Saturday, August 10, 2013

Malaysia Smelting Corp - More Bumps Ahead?

Malaysia Smelting Corp -
Target Price: MYR2.35
Price: MYR3.36
More Bumps Ahead?

Smelt’s  MYR1.1m  2QFY13  core  net  loss,  mainly  due  to  losses  at  PT Koba Tin, and lower tin prices, was a letdown. Hence, we are cutting our FY13/FY14  estimates  by  43.4%/22.8%.  Be  aware  of  a  potential impairment on its KM Resources (KMR) investment. Thus, we set aside MYR0.50  per  share  from  our  1.0x  FY14F  book-based  valuation  and derive a new FV of MYR2.35. We also downgrade the stock to SELL.  

- Worst than expected. Falling average tin prices, which plunged 13% in 2QFY13  to  USD20,946,  gave  early  indications  of  possible  lower  profits for Smelt. Nonetheless, the MYR1.1m core loss was worst than originally estimated. The key reason is the MYR12.9m loss in its PT Koba Tin unit. It  undertook  a  MYR7.2m  write-down  in  its  tin inventory’s net  releasable value  on  top  of  its  regular  overhead  costs  despite  a  stoppage  in operations. The lower tin prices and production volumes also resulted in less contribution from its Malaysian smelting and tin mining units.  

- Impairment after impairment? Smelt has prepared for the worst for PT Koba Tin by making a MYR112.5m impairment and provision in FY12 on uncertainties  over  a  Contract  of  Works  (CoW)  renewal  with  the Indonesian Government. We understand the Government will take extra two months to evaluate the CoW extension application. This quarter also saw  the  group  made  a  MYR3.7m  impairment  on  its  Asian  Mineral Resources  (Not  Rated,  ASC CN)  and  Alphamin  Resources  Corporation (Not Rated, AFM CN) investments, following a prolonged decline in their share prices, which we deem as exceptional. We remain watchful too on Smelt’s  investment  in  KMR,  whose  limited  proven  mine  reserves, coupled  with  lower  gold  and  copper  prices,  suggests  a  potential impairment risk.

- Downgrade to SELL. The poor result prompted us to slash FY13/FY14 estimates by 43.4%/22.8%. Among others, we have reduced Butterworth Smelting’s  production  volumes,  lowered  contributions  from  Smelt’s associates  and  cut  2013  tin  price  estimates  by  USD500  to  USD21,500 per  tonne.  Aside  from  lower  earnings,  we  also  decided  to  set  aside MYR0.50 per share from our 1.0x FY14 P/BV valuation – factoring in the potential  impairment  in  KMR  –  that  lowers  our  FV  to  MYR2.35  (from MYR3.21). We downgrade the stock to SELL.

Source/Extract/Excerpts/来源/转贴/摘录: RHB-Research,
Publish date: 07/08/13

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