Malaysia Smelting Corporation Bhd's (MSC) recent performance and outlook of a core net profit of RM18.3 million for 1Q24, showing a significant 66% increase quarter-on-quarter but a 48% decline year-on-year (yoy) highlighted by Malacca Securities Investment Bank (Malacca Securities), in its update today (9 July, Tuesday). Despite this, Malacca Securities foresees the potential for an earnings recovery in 2H24, buoyed by strong tin prices observed in the first half of the year.

Malacca Securities upgraded MSC to a BUY rating with an unchanged target price (TP) of RM3.40. This valuation is based on a P/E ratio of 15.0x relative to MSC's projected FY24 EPS of 22.7 sen, positioned at a 30% discount to its 5-year average P/E of 21.4x. The decision reflects optimism surrounding the commodity upcycle, increased investments in EVs, solar energy, and the recovery in Chinese markets, all of which bolster tin prices and MSC's earnings potential.

Tin prices demonstrated resilience, rising from USD24,666 in 4Q23 to USD26,397 in 1Q24 and further to USD32,325 in 2Q24, supported by supply disruptions in Indonesia and Myanmar, alongside robust demand from the semiconductor and electronics sectors globally.

The House highlighted the strong correlation between MSC's share price and tin prices, indicating a potential for an elevated P/E in the future. They emphasized minimal downside risks for tin prices, supported by sustained demand from EV, electronics, and solar sectors, making MSC an appealing choice for investors in the current market environment.

Malacca Securities advises investors to consider MSC for its strategic position in a favourable commodity cycle and promising outlook in key sectors. With the TP indicating substantial upside from current levels, investors interested in leveraging the anticipated recovery and growth in tin prices may find MSC an attractive addition to their investment portfolio.