Malaysia Smelting Corporation

Transcription

PP10551/09/2012 (030567)
17 Apr 2012
MALAYSIA EQUITY
Investment Research
Daily
Initiating Coverage
Jerry Lee
+60 (3) 9207 7622
[email protected]
Malaysia Smelting Corporation
Ng Sem Guan, CFA
+60 (3) 9207 7678
[email protected]
Tin is in
BUY
RM5.60
RM4.21
Fair Value
Price
METAL
Malaysia Smelting Corporation is a leading
integrated producer of tin metal and tin-based
products and a global leader in custom tin
smelting. The company is also involved in tin
mining through its subsidiaries.
Stock Statistics
Bloomberg Ticker
SMELT MK
Equity
Share Capital (m)
100.0
Market Cap
421.0
52 week H | L Price
5.72
3.49
3mth Avg Vol (000)
129.8
YTD Returns
5.5
Beta (x)
0.82
Shariah Compliant
YES
Major Shareholders (%)
Straits Trading
53.9
Share Performance (%)
Month
Absolute
1m
1.0
3m
-0.9
6m
9.4
12m
5.4
Relative
-0.7
-7.5
-0.5
-3.1
6-month Share Price Performance
4.70
4.50
4.30
4.10
3.90
3.70
3.50
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
Malaysia Smelting Corporation (MSC), one of the world’s leading integrated
producers of tin metal products, is set to derive steady income from its custom tin
smelting and mining operations in Malaysia and Indonesia. That said, the group’s
long-term value will be enhanced by efforts to acquire new tin assets and divest its
remaining non-tin assets. Assuming the worst-case scenario for its foreign mining
concessions, as well as an aggressive WACC for its tin smelting and mining DCF and
a moderate BV on its non-tin business, we arrive at a SOP-based FV of RM5.60. We
initiate coverage on MSC with a BUY rating.
Century-old integrated tin player. With a history dating back to 1887, MSC is the world’s
second largest tin metal producer with a combined installed capacity of 60,000 tonnes per
year (tpy) at its facilities in Penang, Malaysia and Bangka Island, Indonesia. The Penang
plant, the group’s cash cow, is expected to grow at a moderate pace in tandem with the
addition of refined capacity and increasing tin concentrate supply from Central Africa.
Leveraging on favourable tin market cycles via mining. In 2002, MSC moved upstream
after acquiring a 75% stake in PT Koba Tin, which has a Contract of Work (CoW) to mine tin
in a concession area of 41,700ha in Bangka Island. MSC’s wholly owned Rahman Hydraulic
Tin SB (RHT), which it acquired at end-2004, has a tin mining lease for a 601ha concession
area in Perak, Malaysia. This local mine has confirmed resources that can last almost until
the end of the lease period in 2030, which will enable RHT to benefit from any upcoming upcycles in tin prices. Although our valuation assumes that the PT Koba Tin CoW will expire in
March 2013, MSC has brought in a new Indonesian partner which will eventually turn the
unit into a locally controlled entity, a move that will augur well for a potential extension of the
mining lease for 10 more years, plus other benefits.
Value accretion set to materialise. MSC is still pursuing opportunities to expand its tin
resources in Malaysia and Indonesia, and has identified several prospective tin mineralized
areas for exploration and development. Discussions are also ongoing in relation to possible
acquisitions of suitable tin assets. The group is also evaluating several tin prospects in the
Democratic Republic of Congo (DRC), which has been a significant source of tin
concentrates for the group. As potential new mines are not incorporated into our earnings
model, any new concession awarded to MSC will definitely boost its valuation. This aside,
the divestment of non-tin assets that kicked off in 2009 has come to its tail end, with only a
few assets remaining to be hived off. After a few rounds of impairment for some of its lossmaking entities (which resulted in only their nominal values being recorded in MSC’s
books), its other businesses still offer decent returns. This reinforces our view that the group
will see upside surprises moving forward.
FYE Dec (RMm)
FY09
FY10
FY11
FY12F
FY13F
Revenue
Core Net Profit
% chg y-o-y
Consensus
EPS
DPS
Dividend yield (%)
ROE (%)
ROA (%)
PER (x)
BV/share
P/BV (x)
EV/EBITDA (x)
1,851.7
7.4
269.1
9.8
3.0
0.7
2.2
0.6
43.3
4.9
0.9
10.7
2,738.8
74.2
909.4
99.0
4.0
0.9
23.5
6.1
4.3
3.5
1.2
8.1
3,098.6
85.8
15.6
85.8
30.0
7.1
24.8
6.9
5.0
4.3
1.0
4.7
3,079.1
88.0
2.6
88.0
29.3
6.9
19.1
6.9
4.8
4.9
0.9
6.0
2,985.9
83.3
-5.3
83.3
16.4
3.9
16.3
6.7
5.1
5.3
0.8
5.9
OSK Research | See important disclosures at the end of this report
1
OSK Research
RENOWNED INTEGRATED TIN MINING AND SMELTING GROUP
A veteran tin player. Malaysia Smelting Corporation (MSC) is currently one of the world’s leading integrated
producers of tin metal and tin-based products and a global leader in custom tin smelting since 1887. In 2011,
the group produced 46,599 tonnes of tin metal and thus, maintaining its global position as the second largest
supplier of tin metal. With a dual listing on both sides of the causeway, MSC was listed on the Main Market of
Bursa Malaysia on 15 Dec 1994 and the Main Board of Singapore Exchange (SGX) on 27 Jan 2011.
Century-old tin smelter. MSC started off as an integrated refined tin metal producer in Malaysia and
Indonesia. It was primarily engaged in the business of custom tin smelting, which involves processing tin
concentrates into refined tin metal. The first smelting facility was established in Singapore in 1887 and the
second facility was built in Butterworth, Penang in 1902. Both facilities ran concurrently for many years until the
closure of the Singapore unit, while the Butterworth unit was rebuilt and restarted in 1955 after it was heavily
damaged during the Second World War. In 2002, MSC acquired PT Koba Tin in Indonesia and increased the
number of reverberatory furnaces to four with an expanded smelting capacity of 25,000 tpy. Together with its
Butterworth facility, the smelting division now has an overall smelting capacity of about 60,000 tpy in two
countries. Being the world’s oldest and biggest custom tin smelter facility, the Butterworth plant now takes in
primary and secondary tin concentrates as well as crude tin metal from customers located all over the world.
An integrated tin producer ventures into mining. MSC also undertakes mining activities in Hulu Perak,
Malaysia, via its wholly owned subsidiary Rahman Hydraulic Tin SB (RHT), and Bangka Island, Indonesia, via
its 75%-owned subsidiary PT Koba Tin. RHT owns a mining lease to mine for tin in a concession area of
approximately 601.0ha in Perak until 2030. On the other hand, PT Koba Tin holds the sole and exclusive rights
under a Contract of Work (CoW) with the Indonesian Government to mine for tin in a concession area of
approximately 41,700ha at Bangka Island until 2013. Besides, there are ongoing due diligence exercises and
discussions being carried out with Democratic Republic of Congo (DRC) authorities that will possibly enable
MSC to expand its mining operations into Central Africa. The group is also aggressively pursuing discussions
with various state governments in Malaysia and Indonesia for potential new mining concessions.
Refocus on tin. The group has embarked on a vigorous diversification strategy in 2007 with the aim of
transforming itself from a single commodity-focused business to a global resource-based organisation in the
Asia-Pacific region in the metal and mineral space. However, following the massive credit crunch triggered by
the 2008 global financial crisis, MSC’s Board in 2009 decided to divest its non-tin business and refocus on its
core tin business to strengthen its balance sheet by lowering its gearing ratio. Over the years, MSC has
successfully disposed most of its non-tin assets. We believe the group’s niche expertise in tin is continuously
being strengthened, thanks to its exposure to key areas in the entire global tin supply chain, covering geology
survey, mining, mineral processing, smelting, marketing, resource management and financing.
Cleaner balance sheet post-divestment. Meanwhile, we are excited about MSC’s progress in divesting its
non-core assets and this strategic decision has resulted in its balance sheet looking cleaner and leaner now.
Presently, only KM Resources (KMR) (in which MSC has a 30.0% stake) and Asian Mineral Resources Limited
(AMR) (15.4% stake) remain the key non-tin business associates to be hived off by MSC. Although KMR has
been performing well and contributing significant earnings to the group’s bottom-line, MSC is on the lookout for
suitable buyers for this unit. This in line with the Board’s divestment decision but MSC would only sell this
associate at a price that does not compromise the interests of its shareholders. On the other hand, AMR has
entered into a Share Subscription Agreement with Pala Investment Holdings that will dilute the MSC’s stake in
AMR from 15.4% to 11.4% and subsequently to 10.1% upon the completion of the agreement.
Figure 1: Progress of divestment of non-tin assets
Company
BCD Resources, Australia
Asian Mineral Ltd, Vietnam
KM Resources Inc, Philipines
Australia Oriental Minetals, Australia
Asiatic Coal Pte Ltd, Indonesia
Stake
22.1%
15.4%
30.0%
76.9%
53.0%
Commodity
Gold and copper
Nickel
Copper, zinc, gold and silver
Gold , tin and base metals
Coal
Divested in
2010
On going
On going
2011
2011
Source: Company. OSK Research
2
OSK Research
CHEAP VALUATION UNWARRANTED
Tin – a niche metal with few niche players. Tin has an annual world consumption of only 366,400 tonnes in
2011, with almost 70% produced by the top ten smelters and thus, MSC has not many direct peers. With MSC
being the second largest producer, we felt compelled to provide some information on the largest and third
largest smelters in the world – which also happen to be MSC’s closest global listed peers – as follows:
1.
