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Trimegah Bangun Persada (NCKL IJ) (Buy) - Superior performance

Trimegah Bangun Persada (NCKL IJ) (Buy) - Superior performance

Mining MW EP 554 25th Nov, 2024

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Superior performance

Maintain Buy with higher TP of IDR1,430

3Q24 result review: Record-high quarterly profit

NCKL booked an outstanding 3Q result, with 9M24 earnings comprising 90% of our forecast and the Bloomberg consensus estimate. 3Q24 earnings were a record high at IDR2tn (+13% q-q). This was attributed by management to 69% higher q-q limonite ore sales (coming from more internal demand) and lower cash costs due to a larger-scale operation. FeNi margin improved by 22% q-q due to higher ASP. The company introduced new electrolytic cobalt sales as part of downstream products from MHP with 55% higher ASP while also having relatively the same cash costs compared to cobalt sulfate production.

Following the superior performance, we revise up earnings by 30% on higher-than-expected production and margin

We revise our revenue projections by 5.1%/8.1%/5.8% for FY24F/25F/26F, as well as our earnings projections by 30%/27%/10% for FY24F/25F/26F, as we revise up ASP, FeNi sales and lower overall cash costs. NCKL has succeeded in maintaining its FeNi and MHP production above capacity; hence, the superior cash costs. Several positive catalysts for the stock, notably: 1) full production of ONC HPAL (10% ownership) to contribute to high limonite ore sales; 2) KPS (the third RKEF plant) is expected to be finished by the 1Q25;, and 3) new electrolytic cobalt boosting overall profitability. Following the recent announcement, management is considering acquiring a stake in nickel processing, with ONC HPAL as one of the potential segments being identified. While waiting for further guidance, our scenario analysis shows that acquiring an additional 10% stake would increase NPAT by 11% for FY25F.

Valuation: Maintain buy with a higher TP of IDR1,430

We maintain our Buy rating with a higher TP of IDR1,430, which we derive based on a DCF-based SOTP valuation assuming a 10% WACC (unchanged). Our TP implies a FY25F P/E of 11.4x. Among nickel companies, we favor NCKL IJ, as it is one of the lowest-cash-cost producers with strong execution, high ROE compared to peers, with what we view as an undemanding valuation. Risks to our view include commodity price volatility, slowing EV demand, slower-than-expected commissioning of new projects, and limited current nickel mine life.

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)23,85825,89127,21327,14629,34329,15430,857
Reported net profit (bn)5,6194,7106,1336,2277,9529,0719,968
Normalised net profit (bn)5,6194,7106,1336,2277,9529,0719,968
FD normalised EPS89.0574.6597.2098.69126.03143.76157.98
FD norm. EPS growth (%)20.4-16.29.132.229.745.725.3
FD normalised P/E (x)9.4–8.6–6.6–5.3
EV/EBITDA (x)6.4–5.4–4.6–3.7
Price/book (x)2.2–1.9–1.5–1.3
Dividend yield (%)3.4–3.2–3.5–4.5
ROE (%)34.118.723.821.525.726.426.3
Net debt/equity (%)17.88.38.95.7net cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on Trimegah Bangun Persada

