC's monthly chart as at Feb 18, 2022 (Source: isaham.my)

Chart 3: MSC's daily chart as at Feb 18, 2022 (Source: isaham.my)

Conclusion

Based on good financial performance, fair valuation & bullish technical outlook, MSC could be a good stock to ride the rally in tin prices. 

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.