Yunnan Tin Co Ltd (000960 CS)
Yunnan Tin Co. Ltd has the largest production and manufacturing base in the world for tin and
the largest production centre for tin profiles, tin chemicals and arsenic chemicals in China. The
company produced 56,174 tonnes of refined tin in 2011 and sells its tin products under the YT
trade mark. Yunnan Tin was listed on the Shenzhen Stock Exchange with a market
capitalization of USD3,281m.
2.
PT Timah (Persero) Tbk (TINS IJ) – NEUTRAL, FV: IDR1900
PT Timah (Persero) Tbk is an Indonesian state-owned enterprise that is engaged in tin mining.
As the largest tin mining company in Indonesia and one of the world’s largest exporters, PT
Timah has tin mining rights for a total area of 522,460ha, with a total number of 114 onshore
and offshore mining licences that cover the existing Indonesian Tin Belt of Bangka Belitung
Province and Riau Archipelago Province. PT Timah was listed on the Jakarta Stock Exchange
with a market capitalization of USD959.6m.
Deep discount to peers unwarranted. Despite MSC being the second largest refined tin producer in the
world, we find its valuation, be it on a book value or PER basis (see Figure 2), a lot cheaper relative to the
other players in the top three list. We reckon that MSC has the smallest income base among its peers because
of its smaller income stream from tin mining activities. Nonetheless, it enjoys a stable income stream from one
of the world’s most efficient smelting plants as well as escalating contributions from mining activities. When
these factors are coupled with the prospect of the company acquiring more tin mine assets, we think MSC
deserves further rerating.
Figure 2: MSC’s global peers
Company
Yunnan Tin
PT Timah
MSC
Ticker
Country
000960 CS China
TINS IJ IDR Indonesia
SMELT MK Malaysia
Analysts'
Recommendaiton
10 BUY; 2 HOLD
4 BUY; 7 Hold; 1 Sell
1 HOLD
Market
Cap
(USDm)
3281.0
959.6
139.2
Price
(USD)
3.61
0.19
1.39
Target
Price
(USD)
4.67
0.21
1.84
AVERAGE
PER (x)
FY1
FY2
24.6
19.0
8.2
7.6
4.9
5.2
12.6
10.6
EPS Growth (%)
FY1
FY2
19.0
29.8
19.6
8.0
0.0
-0.1
12.9
12.6
P/BV (x)
FY1
FY2
3.8
3.3
1.7
1.5
0.8
0.8
2.1
1.9
ROE (%)
FY1
FY2
16.6
17.3
21.9
21.5
18.8
16.1
19.1
18.3
EV/EBITDA (x)
FY1
FY2
17.5
18.5
5.2
4.5
6.0
5.9
9.6
9.6
Div Yield (%)
FY1
FY2
1.2
1.4
6.2
6.2
6.8
3.7
4.7
3.8
Notes: (1) MSC's figures are based on OSK Research's in-house Base Case valuation method
(2) PT Timah's figures are based on in-house research by PT OSK Nusadana with NEUTRAL/HOLD recommendation with FV IDR1,900 (USD0.21)
Source: Bloomberg, OSK Research Estimates
SOP is an appropriate methodology to value MSC. Considering that MSC group’s core business of tin
smelting, particularly its Butterworth plant, has been generating stable earnings stream with moderate growth
potential and its mining leases under RHT and PT Koba Tin have finite lease tenures, discounted cash flow
(DCF) is obviously an appropriate valuation method for the group. Nonetheless, since the group also has some
non-tin assets that are to be divested in the short to medium term, we felt compelled to incorporate their
respective book values (BV) as part of the group’s valuation. In view of all these factors, we decided to value
MSC based on sum-of-the-parts (SOP) methodology. The key factors and assumptions underlying our
valuation of MSC are as follows:
1)
We assume a moderate EBITDA contribution from its core business units in Malaysia (whose
details can be found in the next section of this report).
3
OSK Research
2)
3)
4)
5)
6)
We presume PT Koba Tin will wind up its mining operations after the expiry of its CoW in March
2013 with the group’s effective interest in the unit remaining at 75%. We also slashed RM34.1m
from our SOP as this amount represents the potential net loss to be borne by MSC in the event of
non-extension of the CoW. Note that such the occurrence of such an event could entail a possible
write-down of deferred expenditure which involves non-cash items.Although our WACC
calculation on MSC gives rise to a value of only 5.8%, we have decided to double the discount
factor to 11.6% (refer Figure 3) to take into account the poor liquidity of the counter plus the
uncertainty surrounding the extension of its Indonesian mining operations and the award of other
new mining leases.
For the sake of simplicity and considering the short remaining resource life for its 30%-owned
KMR, we will incorporate its BV into our SOP. We assume that in the worst case scenario, the
residual resources of mainly copper and gold that will be extracted over the next thrree years
should be enough to cover the cost for closing the mine. However, we note that there are ongoing
efforts to prolong the life of this mine via the discovery of additional resources.
Despite the consistent contributions of RedRing Solder SB to the MSC group, we will only
incorporate its BV given its annual contribution comes to less than a million ringgit.
Considering the BV of Guiling Hinwei Tin Co has now dwindled to RM2.5m after a few rounds of
impairments, we deem it safe to include this BV when calculating the SOP for MSC.
Lastly, we will incorporate the latest market value of Canadian-listed AMR of RM6.3m into our
SOP.
MSC is a BUY with FV of RM5.60. Although MSC is a leading global integrated producer of tin metal
products, we find its valuation undemanding relative to its peers of comparable size. The smelting plant in
Butterworth is not only efficiently run but also a cash cow that offers a solid and stable earnings stream.
Separately, its tin mining activities in Perak are set to benefit from favourable tin prices moving forward,
enabling the group to enjoy lucrative mining income until 2030. As our base case assumes the PT Koba Tin
mining lease will expire next year, any extension will indeed be a pleasant surprise. Furthermore, MSC has
also set its sights on disposing of its remaining non-tin businesses, a move that will allow the group to
maximise its value, especially in terms of BV. Assuming the worst case scenario for its foreign mining
concessions, together with an aggressive WACC for its tin smelting and mining DCF as well as a conservative
BV on other non-tin businesses, we arrive at a SOP-based fair value (FV) of RM5.60. Coupled with a decent
prospective dividend yield of 7.0%, the total expected return for MSC in the next 12 months comes to 33.0%.
Hence, we initiate coverage on MSC with a BUY rating.
Figure 3: MSC’s SOP Valuation
MSC Group
2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F
EBITDA
Butterworth Smelting
RHT
PT Koba Tin
129.4
75.9
52.0
1.1
126.4
77.6
48.6
0.2
124.6
79.0
45.7
119.3
80.2
39.1
111.9
79.3
32.6
112.0
80.3
31.7
111.5
80.6
30.9
110.9
80.9
30.0
110.3
81.2
29.2
109.8
81.5
28.3
109.2
81.8
27.4
108.6
82.1
26.5
108.0
82.4
25.6
107.4
82.7
24.7
106.8
83.1
23.7
106.1
83.4
22.8
105.5
83.7
21.8
104.8
84.0
20.8
99.2
84.4
14.8
84.7
84.7
Working capital requirement
-Tax
-74.2
-22.3
15.4
-5.4
15.9
-29.6
15.9
-28.3
16.1
-26.0
-4.1
-25.7
-0.4
-25.2
-0.4
-24.7
-0.4
-24.5
-0.4
-24.2
-0.4
-24.0
-0.4
-23.7
-0.4
-23.5
-0.4
-23.2
-0.4
-22.9
-0.4
-22.7
-0.4
-22.4
-0.4
-22.1
-0.8
-20.6
-1.4
-18.3
Operating Cash Flow
-Capex
32.9
-16.0
136.4
-6.0
110.9
-6.0
107.0
-6.0
102.0
-6.0
82.2
-6.0
85.9
-6.0
85.8
-6.0
85.5
-6.0
85.2
-6.0
84.8
-6.0
84.5
-6.0
84.1
-6.0
83.8
-6.0
83.4
-6.0
83.1
-6.0
82.7
-6.0
82.3
-6.0
77.9
-4.0
65.0
-2.0
16.9
16.9
130.4
116.9
104.9
84.2
101.0
72.6
96.0
61.9
76.2
44.0
79.9
41.4
79.8
37.0
79.5
33.0
79.2
29.5
78.8
26.3
78.5
23.5
78.1
20.9
77.8
18.7
77.4
16.7
77.1
14.9
76.7
13.2
76.3
11.8
73.9
10.2
63.0
7.8
Free Cash Flow
NPV of Free Cash Flow
Total NPV of Free Cash Flow
Terminal Value
-Net Debt
Total DCF (Tin Smelting & Mining)
701.4
70.9
-353.2
419.1
Book Value of KM Resources
Book Value of RedRing Soldering SB
Book Value of Guilin Hinwei Tin Co.
