Merdeka Battery Materials (MBMA IJ)
1Q24 earnings miss, but better prospect in 2Q24 from expanding Matte margin
- 1Q results were below estimates, however we remain optimistic on 2Q earnings as nickel matte ASP could improve on higher LME price
- SCM could double its production capacity to >20mt by 2025 as demand pour in from HPAL plants in IMIP
- We maintain our FY24-25F and an unchanged TP of Rp700. Reiterate Buy rating on value upside from growth projects
1Q24 earnings below, but expect improvements in 2Q24 onward
MBMA recorded 1Q24 net profit of US$3.7mn (-41% qoq), despite -20% qoq NPI cash margin decrease. While 1Q24 earnings only accounted for 7.7%/ 2.7% of our/ consensus FY24F estimate, we expect earnings to improve in 2Q24 onwards as LME price have risen by +14% qtd, which should boost its matte’s cash margin to offset NPI’s possible higher cash cost as it only rises +2% qtd.
AIM to contribute in 2H24
During the earnings call, management guides that MBMA’s AIM project shall start producing copper sponge and cathode in 3Q24 and 4Q24 respectively, and to eventually produce 15-18kt of copper annually (equal to Wetar’s output). However, as majority of its plants will only be operational in 2H24, management expects significant positive EBITDA contribution starting 4Q24, with a target of US$160-180mn p.a.
Monetizing SCM’s vast ore reserve
Management expects the SCM mine to double its ore sales in FY25 as ESG HPAL and another HPAL plant associated with GEM requires an additional c.11Mtpa of limonite by mid-2025. Thus, MBMA’s total ore sales could increase to 20Mtpa in limonite, whilst management believes that its cash cost would slightly decrease to US$8/ton (vs. US$10/ton currently) due to the economies of scale. However, we maintain our FY24-25F forecast of 15Mt for now as doubling capacity in a year could prove challenging.
Maintain Buy rating with unchanged TP of Rp700
We maintain our FY24-26F estimates and TP of Rp700 as we expect its 2Q performance to improve on the back of a stronger cash margin. We maintain our Buy rating on MBMA’s attractive value upside from growth projects and prefer the stock over its parent MDKA, which posted 1Q24 net loss due to higher-than-expected interest expense. Key risks are higher cash cost, lower ASP, and project delays
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