Research & Stock Picks

Emiten Report

11 April 2023

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MBMA: Still in the early stage

Still in the early stage

PT Merdeka Battery Materials (MBMA) is a vertically integrated electric vehicle (EV) supply chain company. The company currently operates one nickel ore mine and a rotary-kiln-electric furnace (RKEF) smelter with a production capacity of 38ktpa. MBMA targets to increase its RKEF production capacity to 88ktpa with ZHN’s RKEF smelter (equipped with nickel matte converter), which is expected to commence production activities in 2023F. In addition, MBMA will build its first HPAL smelter at IKIP, with a projected production capacity of 120ktpa. Valuation-wise, MBMA has a premium valuation to its peers (183.3x – 186.8x FY22 P/E), which is quite reasonable, considering that the company is still in the early stage, and most of its projects are yet to come online.

IPO proceeds allocation. PT Merdeka Battery Materials (MBMA) is a vertically integrated electric vehicle (EV) supply chain company. The company currently operates one nickel ore mine (Sulawesi Cahaya Mineral (SCM) mine) with nickel ore resources of 1.1bn tons, and a rotary-kiln-electric furnace (RKEF) smelter with a production capacity of 38ktpa. With a bookbuilding range of IDR 780 – Rp 795 per share,  MBMA might raise IDR 8.6tn-IDR 8.7tn from its IPO. MBMA will issue 11.0bn new shares, equivalent to 10.2% of its issued and paid-up capital. The planned proceeds allocation is as follows:  1) 48% will be used for debt repayment, 2) 5% will be used to take over receivables of USD 30mn arising from the Parent Support Facility Agreement, 3) 1.5% will be used as working capital, 4) 8.0% will be used to support the completion of the AIM I project, 5) 14.0% will be used for ZHN’s RKEF smelter, including the installation of nickel matte converter, 6) 6% will be used for the SCM mine project, and the rest will be used for the HPAL 1a project.

Massive expansion plan. MBMA aims to increase its RKEF production capacity to 88ktpa with the addition of ZHN’s RKEF smelter, which is expected to begin production activities in 2023F. The smelter will be equipped with nickel matte converter, which is projected to commence production activities in 1H24. Meanwhile, the SCM mine is expected to produce 14.6mn wmt of nickel ore in 2024F, while the AIM I project is expected to begin production activities in 2H23 with a production capacity of 1.2mn tons per annum. Lastly, MBMA will construct its first HPAL at IKIP, with a projected production capacity of 120ktpa; the project will be divided into two stages, each with a production capacity of 60ktpa. The first stage is expected to commence production activities in 2H25, while the second stage is expected to begin production in 2027. The HPAL smelter is expected to absorb up to 20mn wmt nickel limonite ore per annum, with SCM as the supplier. MBMA expects to secure majority ownership of the HPAL smelter (66%), while Ningbo Brunp CATL will hold the rest.

Premium valuation to industry average (183.3x – 186.8x FY22 P/E). As of 9M22, MBMA had booked a net profit of USD 23mn. If MBMA’s net profit is annualized, with shares outstanding of 107bn and an assumed USD/IDR exchange rate of IDR 15,000, our valuation range for MBMA is 183.3x – 186.8x FY22 P/E, a quite premium valuation. In our view, however, the premium valuation is quite reasonable, considering that the company is still in the early stage and most of its projects are yet to come online.

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