Market Capitalisation of AMR
Potential writedown of KOBA Tin
145.7
21.2
2.5
6.3
-34.1
Total SOP Value of MSC
560.6
MSC Fair Value
5.60
Cost of Equity Assumptions:
Risk Free Rate
Market Risk P remium
Stock Beta
Cost of Equity (Ke)
Weighted cost in WACC
=
=
=
=
=
3.6%
8.0%
0.88
10.6%
38.0%
WACC Calculation
=
5.8%
OSK Assumption:
WACC
Terminal Growth
=
=
11.6%
0.5%
Cost of Debt Assumptions:
Pretax Cost of Debt
Marginal Tax Rate
=
=
4.0%
30.0%
After Tax Cost of Debt (Kd)
Weighted cost in WACC
=
=
2.8%
62.0%
Source: OSK Research Estimates
4
OSK Research
LOOKING BEYOND OUR BASE CASE EARNINGS
Ups and downs of tin market. The onset of the subprime in the US in 3Q08 led to a rapid slowdown in the
world economy and triggered a plunge in the prices of commodities. Being an internationally traded
commodity, tin is obviously not spared from the effects of a global economic crisis. As a result of the global
financial crisis in 2008, MSC slipped into a core net loss in FY08 which is further aggravated by some
exceptional losses. While 2009 was another challenging year for MSC with LME tin prices averaging only
USD13,410 a tonne, the group managed to eke out a small core profit. However, tin prices did recover sharply
in 2010 and 2011 thanks to China’s (which is the largest producer and consumer of tin products) efforts at
pump priming its economy using a multitude of stimulus measures, including incentives to purchase white
goods. On the global front, the recovery of consumer demand for electronic items and the introduction of
swanky electronic gadgets have all led to increasing demand for tin-based solder. Following the recovery in the
demand for tin, MSC has been posting decent core net profits in the past few years.
RM million
Figure 4: Core earnings of MSC
100.0
30000
80.0
25000
60.0
20000
40.0
15000
20.0
10000
0.0
5000
2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
-20.0
0
Core Net Profit
Average Tin Prices
Source: Company. OSK Research
Healthier book after divestment losses and impairments. Although MSC’s timing to diversify its business
turned out to be untimely, we were impressed by the board and management’s speedy decision to
subsequently divest its non-tin investments. In the last two years, MSC has made several impairments to these
investments, which hit its bottom-line quite adversely. Nonetheless, MSC now has a healthier book with
improving gearing ratios, thanks largely to its decision to divest its non-tin assets and carry out the appropriate
impairments.
2011 core profit – a new base for MSC. While we acknowledge that MSC’s FY11 results were partly boosted
by high tin prices, the group also suffered from low tin prices in certain months that were further exacerbated
by the Indonesian Tin Association’s decision to impose a moratorium on tin exports effective from Oct 2011.
After balancing out positives with the negatives in 2011 and taking into account our projected average tin price
of USD24,000 a tonne for 2012 (before dropping gradually and then staying stagnant at the USD20,000 level),
we think the FY11 core financial numbers can be a good benchmark for the group’s medium-term earnings
prospects, especially for FY12–FY14. This is because the group’s 30%-owned KMR may potentially run out of
resources after 2014 and hence, cease to contribute earnings to the group.
5
OSK Research
Figure 5: OSK key assumption on MSC
FY12F
FY13F
FY14F
FY15F
FY16F
Tin Prices
(USD/tonne)
24000
23000
22000
21000
20000
Production Volume
MSC Smelting
RHT
PT Koba Tin
(tonnes)
40250
2161
6330
40600
2323
1583
40950
2497
0
41300
2500
0
41650
2500
0
Associates/JV
Contribution
(RMm)
30.9
24.6
18.3
0.0
0.0
Core
Net Profit
(RMm)
88.0
83.3
87.1
65.6
60.2
Source: Company Data
Decent dividend payouts going forward. While MSC does not have any official dividend payout policy, it
believes in rewarding its shareholders. Despite being hit by the global financial crisis, it still paid out an annual
gross dividend of 3 sen per share for 2009 and 2010. In 2011, MSC declared a total dividend of 30 sen per
share, thanks to the group’s overall strong performance despite disruptions faced by PT Koba Tin. Moving
forward, we believe it will be paying out dividends at 25% of its profits in line with the group’s gradual recovery.
Furthermore, we do not expect any major impairment going forward, unless PT Koba Tin’s CoW extension is
turned down in the future.
Figure 6: MSC’s gross dividend payout track record
35
40.0%
30
30.0%
RM sen
20.0%
20
10.0%
15
0.0%
10
5
-10.0%
0
-20.0%
Gross Dividend/Share (LHS)
Percentage
25
Payout Ratio (RHS)
Notes: Negative dividend payout ratio due to MSC reported net loss in respective years
OSK is moderate on its base case projection. Arguably, our earnings estimates are still subject to some
negative surprises, especially if tin prices do not spike in 2HFY12 and the 2012 average price falls short of our
USD24,000 a tonne assumption. Nevertheless, we believe that our base case earnings estimates used in this
report are moderate or even conservative in some areas. The following are some of our key assumptions:
(i)
(ii)
(iii)
(iv)
(v)
We believe our assumptions for the core business units in Malaysia, namely smelting plant in
Butterworth and RHT’s mining operations, are moderate.
Although we believe PT Koba Tin has a good chance of securing the CoW extension after
bringing in a new local partner, we have decided to stick to our assumption that this unit will be
wound up upon the expiry of the CoW in March 2013. In our opinion, this is the worst case
scenario for PT Koba Tin.
We assume that KMR will cease its mining operations after 2014 despite efforts to look for new
resources within the concession area. Our earnings estimates are based on the gradual reduction
in contributions from KMR on the back of lower copper and gold prices.
Despite the fact that RedRing Solder SB has been contributing consistently to the MSC group, we
are omitting the former’s earnings contribution since the amount is less than a million ringgit p.a.
Considering the BV of Guiling Hinwei Tin and AMR are now at nominal levels, we expect no
further impairments for both units.
6
OSK Research
MSC is more sensitive to tin price than production volume. As MSC’s operations are most affected by the
tin prices and production volumes (for its mining and smelting facilities), we decided to run a sensitivity
analysis using these two variables as illustrated in Figure 7. Our findings show that MSC is twice as sensitive
to the movement in tin price compared to that for production volumes. For instance, a 5% drop in tin selling
price (with production volumes kept constant) will cause MSC’s profit to drop by 18%, while a 5% decline in
volume will result in MSC’s profit dropping by only 9.4%.
Figure 7: MSC’s profit sensitivity analysis
Core
Net Profit (RMm)
30,000
28,000
26,000
Tin
Prices
24,000
(USD)
22,000
20,000
18,000
-10.0%
114.7
100.8
86.9
72.9
59.0
45.0
31.1
-5.0%
124.7
110.0
95.3
80.6
65.9
51.2
36.5
Total production (Tonnes per year)
-1.0%
Base Case
+1.0%
132.4
134.3
136.3
117.1
118.9
120.7
101.8
103.4
105.1
86.5
88.0
89.4
71.2
72.5
73.8
55.9
57.1
58.2
40.6
41.6
42.6
+5.0%
144.0
127.8
111.6
95.3
79.1
62.9
46.7
+10.0%
153.6
136.6
119.7
102.7
85.8
68.8
51.9
Source: OSK Research Estimates
7
OSK Research
INVESTMENT RISKS
Tin market risk. The profitability of MSC’s tin mining operation is very sensitive to fluctuations in tin prices.
Apart from that, its smelting revenues and profitability are also highly dependent on the prices paid for the tin
concentrates and the prices received for the refined tin metal products. The input and selling prices are
influenced by global tin prices, which tend to be cyclical and subject to significant fluctuations. Meanwhile, we
have projected that tin prices will average USD24,000 a tonne in 2012, dwindling by USD1,000 a tonne each
year until reaching USD20,000 a tonne in 2016, after which prices are expected to remain stagnant. We have
conducted a simple sensitivity analysis of MSC’s earnings to tin prices in the previous section. Meanwhile, if
the expected spike in tin prices does not materialize in 2H2012, our profit projection for 2012 could be
undermined. This is because we are expecting a slow 1H2012 for MSC on the back of lower tin prices as well
as some lead time will be required for restructuring PT Koba Tin.
Political risk. MSC has operations in various countries including Malaysia and Indonesia, and it may venture
into DRC. Since mining operations generally require approvals from local authorities, it is therefore crucial for
companies to foster a good relationship and understanding with the relevant authorities. MSC’s specific
political risks include failure to obtain the relevant licences and concessions as well as introduction of new
regulations that govern mining and trading/export activities. Therefore, the introduction of detrimental
regulations could negatively impact MSC’s operations and earnings.
Foreign currency risk. While MSC’s reporting currency is Ringgit Malaysia (RM) and purchases are
transacted in RM and Indonesian Rupiah (IDR), most of its export revenue is denominated in USD. This
situation exposes MSC to the risk of fluctuating foreign currency rates. MSC employs currency hedging to
mitigate such risks but MSC’s operational performance could be hit by large foreign exchange losses if its
currency hedges go wrong. Furthermore, as most of the overhead costs incurred by the group are
denominated in local currencies, the strengthening of such currencies (against RM) may have a negative
impact to the group’s bottom-line.
Regulation risk. Given that the mining activities are generally damaging to the environment, MSC might need
to contend with environmental regulation risks. Such risks include local authorities imposing regulations to
protect the country’s natural environment and international non-governmental organizations (NGOs) lobbying
to advance their vested interests. Furthermore, with MSC sourcing tin concentrates from DRC – a country that
was in the international limelight for the wrong reasons (alleged human right violations and conflicts) – it might
face possible supply disruptions if a full-fledged conflict breaks out in the country thus forcing tin mines to
cease operations. Other than environment-related issues, MSC may also face nationalism-driven regulation
risks, such as the restrictions on foreign ownership of mining companies imposed by the Indonesian
government.
