In-line with ours, but slightly below consensus at earnings levels. In 1Q25, NCKL posted earnings of IDR 1.7tn (-7.7% QoQ; +65.8% YoY), reaching 25%/22% of our/consensus estimates. The strong performance was driven by higher Ferronickel (FeNi) sales volumes of 44k tonnes (+50.4% QoQ; +38.6% YoY) coupled with solid cash margins across the board (figure 2). The rise in FeNi sales volumes was backed by 1Q25 completion of Karunia Permai Sentosa (KPS) RKEF smelter, which added 60ktpa of FeNi production capacity. Moreover, lower effective tax rate of 4% (FY24: 11%), thanks to tax holidays granted to ONC and KPS smelters, bouyed net income.

 

Updates on projects with KPS RKEF as the main future growth driver. NCKL reported that the first phase of its KPS RKEF project was completed in 1Q25, with expected contribution of 50–60kt. Phase 2, which consists of four lines, is scheduled to commence production in 4Q25, while Phase 3 is currently in the early stages of construction and is expected to reach COD by 1Q26. The project has total investment of USD 1.9bn. On the upstream side, the GTS mine (total investment: USD 0.5mn) is expected to begin operations in 2H25, and ores from the mine will be transported to a processing plant using tugs and barges. In addition, NCKL, with total investment of USD 7.8mn, is constructing 600ktpa quicklime plant, which is slated to begin production in 4Q25. We believe this facility will help further reduce HPAL operating costs, as its output will be used to support existing facility. Notably, all the above-mentioned projects are secure, fully funded by equity financing in a period when nickel prices were higher, alleviating execution risk and providing competitive advantage, particularly as most metal prices are currently downtrending.

 

Growth story: not without challenges. We expect NCKL’s YoY earnings as we had into the next quarter of 2025 to weaken mainly on lower nickel prices coupled with higher-based earnings in 2Q-4Q24. We noticed that in April 2025, LME nickel prices had declined -2.4% compared to 1Q25 average, while NPI prices rose +2.0%. Looking ahead, we see downside risks to the nickel price outlook due to potential demand pressure from the EV sector as LFP batteries gain popularity and China’s economy softens. Hence, we expect the 2025F average LME nickel price to remain weak at USD 15,326/t (-8.8% YoY). However, we believe positive catalysts remain supported by 1) additional income from the planned KPS expansion, 2) contribution from GTS mine and 3) potential decline in HPAL cash costs thanks to the new quicklime plant.

 

Retain BUY with 1,200 TP on most attractive valuation in the sector. We reiterate BUY on NCKL with SOTP-based target price of IDR 1,200, reflecting 25F P/E 11.2x and 69% upside. NCKL remains our top sector pick, mainly on its lowest cash cost, Risks to our call: 1) lower-than expected nickel prices and 2) regulatory changes.