Malaysia Smelting Corporation vs. Perusahaan Sadur Timah Malaysia (PERSTIMA)

The author published the analysis report here is for his own reference only. It is not an indication of the author's business interests for companies being analyzed. It is definitely not an investment advice, please see the full disclaimer located at the bottom of the blog post.

Malaysia Smelting Corporation Berhad's (hereafter called "MSC") principal activities including the smelting of tin concentrates and tin bearing materials, the production of various grades of refined tin metal under the MSC brand name and the sales and delivery of refined tin metal and by-products. Perusahaan Sadur Timah Malaysia (PERSTIMA) Berhad's (hereafter called "PERSTIM") principal activities including operation related to the manufacturing and sale of tinplates and tin free steel.

Side-by-side Comparison

MSC's data is from latest quarterly unaudited report 3Q of 2011, PERSTIM's data is from 2011 annual report

Capitalization
Measure by size, both companies are similar, MSC is slightly bigger than PERSTIM, 23 millions approximately.

Income Items
Important items under this section is per share earnings and dividend, MSC earnings are beating PERSTIM except the Average Earned per share, 2009-2011, as it experienced significant loss in 2010 which drag it dividend down to 0.023 per share. The winner of dividend payment is PERSTIM.

Balance Sheet Items
PERSTIM has very solid balance sheet, Cash or cash equivalents is almost enough cover the Current liabilities and even the Total liabilities. Current assets is more than enough cover the Total liabilities. Even MSC has much higher Liquidity per share, 2.41 compared to PERSTIM, 0.76,  this advantage is offset by it's high Current liabilities, 749 millions.

Ratios
Price-wise, MSC is more attractive at the moment given it sell at lower multiple of earnings currently except Price/earnings, 2009-2011, but it is questionable whether it's current earning momentum is sustainable (more study need to be done). The main concern of MSC is it's level of gearing is comparably high, which recorded 1.83 times. This concern maybe less worrisome as it fully covered by Current Assets where 235.1 millions is Cash or cash equivalents.

PERSTIM is selling at higher valuation at the moment, but it is understandable and reasonable as it has much better number than MSC in all items under this section especially Dividend yield, 8.09%. An exception is it achieved slightly lower return measured by Earnings/book value per share.

PERSTIM has steady earning growth rate in both near-term and long-term. These numbers is not applicable to MSC as it experienced significant loss in 2010.

Price Record
PERSTIM has slightly higher price growth rate in the long-term where MSC has slightly higher price growth rate in the near-term.

Financial Summary

MSC's Financial Summary

By looking into detail of the financial summary of MSC, it experienced 2 bad years out of 5, which is 2008 and 2010. The results in these two years greatly distort the growth numbers and average numbers of the company and make some of these numbers not applicable and meaningless. However, it's 2011 Q3 results are promising which may worth the effort for further study and analysis.

PERSTIM's Financial Summary

PERSTIM has low historical growth record in the past 5 years, recorded Compounded Annual Growth Rate (hereafter called "CAGR") for 6.61% in sales, 6.85% in operating income, 7.1% in net income and earning per share. When look in the detail of growth records in year on year basis, it recorded negative growth rate in earnings in 3 out of 5 years. So, the earning growth of PERSTIM in past 5 years was very much flatten, if not negative. The bright spot in the financial summary is the company recorded 19.48% CAGR in dividend per share and 51.3% reduction of the total liabilities in 2010. A question come to mind is "Is the growth of dividend payment of PERSTIM sustainable?" To answer this question, let's look at a new item: Liquidity per share in the financial summary. I am confident that the company wouldn't have problem to maintain it's level of dividend payment in next 5 years as long as the CAGR of Liquidity per share grow in parallel with Dividend per share. The annual growth of dividend payment may not as high as 19%, but I think 10% annually growth is not a problem.

As conclusion, the ultimate winner of this comparison is PERSTIM.

How Much PERSTIM Worth?
Given the company CAGR of EPS is 7% (approximately 7.1% in the past 5 years) and Dividend Per Share is 8% in the next 10 years, the EPS of the company will be RM$0.636 in 2021 (included adjustment of 2 bad years in 10 which reduce 30% of group's net profit) and the forecast dividends received over the 10 years period totaling RM$3.00 (included adjustment of 2 bad years).

If the stock price of PERSTIM sell at 5 times earning in 2021, it is RM$3.18 and included total dividends received, it is RM$6.18 per share. Given annual 6% inflation rate in next 10 years, the discounted rate is 0.591898. So, RM$6.18 discounted to today price, it is RM$3.66 per share.

The discounted price is 1.34% lower comparing to today (23 December 2011) closing price RM$3.71. In my opinion, the stock is in fairly value, what do you think?