Liquidity risk. Since MSC is an under-covered stock and its trading volume is relatively low, investors should
also take note of the potential liquidity risk. A thin trading volume could limit the ability of investors to buy or sell
the desired number of shares at the desired prices.
8
OSK Research
RIDING ON THE VOLATILE TIN WAVE
What is tin? Tin is a malleable, ductile and highly crystalline silvery-white metal. Tin can withstand water
corrosion but the metal is vulnerable to acids and alkalis. Tin can be polished to a certain degree and used as
a protective coat for other metals. In this case, the formation of a protective oxide layer is used to prevent the
further oxidation of the metal. About half of the tin produced globally is used in solders, with the rest coming
from tin plating, tin chemicals, brass and bronze, as well as other niche applications.
Figure 8: World consumption of refined tin by end users (2008)
Industrial
equipment
8%
Others
7%
Construction
13%
Transport
19%
Packaging
21%
Consumer
durables
32%
Source: ITRI
Up and down of tin price. Following a long period of depression between 1986 and 2002, tin prices have
recovered strongly in the last decade or so. Indeed, the price of this commodity has been volatile, especially in
recent years. Post-global financial crisis, LME tin prices reached a low of USD10,000/tonne in Dec 2008–Jan
2009. However, authorities around the world have loosened their monetary policies to stimulate their
respective economies, resulting in billions of dollars being pumped into risky assets like metals. The rapid price
increase in 2010 caught most people by surprise. 2011 turned out to be another unpredictable year for the
metal, with LME tin price reaching its peak of USD30,000/tonne in April 2011 before undergoing a rough patch
in 2H2011. Moreover, 4Q2011 also witnessed: (i) cheaper tin prices that led to China becoming a net importer,
and (ii) the voluntary export moratorium imposed by the Indonesian Tin Association from Oct 2011 to Nov 2011
that caused sentiment to remain bearish until the end of 2011.
Figure 9: Trend of LME tin price
30000
25000
USD/tonne
20000
15000
10000
5000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012F
2013F
2014F
2015F
2016F
……
……
2030F
0
Source: Bloomberg, OSK Research Estimates
9
OSK Research
Tin prices in 2012 and beyond. Tin prices recovered to USD25,000/tonne in Jan 2012 but recently declined
to USD22,200/tonne. Undoubtedly, it is very difficult to predict the movement of tin prices. As we are not an
expert on tin, we depend to a certain extent on the analyses done by the Institute Tin Research Institute (ITRI)
to form our outlook on the tin market. In the regard, the ITRI is generally upbeat on the favourable mediumterm supply and demand dynamics that we will elaborate on in the following pages.
Supply constraints could drive up tin prices. We reckon that tight tin supply could drive tin prices to new
highs in the medium term. The following are the few factors that may result in tin supply constrains moving
forward:
(i)
Artisanal and small mines contribute to 37% of global production and account for more than half of
Indonesia’s output. After centuries of mining and excavating, tin ores deposited at alluvium valleys
are now depleting and becoming very hard to locate, especially for artisanal miners. As the
improving economy in Indonesia may create better job opportunities for small scale miners as well
as given the large players’ decision to delay their investments, we are expecting Indonesia’s tin
production, which has already been trending down in the past few years, to fall further going
forward.
(ii) New mines being explored today are mostly underground mines located deep under the earth’s
crest and such mines require extensive drilling and blasting before tin ore can be extracted. The
costs of extraction can be a lot higher cost and thus, may help to sustain higher tin prices.
(iii) We also learnt that Minsur – a Spanish company which operates the world’s largest open pit mine
in San Rafael, Peru – has indicated that the supply from that mine will deplete in 2017.
(iv) ITRI estimates that world usage of refined tin exceeded production by a margin of about 11,000
tonnes in 2011. There was also a supply deficit in 2010 and barring the scenario of a “double-dip”
recession for the global economy, further shortfalls are expected in 2012 and probably 2013 too
(Figure 11).
Figure 10: Main changes in mine production
Australia
Other*
Brazil
Peru
Africa
Bolivia
China
Indonesia
-30
-20
-10
0
10
20
Percentage
Source: ITRI
10
OSK Research
Figure 11: World supply and demand balance in refined tin
World
World Refined Production
DLA Sales
World Refined Consumption
Global Market Balance
Reported stocks
LME
Producers
Consumer/others
Total
World Stock Ratio
(week consumption)
2008
2009
2010
2011
2012F
337.7
7.7
348.7
-3.3
336.0
3.7
321.7
18.0
349.8
0.0
362.1
-12.3
349.4
0.0
360.3
10.8
354.0
0.0
366.4
-12.4
7.8
12.2
12.5
32.5
26.8
7.7
11.6
46.1
16.4
8.1
11.3
35.8
12.1
6.0
10.0
28.1
5.0
6.0
9.0
20.0
4.8
7.5
5.1
4.1
3.0
Source: ITRI
Stable demand growth plus possible new drivers for tin. Without doubt, the demand pull factor will play a
big role in nudging tin prices up or down. The strong demand for tin is expected to continue, driven by these
key factors:
(i)
(ii)
(iii)
(iv)
(v)
Over the years, China’s electronic and information technology industry expanded rapidly with
output rising by 25% in 2010. Tin usage in this country climbed to a new record level of 154,000
tonnes in 2011, accounting for 43% of world consumption. We continue to expect double-digit
growth rates for tin usage for the China, especially with the global economy on the mend and the
local government’s efforts to spur domestic demand.
We expect the demand for tin to increase as more people around the globe embrace high-tech
appliances – such as computers, laptops and mobile phones – and this may more than offset the
negative impact arising from the miniaturisation of such gadgets at least for the medium term.
Tin is on the verge of replacing lead in electronic solders. According to ITRI, global legislation
banning the use of lead has triggered a revolution in the production of electronic components. As
lead-free solders contain 54% more tin, the demand for this metal by the electronics sector is
poised to grow rapidly.
Another new usage for tin that looks to grow fast is the production of lithium ion batteries as tin
can make lithium ion batteries last more than three times longer. This provides the ideal solution
for producing better and longer-lasting batteries for mobile phones, cameras, tablet computers
and other mobile devices, as well as the emerging breed of hybrid cars (which are based on
lithium ion batteries).
Research shows that stainless steel, which incorporates tin (in place of nickel) and less chromium,
is more corrosion-resistant and formable. Nippon Steel has adopted this technique for producing
stainless steel of a new grade.
11
OSK Research
Figure 12: Tin technology opportunities
Lead-free electronics
Lithium ion batteries
Stainless steel
Fuel catalysts
Fire retardants
Brake pades
Others
0
5000
10000
15000
20000
Potential use tonne/year
Source: ITRI
OSK projects a short-term spike, followed by a gradual decline for tin prices. Meanwhile, we are
projecting tin prices to average USD24,000 a tonne in 2012 before sliding by USD1,000 a tonne each year and
then stabilizing at USD20,000 a tonne from 2016 onwards (see Figure 9). Although tin prices only averaged
USD23,000 a tonne YTD and currently stands at USD22,200 a tonne, we are expecting a short-term spike to
USD25,000 a tonne that will cause the full-year average price for 2012 to nudge up to USD24,000 a tonne.
Our bullish view is based on the potential reinstallation and refurbishment of electrical and electronic
production facilities that were devastated by the massive earthquake in Japan and severe floods in Thailand.
Such large scale efforts at rebuilding production capacity will lead to a surge in demand for solder and hence,
tin.
12
OSK Research
CENTURY-OLD SMELTER – A CASH COW FOR MSC GROUP
A veteran smelter... The MSC group’s core expertise of smelting is backed by a solid track record that
exceeds a century. The group’s smelting facility in Butterworth has one of the most cost efficient smelting
plants in the world when it comes to converting primary, secondary and often complex tin-bearing ores into
high purity tin metal for industrial applications. This smelting facility is also believed to be the world’s largest
custom tin smelter. The plant also has a smelting production capacity of approximately 35,000 tpy for refined
tin. Apart from that, MSC also has a separate smelter plant with a production capacity of 25,000 tpy, which is
operated by its 52.5%-owned PT Koba Tin, at Bangka Island, Indonesia. Its Indonesian unit also owns
41,680ha of tin mining concession under a Contract of Work (CoW) agreement with the Indonesia
Government. Apart from smelting and processing tin concentrates into refined tin products, MSC also refines
crude tin into refined tin products, a process that does not involve smelting. In terms of refining tin, the
Butterworth facility has a capacity of 40,000 tpy, while the Bangka site can handle 20,000 tpy.
No 2 in the world. Based on ITRI’s data, the MSC group was the world’s second largest smelter in 2011 with
a production of 45,381 tonnes. Even if we exclude the production of 6,332 tonnes by its Indonesian unit,
MSC’s ranking remains firmly at number two. This places the company behind Yunnan Tin, which is the largest
tin producer in China and the world. As mentioned earlier, MSC’s Butterworth smelting facility is reputed to be
one of the world’s most cost efficient smelting plants. The MSC Straits and Koba brand refined tin brands,
which are registered at the London Metal Exchange (LME) and Kuala Lumpur Tin Market (KLTM), are
accepted worldwide and has a purity ranging from the standard Grade A (99.85% Sn) to the premium grade
electrolytic tin (99.99% Sn). Figure 13 highlights the primary tin products produced by the group.
