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HRUM has officially acquired a 51% stake in PT Infei Metal Industry (IMI) from Central Halmahera Holding Pte Ltd for USD 70.4mn (IDR 1.1tn), giving HRUM a complete control (99.99% ownership) of IMI’s smelter for USD 7,414/ton, below the current average of USD 9,889/ton. We believe the acquisition will be a positive sentiment for HRUM, since it should help the company strengthen its position in the mineral sector. We maintain our BUY rating for HRUM with a TP of IDR 2,500 per share, implying 10.4x 2024F P/E.
Full acquisition of IMI’s smelter. In September 2023, HRUM finally acquired the remaining 51% stake in IMI from Central Halmahera Holding Pte Ltd for USD 70.4mn (IDR 1.1tn). In total, HRUM invested USD 207.6mn (IDR 3.1tn), or equivalent to USD 7,414/ton through its subsidiaries PT Tanito Harum Nickel and PT Harum Nickel Perkasa, to acquire IMI and complete control of its nickel smelter, below the current average (from recent acquisitions) of USD 9,889/ton. IMI’s earnings will be fully consolidated into HRUM’s books starting in 3Q23.
More earnings in 2H23. We forecast more earnings from HRUM’s nickel business in 2H23, as its nickel mine and its 2nd smelter are expected to commence operations in 2H23. Previously, HRUM had hinted that its second smelter, with a total capacity of 57ktpa, would start production activities in 4Q23. We project the nickel mine to contribute 3.8% of HRUM’s 2023F earnings, and its 2nd smelter to start contributing in 2024F.
Fine-tuned our forecast; BUY with the same TP. We revised up our coal sales volume forecast to 7mn tons (prev: 5.4mn tons), mainly due to the higher-than-expected coal production in 1H23 (HRUM hinted that It planned to maintain its coal production level in 3Q23). In addition, we revised down our opex forecast for HRUM as we toned down our DMO provision forecast in 2023F. Next, we adjusted our nickel price assumptions for 2023F and 2024F to USD 22,500 per ton and USD 22,000 per ton, respectively. Lastly, we adjusted our long-term nickel price forecast to USD 20,500 per ton (prev: USD 22,500). Considering all these factors, we decided to maintain our TP for HRUM at IDR 2,500 per share, implying 10.4x 2024F P/E. Downside risks: commodity slump, regulatory changes.
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