Research & Stock Picks

Emiten Report

18 September 2023

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NCKL: BUY (Maintain) – TP at IDR 1,500 – Higher Output, Lower Cost

We expect NCKL to book better earnings in 2H23 than in 1H23, supported by these catalysts: 1.) Three new production lines in its RKEF projects (which was completed in 2Q23) are expected to run at full capacity in 3Q23. Hence, we expect HJF’s FeNi production volume to increase to 41k tons (+74.5% HoH) in 2H23, and 2) Lower cash cost thanks to the potential decline in energy cost. We revised down our cash cost projections for NCKL’s HJF and MSP smelters by -12.5% and -6.0%, respectively, considering that HJF managed to record a cash cost of USD 9,677 in June 2023. In light of all these factors, we raised our projections for NCKL's net profit in 2023F and 2024 by 20.2% and 18.0%. We reiterate our BUY rating on NCKL, with a higher TP of IDR 1,500 per share (prev: IDR 1,100/share).

Recovery of NPI. Nickel Pig Iron (NPI) prices have recovered to USD 14K/ton in 2H23, after dropping to USD 12K/ton in 1H23. Meanwhile, according to Bloomberg News, Indonesia’s nickel ore prices have gone up in recent weeks, mainly due to the government’s decision to suspend new mining quotas. We believe NCKL have a comparative advantage against its peers, as we see the recent surge in price will indirectly benefit NCKL (whose raw materials come from its own mine, reducing the impact of price fluctuations).

Lower cash cost + higher sales volume: better earnings. We expect NCKL to book better earnings in 2H23 than in 1H23, supported by these catalysts: 1.) Three new production lines in its RKEF projects (which was completed in 2Q23) are expected to run at full capacity in 3Q23. Hence, we expect HJF’s FeNi production volume to increase to 41k tons (+74.5% HoH) in 2H23, and 2) Lower cash cost thanks to the potential decline in energy cost.

Forecast adjustments; BUY with a higher TP of IDR 1,500/share. We revised down our cash cost projections for NCKL’s HJF and MSP smelters by -12.5% and -6.0% in 2023F, respectively, considering that HJF managed to record a cash cost of USD 9,677 in June 2023. In light of all these factors, we raised our projections for NCKL's net profit in 2023F and 2024 by 20.2% and 18.0%. We roll over our valuation to 2024F, and we reiterate our BUY rating on NCKL, with a higher TP of IDR 1,500 per share (prev: IDR 1,100/share).

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