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
9,568
23,858
27,213
29,343
30,857
Cost of goods sold
-4,893
-15,582
-18,346
-19,356
-18,914
Gross profit
4,675
8,276
8,867
9,987
11,942
SG&A
-890
-1,446
-1,415
-1,526
-1,605
Employee share expense
Operating profit
3,785
6,830
7,452
8,461
10,338
EBITDA
4,358
8,119
9,083
10,145
12,074
Depreciation
-573
-1,289
-1,631
-1,683
-1,736
Amortisation
EBIT
3,785
6,830
7,452
8,461
10,338
Net interest expense
-250
-427
-796
-544
-293
Associates & JCEs
2,916
1,578
2,277
3,054
3,675
Other income
198
194
0
0
0
Earnings before tax
6,650
8,175
8,933
10,972
13,720
Income tax
-812
-1,107
-1,034
-1,273
-1,473
Net profit after tax
5,837
7,068
7,899
9,699
12,247
Minority interests
78
-1,449
-1,766
-1,746
-2,279
Other items
-1,248
0
0
0
0
Preferred dividends
Normalised NPAT
4,667
5,619
6,133
7,952
9,968
Extraordinary items
Reported NPAT
4,667
5,619
6,133
7,952
9,968
Dividends
-209
-1,795
-1,686
-1,840
-2,386
Transfer to reserves
4,458
3,824
4,447
6,113
7,582
Valuations and ratios
Reported P/E (x)
11.3
9.4
8.6
6.6
5.3
Normalised P/E (x)
11.3
9.4
8.6
6.6
5.3
FD normalised P/E (x)
11.3
9.4
8.6
6.6
5.3
Dividend yield (%)
0.4
3.4
3.2
3.5
4.5
Price/cashflow (x)
22.7
9.4
5.9
5.0
3.8
Price/book (x)
5.6
2.2
1.9
1.5
1.3
EV/EBITDA (x)
8.9
6.4
5.4
4.6
3.7
EV/EBIT (x)
9.6
7.3
6.4
5.3
4.1
Gross margin (%)
48.9
34.7
32.6
34.0
38.7
EBITDA margin (%)
45.5
34.0
33.4
34.6
39.1
EBIT margin (%)
39.6
28.6
27.4
28.8
33.5
Net margin (%)
48.8
23.6
22.5
27.1
32.3
Effective tax rate (%)
12.2
13.5
11.6
11.6
10.7
Dividend payout (%)
4.5
31.9
27.5
23.1
23.9
ROE (%)
61.7
34.1
23.8
25.7
26.3
ROA (pretax %)
25.9
22.5
22.4
23.9
26.2
Growth (%)
Revenue
16.3
149.4
14.1
7.8
5.2
EBITDA
2.8
86.3
11.9
11.7
19.0
Normalised EPS
137.1
20.4
9.1
29.7
25.3
Normalised FDEPS
137.1
20.4
9.1
29.7
25.3
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
4,358
8,119
9,083
10,145
12,074
Change in working capital
2,860
-4,915
-1,861
-383
-244
Other operating cashflow
-4,898
2,387
1,675
761
1,890
Cashflow from operations
2,320
5,590
8,898
10,523
13,720
Capital expenditure
-8,721
-3,408
-766
-868
-879
Free cashflow
-6,400
2,182
8,132
9,654
12,841
Reduction in investments
-3,437
-3,716
-4,425
-5,397
-5,712
Net acquisitions
Dec in other LT assets
1,094
190
-152
-41
-29
Inc in other LT liabilities
253
-1,018
972
111
79
Adjustments
-1,741
1,447
-769
-89
-63
CF after investing acts
-10,231
-916
3,758
4,239
7,116
Cash dividends
-209
-1,795
-1,686
-1,840
-2,386
Equity issue
6,619
9,697
0
0
0
Debt issue
2,940
-282
3,341
0
0
Convertible debt issue
Others
-420
-4,047
-350
565
82
CF from financial acts
8,930
3,573
1,306
-1,275
-2,304
Net cashflow
-1,301
2,658
5,063
2,964
4,813
Beginning cash
2,578
1,277
3,935
8,998
11,962
Ending cash
1,277
3,935
8,998
11,962
16,775
Ending net debt
7,149
4,178
2,487
-477
-5,290
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
1,277
3,935
8,998
11,962
16,775
Marketable securities
Accounts receivable
449
1,343
1,640
1,769
1,860
Inventories
4,087
5,504
5,577
6,198
6,291
Other current assets
521
978
1,116
1,203
1,265
Total current assets
6,334
11,759
17,331
21,132
26,191
LT investments
6,990
10,705
15,130
20,528
26,240
Fixed assets
20,725
22,458
21,514
20,699
19,842
Goodwill
0
0
0
0
0
Other intangible assets
Other LT assets
556
366
518
559
588
Total assets
34,605
45,289
54,494
62,917
72,860
Short-term debt
117
1,362
2,412
2,412
2,412
Accounts payable
6,036
6,142
5,026
5,303
5,182
Other current liabilities
4,056
1,803
1,566
1,742
1,866
Total current liabilities
10,209
9,306
9,005
9,458
9,461
Long-term debt
8,309
6,751
9,072
9,072
9,072
Convertible debt
Other LT liabilities
1,858
840
1,812
1,923
2,002
Total liabilities
20,376
16,897
19,888
20,453
20,535
Minority interest
4,745
4,895
6,661
8,407
10,686
Preferred stock
Common stock
6,981
16,677
16,677
16,677
16,677
Retained earnings
2,503
6,820
11,267
17,380
24,962
Proposed dividends
Other equity and reserves
Total shareholders' equity
9,484
23,497
27,945
34,057
41,640
Total equity & liabilities
34,605
45,289
54,494
62,917
72,860
Liquidity (x)
Current ratio
0.62
1.26
1.92
2.23
2.77
Interest cover
15.2
16.0
9.4
15.6
35.3
Leverage
Net debt/EBITDA (x)
1.64
0.51
0.27
net cash
net cash
Net debt/equity (%)
75.4
17.8
8.9
net cash
net cash
Per share
Reported EPS (IDR)
73.96
89.05
97.20
126.03
157.98
Norm EPS (IDR)
73.96
89.05
97.20
126.03
157.98
FD norm EPS (IDR)
73.96
89.05
97.20
126.03
157.98
BVPS (IDR)
150.30
372.39
442.87
539.75
659.91
DPS (IDR)
3.31
28.45
26.72
29.16
37.81
Activity (days)
Days receivable
17.6
13.7
20.1
21.2
21.5
Days inventory
200.9
112.3
110.5
111.0
120.5
Days payable
363.3
142.6
111.4
97.4
101.2
Cash cycle
-144.8
-16.6
19.2
34.8
40.8
Source: Company data, Verdhana estimates
Company profilePT Trimegah Bangun Persada Tbk was established in 2004 and first listed in Indonesia Stock Exchange in 2023 with the ticker name NCKL IJ raising IDR9.99tn (~USD666mn). NCKL operates in mining, producing, and refining nickel activities as well as stainless steel plant. Partnering with Lygend (2245 HK; not rated), the company currently produces first nickel products in the form of second-class nickel products such as Ferronickel (FeNi) and first-class nickel-cobalt compound. In addition, the company also develops stainless steel plants located in Obi Island.
Valuation MethodologyOur TP of IDR1,430 derived from an SOTP valuation with a 10% WACC. Our TP implies 11.4x FY25F PE. The benchmark index is JCI index.
Risks that may impede the achievement of the target priceRisks include commodity price volatility, slowing EV demand, slower-than-expected commissioning of new projects, and limited current nickel mine life.
ESGTBP is working closely with the Indonesian government to achieve net zero emissions by 2060 or sooner, and supporting the target of 23% renewable energy generation by 2025. The company actively implements biodiversity conservation programs, focusing on safeguarding endangered species and restoring degraded habitats. Additionally, TBP prioritizes minimizing air and water pollution through advanced emission control technologies and wastewater treatment facilities, exemplifying its dedication to sustainable practices and environmental responsibility. In terms of energy, several initiatives including: 1. Upgraded its power plants and transportation equipment to use 30% biodiesel blend as part of its efforts to reduce scope 1 emissions. 2. MSP reused used cooking oil for energy generation in its industrial operations as a replacement for coal at its RKEF.

