Merdeka Battery Materials (MBMA IJ)

Solid 2Q24 earnings, but 1H24 still a miss, downgrading numbers on weaker commodity prices

 

  • MBMA’s 2Q24 earnings was a robust US$16.7mn, but we see a weaker 3Q24 ahead.
  • AIM project will now contribute in FY25 instead, due to delays in commissioning.
  • We lowered our FY24-26F forecasts by -21%/+2%/-12% and trimmed our TP to Rp650; reiterate Buy rating on upsides from growth projects.

 

Solid 2Q24 earnings, but we expect a slowdown in 3Q24

MBMA recorded 2Q24 net profit of US$16.7mn (+232% yoy, +356% qoq), which was supported by a stronger NPI cash margin of US$1,166/ton (+40% qoq) and matte cash margin of US$1,803/ton (+253% qoq). 1H24 net profit stood at US$20.4mn (+204% yoy), reaching 43%/34% of our/cons estimate. Meanwhile, 2Q revenue was flat at US$477mn (+7.5% qoq), with 6M24 revenue of US$922mn (+163% yoy), reaching 51%/48% of our/cons estimate.

 

AIM contribution to materialize only in FY25

During the earnings call, the management mentioned that due to the delays in commissioning progress, it is likely that the AIM project will only contribute to earnings starting FY25, after the completion of its copper cathode plant at the end of 4Q24. Thus, we factor in AIM’s contribution starting FY25, along with its interest expense. Furthermore, AIM will source pyrite ore from Wetar as feed of c.1-1.1 Mtpa, which will be priced within a relatively fixed price range. Thus, any rise or fall in copper and gold prices would not affect the raw material cost.

 

RKEF maintenance lowers output expectation

MBMA revised down its FY24 guidance for NPI production by -6% to -8% to 80kt-85kt due to a scheduled refractory lining on BSID’s RKEF smelter, which may take c.4 months at the end of the year. Thus, we have also decreased our NPI production to 82ktpa (Prev.: 85ktpa). Furthermore, MBMA has discontinued its plan to add a nickel matte converter on one of its RKEF smelters due to the lower profitability of Matte from declining LME nickel price. Going forward, HNMI will source LGNM from a 3rd party smelter in IMIP.

 

Maintain Buy rating with a lower TP of Rp650

We lowered our FY24-25F estimates and TP to Rp650, as we expect a weaker 2H24 from the declining nickel prices. Furthermore, we have factored in lower sales volume of NPI and Limonite ore according to the latest guidance. Additionally, we have included AIM and ESG’s financial projection into our estimates, which resulted in a FY24-26F EPS estimates adjustments of -20.6%/ +1.8%/ -11.7% to US$38mn/ 115mn/ 148mn. However, we reiterate 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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