Summary

• Below expectations. Malaysia Smelting Corporation Bhd (MSC) registered 2QFY24 core PATMI of RM16.7m (-9% QoQ, -41% YoY), bringing the 1H24 core PATMI to RM35.0m. The 1H24 core PATMI only accounted for 37% of our and consensus estimates of RM95.4m and RM93.5m, respectively, and it is below expectations. Key deviations were mainly due to softer tin smelting performance amid the annual re-bricking and scheduled maintenance of the TSL furnace (mid-May to mid-July).

• QoQ. In 2Q24, despite higher revenue at RM410.8m (+13%), core PATMI fell -9% as the tin smelting segment’s performance was affected by the annual re-bricking and scheduled maintenance of the TSL furnace that commenced in mid-May, resulting in lower profit for the tin smelting segment. However, the tin mining segment recorded higher PBT due to a higher average tin price at RM153.4k/MT in 2Q24 compared to RM124.9k/MT in 1Q24.

• YoY. Similarly, revenue rose 26% YoY due to a higher average tin price of RM153.4k/MT compared to RM116.5k/MT in 2Q23, but core PATMI plunged -41% as the tin smelting segment’s performance was affected by the scheduled maintenance of the TSL furnace. Thus, lower refined tin production, smelting revenue, and sales of refined tin derived from the processed tin intermediates have resulted in lower profit for the tin smelting segment.

• YTD. 1H24’s core PATMI fell -45% to RM35.0m as the tin smelting segment was affected by (i) lower incoming feed due to China buying feed directly from MSC’s suppliers in 1Q24, while the scheduled maintenance affected 2Q24 performance. However, a higher average tin price of RM139.1k/MT in 1H24 was observed compared to RM116.3k/MT in 1H23, resulting in higher revenue of RM773.3m (+16% YoY).

• Outlook. MSC’s tin smelting operations in Butterworth will be decommissioned by 2025 and shifted to Pulau Indah. The group anticipates cost savings of up to 30% due to higher efficiency from lower operational and manpower costs, and its energy-saving initiatives; the Pulau Indah plant utilizes a 1.26MWp solar PV system, which will further reduce the overall carbon footprint and energy costs.

• Cease coverage. We terminate our coverage on MSC due to a reallocation of resources. Our last rating on MSC was HOLD with a TP of RM3.41. Our earlier TP was based on an assigned P/E of 15.0x pegged to its FY24f EPS of 22.7 sen.

Source: Mplus Research - 5 Aug 2024