Fig. 1: NCKL 3Q24 result recap

NCKL 3Q24 result         FY24F/FY24F
in IDR bn3Q232Q243Q24QoQ YoY 9M239M24YoY% Ve% cons
Revenue7,0576,7707,57512%7%    17,300   20,37818%79%78%
Gross Profit2,6352,2052,84029%8%      6,134     6,6639%93%83%
EBIT2,3341,8602,52236%8%      5,081     5,62611%105%90%
EBITDA2,6762,3032,95028%10%      5,978     6,92116%108%92%
Net Income1,7191,8052,03313%18%      4,465     4,8398%103%90%
JV income4376556773%55%      1,376     1,60917%101% 
            
GPM37.3%32.6%37.5%   35.5%32.7%   
OPM33.1%27.5%33.3%   29.4%27.6%   
EBITDA37.9%34.0%39.0%   34.6%34.0%   
NPM24.4%26.7%26.8%   25.8%23.7%   
            
NCKL operational3Q232Q243Q24QoQ YoY 9M239M24YoY% FY24F 
Limonite-Mine           
Lim production (Ktons-Ni)         3.6         3.4         4.531%24%           10          1218%88% 
Lim sales (Ktons-Ni)         2.5         3.0         5.169%103%             7          1048%75% 
Lim ASP (USD/ton)         20         17         16-6%-20%          24         16-33%  
Lim CC (USD/ton)           6           7           6-14%0%            7           6-14%  
Cash margin (USD/ton)         14         10         100%-29%          17         10-41%  
FeNi-RKEF         
FeNi production (Ktons-Ni)   31,444   32,980   32,399-2%3%    68,994   95,81339%79% 
FeNi sales (Ktons-Ni)   32,011   32,353   33,1783%4%    69,785   97,17739%80% 
FeNi ASP (USD/ton)  12,914  11,294  11,9216%-8%   14,090  11,586-18%  
FeNi CC (USD/ton)    9,251    8,371    8,3530%-10%   10,332    8,442-18%  
Cash margin (USD/ton)    3,663    2,923    3,56822%-3%     3,758    3,144-16%  
MHP-HPAL           
MHP production (Ktons-Ni)   16,889   21,618   33,19754%97%    46,891   71,53153%75% 
MHP sales (Ktons-Ni)   10,928     8,595   23,043168%111%    34,897   39,53713%62% 
MHP ASP (USD/ton)  13,380  14,505  13,707-6%2%   15,743  13,405-15%  
MHP CC (USD/ton)    5,970    5,880    5,727-3%-4%     6,824    5,897-14%  
Cash margin (USD/ton)    7,410    8,625    7,980-7%8%     8,919    7,508-16%  
Ni Sulfate         
Ni sulfate prod (Ktons-Ni)     6,490     9,864     9,9471%53%      9,287   29,475217%93% 
Ni sulfate sales (Ktons-Ni)     6,244   11,213     9,896-12%58%      7,534   28,874283%91% 
Ni-Co sulfate ASP (USD/t)  15,860  15,677  14,201-9%-10%   16,042  14,430-10%  
Ni-Co sulfate CC (USD/t)    9,325    8,278    7,969-4%-15%     9,640    8,357-13%  
Cash margin (USD/ton)    6,535    7,399    6,233-16%-5%     6,402    6,073-5%  
Sulfate margin as % of MHP88%86%78%   72%81%   
Electrolytic product           
Electrolytic Co (EC) prod (Kt-Co)           -             -          238N/AN/A            -          238N/A  
Electrolytic Co sales (Kt-Co)           -             -          180N/AN/A            -          180N/A  
ASP (USD/t)          -            -    22,047N/AN/A           -    22,047N/A  
Cash costs (USD/t)          -            -      8,308N/AN/A           -      8,308N/A  
Cash margin (USD/ton)          -            -    13,739N/AN/A           -    13,739N/A  
Sulfate margin as % of MHP  172%    183%   
MHP-Sulf-EC Blended margin    7,118    7,930    7,455-6%5%     8,467    6,902-18%  
Note:  Consensus is from Bloomberg consensus estimates
Source: Company data, Bloomberg Finance L.P., Verdhana estimates

