MSC gets a boost from "cutting-edge" new smelting plant

KUALA LUMPUR: Malaysia Smelting Corp Bhd (MSC) stands poised to benefit from a new and modern smelting plant in Pulau Indah, Selangor replacing the aging inefficient smelter in Butterworth in Penang, said Kenanga Research. 

The firm said the new Pulau Indah plant, with total capital expenditure of RM130 million, was equipped with cutting-edge smelting technology of top submerged lance furnaces.

This will see significant improvement in reaction and production rates as opposed to the aging reverberatory furnace in the Butterworth plant.

"The new plant capacity is 50 per cent higher than the old one and uses superior smelting technology that saves cost by 30 per cent," it said.

In addition, Kenanga Research said there was potential value unlocking of the Butterworth's plant site. 

The smelting facility is sitting on 13.9 acres of land while SMC's parent Straits Trading Company (STC) owns the adjacent piece of land spanning 10.6 hectares. 

"The combined land will be redeveloped into a mixed residential and commercial property project and a master plan has been approved with STC which is in property development to head the development. 

"Meanwhile, development works are being carried out on the 10.6 hectare STC land currently while MSC's 5.6 hectare land, which with book value of RM78.7 million, will only see work commencing three years later after the smelting operations cease," it said. 

Nonetheless, Kenanga Research said with London Metal Exchange (LME) tin prices at all-time-high coupled with its share price surging 65 per cent year to date, MSC appeared to have fairly priced in all the positive catalysts. 

"While we expect financial year 2021 (FY21) earnings to triple on the back of strong tin prices, we expect tin prices to taper off as the supply-demand equilibrium will slowly skew back to pre-Covid situation in FY22-FY23.

"We expect earnings to grow at 23-24 per cent  on the overall structural cost savings from the new plant. 

"As such, we believe MSC should value at 0.5SD to its three year mean of 13.6 times from its mean level of 11.6 times given a reasonable earnings growth for the next two years. This values MSC at RM2.32," it added.

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