Figure 13: MSC primary products
Product
Description
MSC Straits Refined Tin
Primary products with tin content not less that 99.85% which are suitable for application in
Koba Standard Tin
the electrical and electronics industries as well as food packaging industry.
MSC and Koba Premium
Grade 3N Tin
This product is used by manufacturers of solders and glass wich are of a higher grade than
the Standard Tin
MSC and Koba Prmium
Grade 3N Tin with Low
Lead
Users of this grade of tin inclide tin plat manufacturers which are required to ensure that
the refined tin that is used in the manufature of tin plates and tin cans to contain food
products meet the lower of lead specificaions. This grade also of a higher grade than the
Standard
MSC Electro Refined 4N Tin
Highest tin grade in the company with tin content of at least 99.99% and mainly used in
toothpase and dental amalgam products as well as to reduce downtime in specialised solder
manufarturing process
Koba Tin Anodes
3N tin anodes for use bu tin plate manufacturers which customers' specifications pn quality
and dimensions
Long-term customer relationship. Since refined tin metal may be sold to end-user customers or traded on
international commodity markets, there is a ready market for refined tin metal. Therefore, MSC does not
actually face stiff competition in selling its refined tin metal. However, the company also sells a large proportion
of refined tin products directly to customers who enter into long-term supply agreements, in which prices are
typically fixed for a period of 12 months, and such agreements may offer some additional marketing or trading
margin. This type of transaction allows the company to establish direct contact with the customer. Among its
key customers are Toyota Tsusho Corporation, Chemetall GmbH (KL) and Alpha Metals TW Inc. The company
also sells its products through a select number of traders, including Bache Commodities Limited and JP
Morgan Metals Limited.
13
OSK Research
Constant tin concentrate supply is key to smelting business. In custom tin smelting business, the main
raw materials used for the production of refined tin metal are tin concentrates and crude tin. In addition to using
tin concentrates that come from MSC mines which make up around 5% of the smelting (see Figure 14)
volume, MSC’s Butterworth plant also purchases most of its tin concentrates and crude tin from third-party
suppliers located in countries such as Australia, Central Africa and Indonesia. MSC’s tin smelting operations
rely on supplies of tin concentrates sourced from third-party suppliers as well as its mines. Its principal
competitors in custom tin smelting include Thailand Smelting and Refining Co., Ltd, and Yunnan Tin Company
Group Limited, both of which also process tin concentrates sourced from third-party suppliers into refined tin
metal.
Figure 14: Refined tin production by MSC Butterworth
45000
40000
35000
Tonnes
30000
25000
20000
15000
10000
5000
0
2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
Third Party Supplier
RHT Mine Contribution
.
Source: Company Data, OSK Research Estimate
Stable tin concentrate supply from Central Africa. We understand from our market intelligence that MSC’s
ability to secure tin concentrates from Central Africa (after its key competitor from Thailand decided to stop
sourcing raw materials from that region) has enabled MSC to increase the production of refined tin as well as
margins for its Butterworth plant in the past few years. Our cross check with the secondary listing prospectus
also found that tin concentrates sourced from the Democratic Republic of Congo (DRC) and Rwanda (as a
percentage of the Group’s total purchases) in aggregate amount to 14.5% and 26.0% for FY09 and 9MFY10
respectively. In recent times, DRC and Rwanda have generated significant international attention with regards
to human rights violation and conflicts that are associated with mineral trading activities that benefit armed
groups operating in both countries. Nonetheless, we understand from management that MSC has adopted
stringent due diligence and smelting audit processes that significantly reduce the risks of sourcing from the
wrong parties. Furthermore, the fact that the DCR government has invited MSC to assist in the development of
a sustainable tin industry also demonstrates the good rapport that MSC enjoys with governments in the Central
African region.
Room to expand production. MSC did not reveal the full details of its historical smelting and refining plant
utilization but we understand from management and disclosures in its secondary listing prospectus back in
2011 that its Butterworth facilities have been running at close to their optimum utilization levels. While we
understand the utilization of its refining capacity is very much dependent on the feed material and
requirements set by its customers, MSC Straits Refined tin production has shown a steady increase over the
period of 2007 to 2009 to reach 94% of its rated capacity. As for MSC 3N and 4N tin, the plant has generally
been running at an inconsistent rate, which suggests the availability of spare capacity to be tapped upon in
tandem with the country’s economic growth and increasing demand for premium grade tin (see Figure 15).
Furthermore, MSC has recently expanded its smelting operations through increasing its refining capacity that
gives it more room to ramp up its production. This facility expansion was funded by the proceeds from its
secondary listing on the Singapore Stock Exchange. Other than this, MSC has also invested to increase the
efficiency of its smelting and refining plants to bring down the cost of production. Major improvement works
were also undertaken in the gas handling and cooling system, rotary furnaces, as well as various overhead
crane systems and refining facilities to enhance the overall efficiency of its smelting and refining operations.
14
OSK Research
Figure 15: Utilisation rate of Butterworth’s refining capacity
Utilisation rate (%)
120%
100%
80%
60%
40%
20%
0%
2007
2008
2009
MSC Straits Refined tin (Capacity: 36,800tpy)
MSC 3N tin (Capacity: 1,700 tpy)
MSC 4N tin (Capacity: 1,500 tpy)
Advantages of price participation arrangement. MSC is not engaged in speculative trading of tin products
in the daily trading markets. The company generally sells only a small quantity of refined tin on a spot basis if
so requested by its customers and most smelting transactions employ the back-to-back arrangement. Where
appropriate, it may adopt hedging strategies to manage foreign exchange risks. MSC will receive raw
materials, in the form of tin-in concentrates or crude tin, from its customers who are also required to specify
their smelting and refining requirements. For this service, according to our market intelligence, MSC will also
enter into a price participation arrangement with the customers, at the rate of 3%-5% of the prevailing tin price
to compensate for the potential yield loss from the smelting process. Nonetheless, having one of the most
efficiently run smelting operations, MSC is always able to achieve a recovery rate of above 97% and thus, it
will be able to keep the positive differential as part of its smelting margin. In such arrangements, MSC is also
poised to benefit from higher tin prices.
Butterworth smelting plant is a cash cow. With a solid track record of operating custom smelting plants for
over a century since 1887, we expect this business unit to continue contributing positively to the group unless
a perfect substitute to tin is found. Indeed FY11 was quite an extraordinary year for its Butterworth smelting
plant which generated RM85m in EBITDA (up 57.2% y-o-y), mainly attributed to the higher utilization that
helped optimize its plant efficiency as well as higher tin prices which benefited its price participation
arrangement. We reckon the high volume can be attributed to the long-term supplier relationship built by MSC,
especially with the DCR, but the company cannot ensure constant future supply in the face of rising
competition. Meanwhile, we are conservative in our projections for the final refined tin produced by MSC’s key
plant. We expect an almost flat production in 2012 at 40,250 tonnes and a marginal increase of 1% in the
followings years before attaining a peak of 42,000 tonnes in 2017 (see Figure 4). As we are aware that the
smelting margin in FY11 was extraordinary, we have decided to make a one-off reduction from the previous
year. In light of the combined forces of higher volume, gradual reduction in tin prices and nominal growth in
smelting margin, we assume that its Butterworth’s plant EBITDA will grow at an average of 0.6% in the
subsequent years after dropping to RM75.9m in FY12. We also think our terminal value of only RM70.9m
(present value) for the smelting plant is rather conservative.
15
OSK Research
Figure 16: Performance of MSC’s Butterworth smelting plant (EBITDA)
90.0
100%
80.0
80%
70.0
60%
40%
50.0
20%
40.0
0%
30.0
Percentage
RM million
60.0
-20%
20.0
-40%
10.0
-
-60%
2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F
EBITDA (LHS)
Y-o-Y Growth (RHS)
Source: Company Data, OSK Research Estimates
16
OSK Research
RAHMAN HYDRAULIC TIN – A LOCAL TREASURE
Small but profitable. Apart from its century-old smelting business, the MSC group also undertakes tin mining
activities through its subsidiaries in Indonesia and Malaysia. The local mine is operated by Rahman Hydraulic
Tin SB (RHT), which MSC acquired back in Nov 2004. RHT has been involved in mining operations in Klian
Intan, Perak, Malaysia (see Figure 17) since 1907 and this mine is known to be Malaysia’s largest open-pit
eluvial tin mine in operation. RHT holds a mining concession under five separate mining leases granted for an
area of approximately 601.0ha. Although it only has a small mining area, RHT has been very profitable and
contributed significant earnings to the group in the past few years.
Figure 17: Klian Intan, Perak, Malaysia
THAILAND
Sprucing up the treasure. When MSC bought it in 2004, RHT was not well managed and its production was
also poor. Record shows that in 2004, RHT’s production stood at only 753 tonnes. Over the years, MSC has
revamped the mining site by upgrading the infrastructure and related facilities. The main areas of
improvements include the removal of overburden, refurbishment and upgrading of all the four tin processing
plants. This unit also managed to save operational costs via efforts to obtain a lower cost of power from the
national grid to replace the high cost of power generated from large generators running on diesel fuel as well
as efforts to revive, refurbish and enhance its mini hydro power station. The increase in production over the
years could be attributed to the replacement of all 15 large capacity water pumps and motors, the increase in
the number of total pumps to 30 units and the successful eradication of rampant tin pilfering from the open-pit
and processing plants. As a result of all these transformation and improvement efforts, RHT managed to bump
up its production from 1,693 tonnes to 1,769 tonnes to 2,010 tonnes for the period from 2009 to 2011.
