Merdeka Battery Materials (MBMA.IJ Rp 376; BUY TP Rp 530) Growth is imminent, subject to AIM’s delivery

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Merdeka Battery Materials (MBMA IJ)

Growth is imminent, subject to AIM’s delivery

Management targets flattish NPI/HGNM output in FY25, but it could potentially suspend HGNM production if it is not economically feasible.
SCM’s limonite ore production is poised to grow by +24%-49% in FY25, which will be sold to ESG HPAL and Meiming after FPP is ready in 2H25.
We lowered our FY24-26F earnings forecasts by -14%/-35%/-26% and TP to Rp530; reiterate Buy rating on upsides from growth projects.

Possible matte production suspension

4Q24 NPI performance excelled as cash margin rose to its highest since 1Q23 at US$1,850/t, supported by declining cash cost of -7% qoq, at US$10k/t. We believe the decline was due to the overhaul in BSI smelter, which made it more efficient. Furthermore, the weaker LME price has also subdued ore price as material cost. On the other hand, its nickel matte facility recorded a weaker negative cash margin of US$1,083/t from the decline in LME price, bringing FY24 cash margin to only US$223/t, -73% yoy. Moving into FY25, MBMA has guided for similar production and cash cost as in FY24 for both NPI and HGNM, though it guides that, should the matte facility’s margin remain unattractive, production could possibly be suspended and restarted when prices improve.

Solid growth from SCM mine

SCM has expanded its mining operation as limonite ore production grew from 4mt in FY23 to 10.1mt in FY24. Following a larger scale operation, its cash cost also decreased -14% yoy to US$10.4/wmt, well below the guided US$12/wmt. Thus, its cash margin improved by +20% yoy to US$6.1/wmt. In FY25, management guided for a production of 12.5-15mt, +24%-49% yoy, to fulfill additional demand from newly operating HPALs. By Dec24, MBMA’s JV with GEM, ESG HPAL, commenced phase-1 of production in Dec24 at 20ktpa, while phase-2 of 10ktpa is expected to follow suit in 1Q25. At the moment, the HPAL feeds ore from a FPP in IMIP, though it will switch to SCM’s slurry pipe in 2H25.

AIM project’s process and progress

AIM has 4 interconnected plants that feed off from 1mtpa of pyrite ore sent from Wetar. As per 4Q24, [1] the pyrite plant processed 147kt of pyrite ore and produced 110kt concentrate for [2] the acid plant, which had produced 165kt of acid and 225kt of steam used in HPALs. The calcine residue is then processed in [3] the chloride plant, which had produced wet iron pellets, and in Jan25 have extracted its first sponge copper. Finally, [4] the copper cathode plant, which extracts copper, gold, and silver, is scheduled to complete by 1H25.

Maintain Buy rating with a slightly lower TP of Rp530

We lowered our FY24-26F earnings estimates by -14%/-35%/-26% as we adjust our assumptions based on FY25 guidance and potential delays in AIM contribution. We maintain our Buy rating on valuation upsides from key growth projects. Key risks include a higher cash cost, lower ASP, and project delays.

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