Metal Mining
3Q24 preview: expect a slower quarter, but a majority beat in 9M24 due to low expectations
- We estimate the sector’s 3Q24 earnings to fall back on lower ASP, though they may still beat estimates due to low expectations.
- We expect TINS to be the best performer in 3Q24 amid stable ASP with improvements in volume, while NCKL could be the strongest nickel play.
- We reiterate our Overweight rating on the sector with TINS and NCKL as top picks due to a stronger earnings visibility.
3Q24 preview: an expected weaker quarter, but 9M24 may outperform
Throughout 3Q24, the majority of the base metal prices under our coverage have retreated due to the continued weak industrial and manufacturing activity in China. Notably, LME nickel prices have decreased by -12% qoq, while NPI prices have increased by +3% qoq. As a result, we anticipate a challenging quarter for the sector, with estimated revenue and net profits changes of +11%/-21% qoq. Consequently, our forecasts for 9M24 suggest yoy growth of +23% in revenue, but a decrease of -21% in net profit. Yet, we believe our/cons estimate has been conservative, which resulted in an outperformance in 9M24 where our estimates have reached c.80%/80% of our and c.79%/79% of cons estimates, respectively.
3Q24 earnings potential outperformers: TINS, NCKL
We continue to expect an outperformance from TINS amid 3Q24 LME Tin price average of US$31,700/t, -1.9% qoq. Sales volume for TINS is expected to increase to c.5 kt, +5% qoq, bolstered by improved production output and stronger profitability due to reduced cash costs from the operation of TSL Ausmelt. In the nickel sector, we forecast NCKL to achieve solid earnings of c. Rp1.7tr, -5% qoq. While this reflects a slight decrease, it positions NCKL more favorably compared to the sector average, which we expect to experience declines of -21% qoq. Based on our projections, NCKL’s earnings for 9M24 could reach Rp4.5tr, amounting to 86%/85% of our/cons estimate which would warrant a potential earnings upgrade. Despite a decline in MHP and sulfate prices of -7%/-9% over the quarter, NCKL’s performance should still remain robust as NPI price had improved by +3% qoq, alongside increased limonite sales to ONC that commenced between May and Aug24.
Maintain Overweight on the sector with unchanged top pick of TINS/NCKL
Following subdued demand in 3Q24 from the stainless-steel sector and an uptick in domestic ore supply, we anticipate a temporary correction in NPI prices as we approach year-end where demand for restocking has subsided. Consequently, we expect the benchmark NPI price to remain rangebound between US$11,500 and US$12,000/t. Nonetheless, we maintain an Overweight rating on the sector. Our preferences are as follows: TINS> NCKL> ANTM> MBMA> MDKA> INCO. NCKL remains our top pick in the nickel category due to its strong operational performance and robust earnings visibility. Additionally, we favor TINS, which is supported by a tightening global supply resulting from decreased ore exports from Myanmar to China. Furthermore, we have upgraded ANTM on our pecking order due to the anticipation of a stronger nickel contribution in 4Q24 from improved ore ASP.
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