 

Fig. 2: NCKL Key performance charts – quarterly trend

Source: Company data, Verdhana research

 

Fig. 3: NCKL’s smelter operating above nameplate capacity and providing more sulfate product

Source: Company data, Verdhana research

 

Fig. 4: Our scenario shows by acquiring an additional 10% of ONC HPAL will be value accretive and improve NPAT

Source: Company data, Verdhana estimates

 

Fig. 5: Capex timeline- NCKL has passed high capex cycle

Source: Company data, Verdhana  estimates
Fig. 6: EBITDA and JV income projection

Source: Company data, Verdhanaestimates

 

Fig. 7: NCKL assumption changes – revise up ASP and lower cash cost

Source: Company data, Verdhana estimates

 

Fig. 8: Consensus has yet to upgrade their forecast

Source: Bloomberg Finance L.P., Verdhana estimates

 

Fig. 9: NCKL SOTP

Sum of the PartsImplied gross EV (USD mn)EV stake adj (USD mn)EV stake adj (IDRbn)Valuation MethodologyFY25F NPAT (ex minority - IDRbn)FY25F Implied valuationImplied valuation at TPImplied Valuation at TP MethodSOTP (%)Per share
Identifiable production          
Nickel mines (100%)       1,256       1,248          19,3508-years DCF - WACC (10.0%)          2,271           8.5         7.11 FY24F PE 21%          307
MSP (60%)          696          417            6,47020-years DCF - WACC (10.0%)             541         12.0     27,830 EV/ton capacity (USD/t) 7%          103
HJF (40%)       2,859       1,146          17,76720-years DCF - WACC (10.0%)          2,330           7.6     30,094 EV/ton capacity (USD/t) 19%          282
           
Future project          
Unmined nickel reserves          262          262            4,063EV/reserves USD7/5 per ton of saprolite/limonite               -   - 4%            64
RKEF          
KPS (35%)       3,139       1,099          17,02720-years DCF - WACC (10.0%)             872         19.5     16,966 EV/ton capacity (USD/t) 18%          270
HPAL          
HPL (45.1%)       3,239       1,461          22,64520-years DCF - WACC (10.0%)          2,182         10.4     58,898 EV/ton capacity (USD/t) 24%          359
ONC (10%)       3,471          347            5,38020-years DCF - WACC (10.0%)             460         11.7     53,397EV/ton capacity (USD/t)6%            85
Total EV     14,922       5,981          92,703     100%       1,469
Net debt/(cash)           160            2,487                  39
Total Net Asset Value (NAV)        5,820          90,216             1,430
Per Share in IDR (Rp/share)                 1,430
Source: Company data, Verdhana estimates

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 1,260
IDR 1,430
Closing price
22 November 2024
IDR 835
Implied upside+71.3%
Market Cap (USD mn)3,319.9
ADT (USD mn)0.7

Relative performance chart


Source: LSEG, Verdhana
M cap (USDmn)
3,319.9
Free float (%)
13.5
3-mth ADT (USDmn)
0.7
(%)
1M
3M
12M
Absolute (IDR)
-8.2
-7.7
-18.5
Absolute (USD)
-10.1
-9.3
-20.1
Rel to Jakarta Stock Exchange Composite Index
-0.6
-3.8
-22.7

Research Analysts

Michael Wildon (michael.wildon@verdhana.id)

Edward Prima (edward.prima@verdhana.id)

Tags: Metals, Mining, NCKL, NCKL JK, NCKL IJ, Michael Wildon, Edward Prima
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