Stable production with low investment risks in RHT. RHT operations are relatively stable compared to
MSC’s Indonesian mining operations. In Malaysia, the political and regulation risks are largely minimized and
MSC does not face any lingering problems related to small scale miners that are affecting its Indonesian
operations.
17
OSK Research
Joy of the extension. On 26 March 2012, MSC announced that it has successfully extended RHT’s mining
right concession from 2019 until 2030. This is indeed a boon to MSC as the extension will allow the company
to continue tapping into Klian Intan’s rich tin deposits for at least another 18 years. One condition for the
extension requires MSC to pay a royalty fee of 5% (previously 2.5%) of the selling price of tin-in concentrate to
the state government of Perak. Although the royalty fee has doubled and this will narrow the margin for MSC,
we think the 11-year extension more than compensates for the higher royalty payment, which only translates
into additional costs of around USD1m per annum. While the extension is expected to give an additional DCF
of RM51.9m based on our conservative long-term tin price assumption of USD20,000 a tonne and an
excessive WACC of 11.6% (which is twice our original WACC), the market has largely ignored this factor as
the share price of MSC has not reacted positively since the official announcement on the extension was made.
Enough resources to mine. RHT has also achieved very good results from its extensive exploration and
drilling activities undertaken after its takeover of the ore mine. Based on the company’s latest annual report,
the total tin resources at RHT as of 29 March 2012 are estimated at 41,092 tonnes (see Figure 18). Assuming
that RHT is running at a capacity of 2,000 to 2,500 tonnes of tin metal per year, the mine’s new resource
number is about enough to last till 2030. While we reckon that only part of the resources are categorized as
measured (which have a high certainty of extraction with good economies of scale), MSC has proven its
capability to turn indicated and inferred resources into measured resources over time. Apart from that, MSC
could also potentially discover more tin deposits in tandem with the mining activities, as more drilling and
excavation will be carried out in that area. Without doubt, the discovery of more tin resources will further
increase the value of the company. Using standards that are compliant with the JORC Code which is the
universally accepted standard for reporting exploration results, one can be assured of the high reliability in
gauging mineral resources and ore reserves. Apart from the extension of the mining concession, the state has
also granted RHT additional two mining leases over a total area of approximately 100ha adjacent to its existing
leases, which are being used for mine tailing facilities and storage of overburden waste materials and hence,
ease bottlenecks at the mine site.
Figure 18: Tin reserves in RHT
Volume
RESOURCE
Grade
3
CLASS
Measured
Indicated
Inferred
TOTAL RESOURCES
Contained Tin (Sn)
3
('000 m )
2,416
2,759
16,240
21,415
(Tonnes)
6,721
7,468
26,903
41,092
(KgSn/m )
2.78
2.71
1.66
1.92
Source: Company
Figure 19: Tin mined by RHT
2,500
Tonnes per year
2,000
1,500
1,000
500
2029F
2030F*
2028F
2027F
2026F
2025F
2024F
2023F
2022F
2021F
2020F
2019F
2018F
2017F
2016F
2015F
2014F
2013F
2012F
2011
2010
2009
2008
2007
0
*Note: Production up to Sep 2030
18
OSK Research
RHT – the local treasure for MSC. We believe that RHT will continue to contribute positive results to MSC in
the future. With the extension of the mining concession and the potential to discover additional tin resources,
RHT will prove to be an invaluable asset to MSC. We have been conservative in our tin volume assumption for
RHT by assuming a volume growth of 7.5% until reaching a peak of 2,500 tonnes per annum. Given our
conservative 2012 average tin price assumption of USD24,000 a tonne (that dwindles by USD1,000 a year
before eventually stabilizing at USD20,000) as well as the gradual increase in mining overhead costs, we are
projecting a gradual drop in RHT’s EBITDA of RM52m in FY12 to RM14.8m in FY30, which we believe is fairly
conservative.
Figure 20: EBITDA performance of RHT
70.0
30000
60.0
25000
20000
40.0
15000
30.0
10000
20.0
USD/tonne
RM million
50.0
5000
10.0
0
2007
2008
2009
2010
2011
2012F
2013F
2014F
2015F
2016F
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
2025F
2026F
2027F
2028F
2029F
2030F*
0.0
EBITDA (LHS)
LME Tin Price (RHS)
*Note: Production up to Sep 2030
19
OSK Research
TRANSFORMATION IN PROGRESS FOR TIN BUSINESS IN INDONESIA
Core tin mining asset in Indonesia – PT Koba Tin. PT Koba Tin holds the sole and exclusive rights, under a
Contract of Work (CoW) with the Indonesian government, to mine for tin in the concession area of
approximately 41,700ha for a period of 10 years from 1 April 2003. MSC holds a 75% stake in PT Koba Tin via
its wholly owned subsidiary, Kajuara Mining Corporation Pty Ltd, while the remaining 25% stake is owned by
PT Timah – the largest tin mining company in Indonesia. MSC acquired PT Koba Tin in 2002 and since then, it
has managed to significantly increase the output from the tin mine in Indonesia by enhancing its operational
efficiency. MSC operates a large capacity bucket-line dredge and gravel pump mining units in the concession
area.
Figure 21: Bangka Island, Indonesia
Source: Company
Other tin assets in Indonesia. MSC also owns PT TA in Indonesia which is principally engaged in off-shore
tin mining, Following the assets injection into PT TA by one of its shareholders in Oct 2009, MSC’s initial
interest in PT TA of 60.0% was subsequently diluted to 40.0%. Consequently, PT TA was deconsolidated and
regarded as an associate of MSC in FY09 as MSC holds a 18.54% stake in Bermuda-incorporated TMR Ltd
(TMR), which in turn holds a 99.0% interest in PT TA. As MSC’s holding in PT TA has dwindled over time, we
will not delve too much into this unit. On the other hand, MSC has three other 100%-owned subsidiaries in
Indonesia – PT SRM, PT MSC Indonesia and PT Bangka Resources – which are also involved in the
exploration and development of tin resources in Indonesia through strategic cooperation agreements with local
partners. MSC is in the midst of rationalizing and consolidating these entities with a view of positioning them in
a stronger restructured business vehicle with greater Indonesian participation. Management hopes to
implement such restructuring plans within the next two years.
20
OSK Research
Lingering issues affecting production. Apart from obtaining tin ore supplies from its own mining units, MSC
also collects tin ores from small scale miners who carry out mining activities in the concession area. It is also
not permitted to consume any tin ore that is not mined in the concession area. In 2007, three executive
directors of PT Koba Tin were investigated following a report alleging that the company was involved in the
collection of tin from small scale miners operating outside its CoW area. Notwithstanding the fact that all
directors were acquitted of the alleged charges, several precautions were subsequently adopted and all
materials procured from small scale miners must be documented to ensure that the tin ore came from within
the CoW. However, there were still some lingering issues related to the collection of materials from small scale
miners and hence, MSC has been reducing such transactions significantly over time. In fact, MSC has now
ceased its practice of accepting tin concentrates from small scale miners within its CoW and this has led to a
plunge in production. As a result of the substantial decline in production, revenue has also dropped drastically
with cost trending up, no thanks to rapidly increasing wages and fuel prices in Indonesia. All in all, PT Koba Tin
has been struggling for the past few years.
Immediate struggle. 2011 was particularly a challenging year for PT Koba Tin owing to the sharp plunge in tin
prices (in 2HFY11). This is further exacerbated by escalating mining cost after management had decided to
enter, develop and mine lower grade areas as part of its mine optimization programme. As long as tin prices
stay above USD30,000, selective mining using outsourced contractors enabled PT Koba Tin to mine lower
grade deposits at an average cost of around USD26,000 a tonne and still earn sufficient margin. Employing
contractors saves PT Koba Tin the need to incur significant capital and development expenditure as well as
lumpy cash flows. However, the rapid plunge in tin prices from Sept 2011 onwards to as low as USD18,000
exposed the contractors and PT Koba Tin to significant losses and negative cash flows. The adverse price
situation was further aggravated by the moratorium on tin exports imposed by the Indonesian Tin Association.
As a result of these negative developments, PT Koba Tin incurred an overall loss in 2011 despite being able to
maintain its production at approximately the same level as in the previous year.
Figure 22: Performance by MSC’s Indonesian operations
25000
700
600
500
400
15000
300
10000
200
RM million
Tonnes
20000
100
5000
0
0
2005
2006
Production (LHS)
2007
2008
2009
Revenue (RHS)
2010
2011
-100
EBITDA (RHS)
Note: (1) The suspension of receipt of materials from small scale miners since 2007 dampened production and hence, earnings.
(2) Earnings have been struggling due to lower production and higher cost incurred.
(3) 2HCY2011, Indonesia government imposed restrictions on exporting tin products, which further impacted performance.
Rationalization in progress… Following the losses in 2011, PT Koba Tin has implemented the necessary
steps to rationalize its operations and save costs. However, the impact of these aggressive rationalization
activities is only expected to be felt and seen after about six months since revisions in mine planning, interim
financing and implementation require some lead time. In the medium term, we also expect PT Koba Tin’s
performance to be dragged down by the high average overhead cost on low production volume as its monthly
fixed cost stands at USD2.5m. Management has put in place a turnaround plan to shift its operations back to
the lower cost pit and it is also initiating steps to increase its production volume to a level where its average
cost of production could drop below USD20,000 per tonne. Nevertheless, we still expect the losses to extend
into 1HFY12.
