Merdeka Battery Materials (MBMA)
Earnings Miss due to FX Loss; Lowering Our Est. on Potential Higher Cost
- FY25 net profit missed estimate dragged by fx loss with weaker JV income despite strong EBITDA growth (+34% y-y).
- We see geopolitical-driven cost pressure emerges, with sulfur surging to ~US$170/ton impacting HPAL and mining cost structure.
- Maintain BUY with lower TP of Rp880, as trimmed 26F–27F margin assumptions are largely offset by AIM acid hedge benefits.
FY25 earnings miss from weaker JV income and higher finance costs
MBMA posted a mixed 4Q25, with net profit at US$4.3mn (-78% q-q; -1.3% y-y), dragged by weaker JV income and higher finance costs despite solid operations. FY25 net profit reached US$29.6mn (+29.8% y-y), below ours and consensus estimates (79%/ 94% of FY25F). 4Q25 EBITDA remained strong, at US$78.9mn (+25% q-q; +62.6% y-y), supported by HGNM restart and higher limonite sales. Despite FY25 revenue declining to US$1.43bn (-22% y-y), EBITDA grew to US$218.7mn (+34.2% y-y, beat at 105.4% of FY25), driven by improved NPI cost efficiency, stronger limonite contribution, and positive associate income (US$10.6mn).
Geopolitical-driven cost pressure
During the FY25 earnings call, management flagged geopolitical tensions as a key concern, particularly the sharp rise in sulfur prices from ~US$50 to US$160–170/ton, which is critical for HPAL operations given ~27 tons of sulfuric acid are required per ton of MHP. Elevated fuel prices (~US$100/bbl) add further pressure, with cost impact of +US$2–3/wmt (saprolite) and +US$1–1.2/wmt (limonite). However, MBMA is relatively insulated via its AIM facility (acid hedge), diversified sourcing, and secured supply, implying manageable impact. Into 1Q26F, production should remain seasonally softer, with flattish q-q performance but margin support from hedging.
Maintain Buy with Lower TP of Rp880
We make slight revisions to our forecasts, lowering FY26F–27F revenue/ net profit by -11.4%/-0.2% and -3.2%/+5.7%, respectively to reflect more conservative volume assumptions and potential cost pressures. We see rising input costs, particularly sulfur and fuel, amid ongoing geopolitical uncertainty as a key overhang at least through FY26F, given that ~40% of HPAL cost is linked to sulfur. Accordingly, we lower our DCF-based TP to Rp880 to reflect our revised assumptions. Nonetheless, we maintain our Buy rating, supported by continued margin expansion from HGNM and NPI segments. Key risks include cost volatility, downside in nickel prices, and potential delays in project execution.
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