ESSA Industries Indonesia (ESSA IJ)

Blue Ammonia as Future Value Driver; Initiate with Buy Rating and TP of Rp750

• We forecast ammonia prices to be ~8% lower in FY25F vs FY24, and continue to normalize, lowering ESSA's GPM by ~300bps ex-maintenance.
• We project the Blue ammonia project will enhance ESSA earnings to US$42-52mn/yr in FY29F-FY35F (vs. US$30-40mn/yr currently).
• Initiate ESSA with a Buy rating and TP of Rp750. Downside risks are delay of blue ammonia project and lower blue ammonia premium.

Expect grey ammonia price to normalize; blue ammonia is the future

We forecast ammonia price to avg at US$322/MT in FY25, ~8% lower than FY24 avg, as we expect higher demand in the US will be offset by slower China imports and higher inventory in the SEA region. We estimate this will lower ESSA’s FY25F-FY27F GPM by ~300bps ex-maintenance vs FY24 level. ESSA plans to convert its ammonia plant to produce blue ammonia, with production slated to commence in 4Q28F. We expect blue ammonia to yield ~11-14% price premium over grey ammonia, in line with the upper range of the S&P tracker. Blue ammonia production incurs higher cash costs than grey ammonia, with an additional cost at ~US$34/MT today, declining to ~US$23/MT by 2030F. We expect blended ammonia segment GPM to dip to 27% in FY28F due to the ramp-up of blue ammonia (vs FY25F-FY27F avg of 29%) before recovering to 30%-33% from FY30F onward. The blue ammonia project shall be margin accretive and lead to higher earnings run rate from US$30-40mn/yr in FY25F-FY28F to US$42-52mn/yr in FY29F-FY35F, assuming grey ammonia price of US$306/MT.

SAF project is expected to enhance revenue, but need further details

ESSA is currently in the study phase to produce SAF, with production expected to commence in 1Q28F. While we have not yet incorporated this project into our estimates, using ESSA’s planned 260 million liters capacity and the current unsubsidized US SAF price of ~US$1.2/liter, we estimate this could potentially generate ~US$312mn in additional annual revenue, potentially more than doubling our projected FY28F revenue onward.

Initiating ESSA with BUY rating and TP of Rp750

We initiate coverage on ESSA with a Buy rating and a SOTP-based target price of Rp750, implying 18x FY26F P/E. ESSA is currently trading at 19x forward P/E, in line with its five-year historical average. We expect ESSA’s plan to upgrade its grey ammonia plant to blue ammonia to provide upside to margins starting in FY30F, as the premium for blue ammonia over grey ammonia is expected to remain intact, while cash costs should decline with technological advancements. Downside risks include: 1) Delays in the blue ammonia project. 2) Lower economies of scale for blue ammonia (e.g., a decline in premium or slower cost reductions). 3) Falling ammonia prices.

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