21
OSK Research
Changes in Indonesia mining law. On 7 March 2012, Indonesia’s Energy and Mineral Resources Ministry
came out with an announcement stating that foreign investors with 100% ownership of mines will have to sell
20% to domestic (Indonesian) investors within six years of the start of production. At least 30% of such mines
must be in the hands of Indonesian investors by the seventh year, 37% by the eight year, 44% by the ninth
th
year and 51% in the 10 year. Nonetheless, we understand this regulation only applies to new mining licences.
Adapts to changes. While the new regulation does not cover PT Koba Tin under the old CoW regime, this
unit needs to renew its mining concession which will expire in less than a year in March 2013. We suspect that
the impending expiry of the concession prompted MSC to enter into a Strategic Alliance Agreement (SAA) on 9
March 2012 with Optima Synergy Resources Limited (OSRL) through OSRL’s subscription of up to 23% equity
interest in Bemban Corporation Limited (BCL) by injecting cash and/or relevant assets into BCL. BCL is the
ultimate holding company of PT Koba Tin with a 75% interest. While MSC’s effective interest in PT Koba Tin
still stands at 57.5%, which is higher than the 49% required to comply with the new rule, the deal is structured
in a way that OSRL will raise its stake in BCL to 50% and MSC’s interest in PT Koba Tin will be diluted to
37.5% on the condition that OSRL must facilitate PT Koba Tin’s efforts in extending the CoW for the latter’s
Bangka Island mining site.
Good deal with new partner. Although diluting its equity holding in PT Koba Tin, we view the deal positively
as it will enable MSC to comply with the Indonesian government’s new regulation that requires foreign
investors to hold not more than a 49% stake in mining companies. We believe this move will put PT Koba Tin
in a better position to clinch the CoW extension for its Bangka Island mine. Apart from that, the proceeds of the
effective disposal will be in the form of cash or assets that are likely to be related to tin mining and we believe
that such assets could contribute to the long-term sustainability of MSC’s tin mining business
Looking beyond our base case assumption. Meanwhile, our projections for MSC assume that there is no
extension for PT Koba Tin’s CoW beyond March 2013. Nonetheless, we are fully aware that the recent SAA
may provide an important bridge for the subsidiary to obtain the extension from the Indonesia government. We
quantify the higher post-extension tin volume that investors could expect from PT Koba Tin as follows:
(i)
(ii)
(iii)
PT Koba Tin can continue its regular tin mining operation using its own appointed third-party
contractors and produce around 6,000 tonnes per annum according to our estimates.
The new partner also opens up the possibly that PT Koba Tin can now effectively deal with the
lingering issues associated with the small scale miners at the CoW areas. This implies that it may
be able to resume its collection of materials from the small scale miners, an activity that generally
offers decent margins. At its peak in 2005-2006, the collection from such small scale mining
activities reached up to 15,000 tonnes a year. Even if such collection activities were to resume, we
only expect a gradual increase in output of up to 500 tonnes a month.
The unit also may leverage on its new partner to apply for a permit from the forestry authorities to
mine in virgin forest areas within the CoW areas. This will not only raise the production but also
enable the unit to obtain tin of higher quality at a lower production cost, considering that these
areas are pristine.
Risk vs reward for PT Koba Tin. We are aware that the PT Koba Tin’s mining concession expiry is a major
risk factor that has discouraged potential investors from buying into MSC. There is a provision amounting to
RM29.5m on MSC’s balance sheet as at 31 Dec 2012 that we believe was allocated primarily for potential
mine rehabilitation cost after the maturity of PT Koba Tin concession. The management of MSC has also
verbally confirmed that the amount provided for the rehabilitation was sufficient under the current regime and
hence, this will significantly reduce any major end-loaded cost. We have estimated that about 50% of the unit’s
net asset value or RM34.1m or merely 34.1 sen per share (ex-minority interest and assumption of potential tax
credit/claw back for the loss) as the potential write-down amount for our SOP valuation in the event that the PT
Koba Tin concession is not extended. We believe this amount is sufficient to cover any potential write-down of
deferred expenditure on exploration activities, loss in inventory value and possible default by some of its
debtors. Risk aside, we are excited on the potential earnings arising from the concession extension as the
higher mining volume not only leads to higher revenue but also reduces the average overhead cost. We have
run a simple hypothesis test using two scenarios – one moderate and the other aggressive – in the event that
the group obtains the 10-year extension. The extension will add back RM0.34 per share into our SOP valuation
22
OSK Research
as the write-down risk diminishes. Furthermore, our back of the envelope DCF (assuming an effective interest
of 37.5% and a WACC of 11.6%) also shows a potential additional present value of RM0.50 or up to RM1.40 a
share on the blue-sky scenario arising from PT Koba Tin’s mining income stream post-extension.
Figure 23: Various hypothesis assumptions on PT Koba Tin’s operation
Hypothesis 1
Contract of Work
Additional costs
Production
:
:
:
:
Base Case
No Extension
We incorporated expenses of RM34.1m for possible mine rehabiliation
Ceased from 1QFY13
Hypothesis 2
Contract of Work
Additional costs
Production
:
:
:
:
Moderate Case
Extension for 10 years until March 2023
Negligible
Increase production gradually up to 12,000 tpy by 2016 (2011: 6,330 tpy)
Hypothesis 3
Contract of Work
: Aggressive Case
: Extension for 10 years until March 2023.
In addition, granted the permission to operate mining activities in the forest area
: Negligible
: Bump up production gradually to 18,000 tpy by 2016 (2011: 6,330 tpy)
Additional costs
Production
Figure 24: Results of hypothesis test on PT Koba Tin’s operation
100.0
25000
90.0
80.0
20000
60.0
15000
Tonnes
RM million
70.0
50.0
40.0
10000
30.0
20.0
5000
10.0
0.0
0
2005
2006
2007
2008
2009
2010
2011
2012F
2013F
2014F
2015F
2016F
Base Case (RHS)
Moderate Case (RHS)
Aggressive Case (RHS)
EBITDA Base (LHS)
EBITDA Moderate (LHS)
EBITDA Aggressive (LHS)
Notes: EBITDA contribution by PT Koba Tin is base on effective interest of 57.75% in FY12 and 37.5% from FY13 onwards
23
OSK Research
MORE MINING ASSETS IN THE PIPELINE
A long-term relationship with Congo. MSC has been buying tin ores from suppliers in the Democratic
Republic of Congo (DRC), a country located in the middle part of the African continent. According to a filing to
Bursa Malaysia, MSC smelting facilities in Butterworth has, for many years, been receiving DRC tin
concentrates and such supplies constituted about 15% of the company’s total metal produced in 2010.
Brief introduction of DRC. The DRC is the third largest country (by area) in Africa. With an UN-estimated
th
population of 66 million, the DRC is the 19 most populous nation in the world, and the fourth most populous
nation in Africa. Since the late 19th century, Congo’s vast natural resources have sparked violent conquests
from abroad as well as internal conflicts. After 1996, the DRC has seen the world’s deadliest conflicts that were
only matched by those that happened during World War II.
Figure 25: The Congo
Source: Various
Mineral conflicts in DRC. The rush for precious metals in the DRC has caused the destruction of the world’s
second largest stretch of tropical rainforest, child slavery, and even the wholesale slaughter of endangered
species like eastern gorillas and chimpanzees. In recent times, DRC has generated significant international
attention with regards to human right violations and conflicts associated with the minerals trade. While the
NGOs, the media and other official global organizations such as the United Nations have continued to
pressure companies operating in these countries to suspend their mineral trading activities, other official
international institutions sanction these activities as long as the companies adopt stringent due diligence and
smelting audit processes to ensure that the minerals trade does not benefit armed groups operating in DRC.
The companies must also make sure that the livelihood of the local population, which depends largely on
minerals wealth, is well protected. Nonetheless, MSC has adopted the best practices to ensure that proper due
diligence has been carried out during the process of buying tin concentrates from DRC and such practices
have impressed many, including the DRC Government.
Possible new mining concession? Reaping the fruits from its efforts to cultivate a good image in DRC, MSC
announced on 20 May 2011 that it has entered into a Confidentiality Agreement with the DRC’s Ministry of
Mines. This is in connection with the disclosure of confidential information on certain prospective tin mining
areas for possible joint ventures in exploring and developing tin and related mineral resources in DRC. Also
from the same announcement, we understand that the President of DRC wants MSC to assist in the
sustainable development of the tin industry in the country with the ultimate aim of bringing socio-economic
benefits to the local communities as well as overcoming the negative perception of the country’s mining
industry.
24
OSK Research
Potential DRC mining concession. The political risk in African countries is higher compared to that for
Malaysia and Indonesia. MSC needs to invest its time and efforts to secure a stable and long-term relationship
with the Government and local communities in DRC. Nevertheless, with its vast experience and networks
(which MSC has established over the years), we believe that it is more than capable of forging ahead. Despite
the potential challenges, we believe that any mining right or concession awarded by DRC would certainly add
value to MSC’s operations. Such mining concessions will allow MSC to import tin concentrates directly to feed
its smelting plants without going through middlemen and thus, increasing the group’s margin. However, as of
today, there were no concrete announcements made and therefore, we have not incorporated any contribution
from a potential DRC mining JV in our valuation.
