Malaysia Smelting Corporation Berhad - Mining the Margins: Structural Efficiency Taking Shape
Tue, 11-Nov-2025 09:53 am
by Research Team • Apex Research

Counter

MSC (5916)

Target Price (RM)

1.70

Recommendation

Buy

  • MSC is targeting c.40% in-house ore contribution by FY26F, supported by the sand-tailings recovery ramp-up and mini-smelter integration to enhance feedstock security and margin resilience.

  • With Myanmar’s export ban lifted, China’s ore sourcing has shifted back to Myanmar, easing spot-market competition and stabilising procurement prices.

  • New sand-tailings plant to add up to c.3 t/day of low-cost tin output with no mining cost, enhancing recovery rates and margins through secondary processing across MSC’s network.

  • Closure of the Butterworth smelter and consolidation at Pulau Indah mark a structural efficiency shift, unlocking FY26F cost savings and higher recovery yields while supporting redevelopment under Straits City.

  • We cut our FY25F earnings by 25.1% due to prior overestimation of tin-ore output, and lift FY26F/FY27F earnings by 12.4%/5.4%, driven by improved ore supply visibility and higher production from RHT.

  • Maintain a BUY call with a higher TP of RM1.70 (from RM1.51), based on a 12x FY26F EPS of 14.1sen (from 12.6sen) and an ascribed three-star ESG rating.

 

We left MSC’s site visit with the following key takeaways:

 

Ore Supply Mix Improving. MSC is deepening its upstream integration to secure feedstock and sustain margin visibility. Management targets c.40% in-house ore contribution by FY26F (vs. c.16% in FY24, c.25–30% currently), supported by the sand-tailings recovery ramp-up. Longer term, self-sufficiency hinges on domestic-ore policy alignment and redevelopment of deeper or idle pools. The Group’s “don’t mine cassiterite, mine tin” strategy underscores a shift toward onsite mini-smelters producing c.70% grade intermediates for Pulau Indah, which not only eliminates logistics drag (by eliminating the transport of impurities), but also enhances overall smelting efficiency and recovery by feeding higher-grade, cleaner concentrates to the main furnace, effectively internalising c.USD 2k/t in smelting margins.

 

Normalising Tin Ore Flows. With Myanmar’s export embargo lifted, regional tin ore supply is gradually normalising. As one of the world’s top three tin producers, Myanmar’s return to the export market has prompted China to resume large-scale purchases given its proximity advantage, reducing earlier reliance on third-party imports. This development is constructive for MSC, as China’s renewed focus on Myanmar-origin ore eases competition in the spot market and helps stabilise procurement prices, which had previously surged when China sourced aggressively from Africa, Indonesia, and Australia. Consequently, MSC is now better positioned to secure feedstock from these alternative regions, improving supply diversification and reducing procurement pressure going forward.

 

Tailings Micro-Scavenging. The newly completed sand-tailings facility is mechanically ready and currently operating on temporary generator power pending TNB grid connection. Once fully commissioned, it is expected to deliver c.2–5% tin recovery by weight, contributing up to c.3 t/day of low-cost output as operations stabilise. The process carries no mining cost, relying solely on processing inputs, while residual tailings will be channelled to other plants for secondary recovery, optimising overall yield and margins.

 

Butterworth Decommissioning & Straits City Redevelopment. Demolition of the Butterworth smelter is progressing, with scrap monetisation managed by the appointed contractor. The site is being repurposed under the Straits City mixed-use redevelopment with parent company STC. Operationally, the closure marks a structural efficiency step-change as all smelting consolidates at Pulau Indah’s top-lance facility, enabling single-pass recovery, higher-grade output, and lower energy intensity. Full run-rate savings are expected from FY26F, with residual high-grade intermediates (70–80% tin) reprocessed through Pulau Indah and satellite plants. The rationalisation enhances recovery efficiency and supports MSC’s positioning as the world’s largest independent tin smelter.

 

Earnings revision. We have raised our RHT tin-ore output assumptions from 13.0/13.5/14.5 t/day to 11.5/14.0/15.0 t/day for FY25F–FY27F, reflecting a more conservative stance that, while higher than our previous forecast, remains below management’s medium-term target of c.40% in-house ore contribution. The FY25F CNP is adjusted by -25.1% to account for prior overestimation of output, as production was temporarily affected by difficulty in sourcing feedstock following Myanmar’s export embargo. Meanwhile, FY26F and FY27F CNPs are revised by +12.4%/+5.4% to capture incremental feed from the new sand-tailings facility and improved third-party ore availability following Myanmar’s policy shift. FY26F–FY27F prospects remain strong, supported by easing ore-supply constraints and rising RHT production.

 

Valuation. We maintain our BUY call with a higher TP of RM1.70 (from RM1.51), based on 12x FY26F EPS of 14.1 sen (from 12.6 sen) and an ascribed three-star ESG rating. We believe MSC remains well-positioned to capitalise on elevated tin prices, with demand expected to continue outpacing supply. Its status as the world’s largest independent tin smelter, coupled with ongoing operational rationalisation, should underpin sustainable earnings growth and margin resilience.

 

Risks. Tin-price volatility, feedstock supply disruption, and commissioning delays at the sand-tailings plant may weigh on earnings and margin recovery.

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