How about new tin mines in Malaysia? We believe there are other new tin mines that MSC is eyeing other
than those in DRC, since approximately SGD26.2m from the secondary offering in 2011 has been earmarked
for the development of new mines through selective acquisitions of suitable mining concessions or leases as
well as mining projects and assets that are located primarily in Malaysia and Indonesia. According to its annual
report, new areas with potential for tin mining in Malaysia are being sought after, including ex-mining sites in
the states of Perak, Pahang and Terengganu, to ensure the sustainability of RHT and MSC’s tin mining
business.
Figure 26: Major tin resources in the world
Source: ITRI
25
OSK Research
DIVESTMENT OF NON-TIN ASSETS
Refocus on tin. Following a strategic review of its business in 2009, MSC embarked on a strategy to refocus
on its core tin business. In line with this strategy, the group initiated a divestment programme for non-tin
investments and assets, including equity interests in various other entities which are engaged in the production
of nickel, copper, gold and coal. To enable MSC to focus on its original core tin business, extensive efforts
were undertaken in 2010 and 2011 to strengthen the group’s financial and development resources. We
understand that it will proceed with the divestment of the remaining two non-tin assets at acceptable prices,
including non-listed KM Resources (KMR) and Canadian-listed Asian Mineral Resources (AMR).
KM Resources – a copper and gold player. MSC’s 30%-owned KMR is mainly involved in polymetalic
mining (copper, gold, zinc and silver) in the Philippines. The divestment of KMR may take a bit longer than
expected as the mine has performed very well and contributed very significant profits to MSC in the last two
years. In 2010, KMR generated a profit of USD18m, which increased 2.7 times to USD48m in 2011. This
remarkable performance was mainly attributed to the rally in copper and gold prices (see Figure 27). While
KMR remains on MSC’s sell list, the group is not in a hurry to find a buyer given its good performance and
decent dividend stream.
Figure 27: Copper and gold price movement
2000
12000
1800
10000
1600
1400
8000
1000
6000
USD
USD
1200
800
4000
600
400
2000
200
0
Jul 06
0
Jul 07
Jul 08
Gold (LHS)
Jul 09
Jul 10
Jul 11
Copper (RHS)
Source: Bloomberg
KMR’s book value at RM145.7m. KMR mine’s remaining ore reserves can support the current rate of
production until mid-2014. Feasibility studies are being undertaken to explore the option of reprocessing the
mine tailings which potentially contain gold as well as the option to mine gold resources at an adjacent site that
could sustain production for at least another year. Exploration is also being intensified with the objective of
finding more resources to extend the life of the mine. Following an airborne electro-magnetic survey and
geological mapping, several prospective targets and promising new anomalies have been delineated for
follow-up ground investigations and potential diamond drilling. With the expected increase in the valuation of
KMR, MSC is seeking to enhance shareholder value by ensuring that its investment in KMR could be sold at a
price that reflects this potential increase in value. For simplicity, we have incorporated the book value of KMR
at RM145.7m as at 31 Dec 2011 as part of our SOP valuation. We think the value is reasonable considering
the earnings contribution in the next three years may be more than enough to cover any potential cost arising
from the worst case scenario (which assumes the closing of the said mine).
26
OSK Research
Asian Mineral Resources – dilution in progress. MSC’s 15.4%-owned AMR is mainly involved in a nickel
mining project in Vietnam. As of 5 May 2012, MSC made an announcement that AMR has entered into a
Share Subscription Agreement with Pala Investment Holdings (Pala) to purchase common shares in AMR. The
placement will provide AMR with the much needed funds to sustain its operations and seek further funding to
complete the Ban Phuc Nickel and Copper Project in Vietnam. Concurrently, MSC has entered into a right of
first refusal agreement, whereby MSC will grant Pala a right of first refusal over MSC’s stake in AMR. Also,
MSC is unconditionally obligated to vote in favour of the transactions provided for in the subscription
agreement between Pala and AMR. Upon the completion of these transactions, MSC’s shareholding in AMR
would be diluted to 11.4% first and then to 10.1% (upon the exercise of warrants by Pala). We view this
positively as the cash investment by Pala may help revamp AMR’s existing projects and thus, adding value to
MSC’s investment in AMR. At the end of the day, we have only incorporated AMR’s market capitalization value
of a mere RM6.3m into our SOP valuation.
Other investments. MSC has also entered into a joint venture (JV) with Guilin Hinwei Tin Company to invest
in a tin mining and smelting project in China. Nonetheless, the JV Chinese party has not been able to fulfil
certain obligations within the specific time frame for MSC to complete its capital injection. As a result, the group
has made a further impairment of RM10.8m in FY11 which caused the book value of this JV on MSC’s balance
sheet to drop to a nominal value of RM2.5m as at end-FY11, In addition. MSC also acquired a 40% stake in
RedRing Soldering SB back in 1999 to venture into downstream activities. RedRing Soldering SB is a smallsized solder manufacturer and its contribution to the Group is not significant but its book value stand at
RM21.2m as at 31 Dec 2011. That said, we have incorporated the book values of these two investments into
our SOP valuation.
Figure 28: Book values of respective investments in associates and joint ventures
KM RESOURCES (30.0%)
REDRING SODLERS (40.0%)
GUILIN HINWEI (34.6%)
0
20
40
60
80
100
120
140
160
RM million
27
OSK Research
APPENDIX I – Simplify corporate structure of MSC Group
MALAYSIA SMELTING
CORPORATION BERHAD
(1)
100.0%
RAHMAN
HYDRAULIC TIN SB
100.0%
100.0%
MSC
PROPERTIES SB
MALAYSIA
SMELTING
CORPORATION
(WAREHOUSING)
SB
99.98%
100.0%
BEMBAN
CORPORATION LTD
PT MSC INDONESIA
100.0%
99.88%
KAJUARA MINING
CORPORATION PTY
LTD
PT BANGKA
RESOURCES
75.0%
PT KOBA TIN
(3)
(2)
34.65%
GUILIN HINWEI TIN
COMPANY
30.0%
KM RESOURCES
INC.
40.0%
REDRING SOLDER
(MALAYSIA) SB
15.42%
ASIAN MINERAL
RESOURCES
LIMITED
Notes:
(1) MSC has entered into a Strategic Alliance Agreement (SAA) with Optima Synergy Resources in March 2012 which will first dilute its equity interests in Bemban
Corporation to 77% and subsequently to 50% subject to fulfillment of conditions precedent in the SAA. As such, MSC’s equity interests in PT Koba Tin will dilute
from 75% to 57.75% and subsequently to 37.5%.
(2) MSC is still on the lookout for buyers who could offer the best price for KM Resources to complete its divestment plan.
(3) Asian Mineral Resources Limited (AMRL) has entered into Share Subscription Agreement with Pala Investment Holdings in such upon completion it will dilute
MSC’s stake from 15.4% to 11.4% and subsequently to 10.1%.
Source: Company Data, OSK Research
28
OSK Research
APPENDIX II – TIN SMELTING PROCESS FLOW
APPENDIX III – TIN MINING PROCESS FLOW
29
OSK Research
EARNINGS FORECAST
FYE Dec (RMm)
FY09
FY10
FY11
FY12F
FY13F
Turnover
EBITDA
Depreciation
Interest Expenses
Exceptional Items
Associate
PBT
Reported Net Profit
Core Net Profit
Core EPS (sen)
DPS (sen)
1851.7
93.8
-26.0
-23.2
65.0
0.2
109.8
72.4
7.4
9.8
3.0
2738.8
123.7
-29.7
-22.4
-154.5
4.4
-78.5
-80.2
74.2
99.0
4.0
3098.6
159.2
-43.6
-23.9
-25.3
24.7
91.1
60.5
85.8
85.8
30.0
3079.1
129.4
-34.6
-20.3
0.0
30.9
105.4
88.0
88.0
88.0
29.3
2985.9
126.4
-23.3
-19.2
-65.0
24.6
43.5
49.2
83.3
83.3
16.4
Margin
EBITDA (%)
PBT (%)
Core Net Profit (%)
5.1
5.9
0.4
4.5
-2.9
2.7
5.1
2.9
2.8
4.2
3.4
2.9
4.2
1.5
2.8
ROE (%)
ROA (%)
4.9
0.9
3.5
1.2
4.3
1.0
4.9
0.9
5.3
0.8
Balance Sheet
Fixed Assets
Current Assets
Total Assets
Current Liabilities
Net Current Assets
LT Liabilities
Shareholders Funds
Net Gearing (%)
88.2
682.6
770.7
614.6
68.0
179.6
367.8
179.7
94.5
838.3
932.8
796.8
41.5
115.4
264.8
158.3
92.4
859.9
952.3
740.5
119.4
69.1
426.7
219.3
92.9
842.5
935.4
684.4
158.2
59.1
492.8
76.8
84.6
795.4
880.1
629.1
166.4
49.1
529.7
71.7
Cashflow
PBT
Other Operating Cash
Chg in Working Capital
Operating Cashflow
CAPEX
FCF
109.8
-89.2
25.1
45.7
-4.0
72.7
-78.5
115.6
-51.8
-14.7
-25.0
48.8
91.1
-20.0
-14.8
56.2
-11.7
119.8
105.4
23.9
83.7
213.0
-16.0
235.7
43.5
63.5
-74.3
32.7
-6.0
150.1
30
OSK Research
OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be
subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial
instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making
based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting
commitments in the securities mentioned.
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Malaysia Smelting Corporation

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